The Turks and Caicos Islands (TCI) is an international finance centre in the style of the British overseas territories (akin to Anguilla, Bermuda, the British Virgin Islands and the Cayman Islands). The semi-autonomous government of TCI is a UK-appointed governor with a local legislative assembly and ministers. Its financial services industry amounts to more than 10 per cent of gross domestic product. About 5,800 captive insurance companies call TCI home.2
The TCI government has recently undertaken major steps in introducing statutory reform, putting the jurisdiction into the front line of modern company and trusts legislation, similar to legislation in the British Virgin Islands (BVI). The jurisdiction is currently undergoing the biggest reform to its company law in a generation. The Companies Ordinance 2017 has been enacted with most of its provisions coming into force on 30 September 2017 with some transitional arrangements.3 This new companies legislation refers to the intended new Insolvency Ordinance, which is yet to be enacted at the timing of writing. This is expected to closely follow the British Virgin Islands Insolvency Act 2003 and also implement similar rules to the BVI Insolvency Rules 2005. The accompanying Rules and Regulations to the new Company Ordinance have yet to be published (as of late July 2017).
The new legislation includes the provision of a Register of Beneficial Owners of Companies4 available to law enforcement authorities. This is bringing into effect the Technical Protocol to the tax information exchange agreement (TIEA) between the UK government and TCI, dated 10 April 2016. The TIEA also acknowledges the TCI government's commitment to implementing OECD Common Reporting Standards. The TCI Financial Services Commission (FSC) is in the process of implementing the new beneficial ownership register. By this innovation, TCI is introducing transparency in its international financial services industry. The Bribery Ordinance 2017 (not yet in force)5 was enacted in April 2017, based upon the UK Bribery Act 2010. The Bribery Ordinance 2017 creates the offence of a commercial organisation's failure to prevent bribery subject to the defence of proof as to adequate procedures in place designed to prevent bribery. The Integrity Commission will issue guidance as to what procedures can be put in place to prevent bribery. The commercial organisation should move proactively on this and design procedures along the lines of those required by the UK Bribery Act 2010.
There are some apparent consequences of the changes under the new companies legislation that have been overlooked thus far: in that prior provision (i.e., under the old legislation) for applications in respect of those TCI companies designated 'exempt' for release of information as a workaround to the Confidential Relationships Ordinance bar (to the release of information) will be lost as the transitional provisions take effect.
i TCI courts
The TCI Supreme Court, which exercises first-instance jurisdiction in civil claims exceeding US$25,0006 and more serious criminal matters, is vested with jurisdiction and powers broadly similar to those of the High Court of England and Wales.7 There are three justices of the Supreme Court, including a Chief Justice. Since September 2014, the Chief Justice of the Supreme Court has been Margaret Ramsay-Hale, a former member of the judiciary in the Cayman Islands. Appeals from the Supreme Court are to the Court of Appeal, which ordinarily sits three times each year; appeals are heard by a panel of three judges drawn from the six judges appointed to the Court. The current President of the Court of Appeal is the Honourable Justice Elliott Mottley. Final appeals are to the Judicial Committee of the Privy Council in London.
Arbitration in TCI is governed by the Arbitration Ordinance,8 legislation that is not fully in line with the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Arbitration. The Arbitration Ordinance facilitates a stay of court proceedings in certain limited circumstances (essentially, when there has been a breach of an arbitration agreement) and provides for the court to assist arbitral proceedings (e.g., by compelling witnesses to attend or produce documents, and determine any question of law that may be referred to the court by the arbitral tribunal).9 As noted in The Bay Hotel,10 because of the freedom allowed under the Arbitration Ordinance, parties to arbitration are reliant upon their chosen procedural law for the arbitration and, if the relevant national law is that of TCI, that procedural law will be derived from the common law position.11 If the awaited Insolvency Ordinance replicates (as expected) the BVI Insolvency Act 2003 then the UNCITRAL Model Law will be included (though that section is not yet in force in BVI).
ii Law enforcement
Financial services in TCI are regulated by the FSC, which has a statutory duty to cooperate with foreign competent authorities for the prevention or detection of financial crime.12 Criminal investigations are undertaken by the Royal Turks and Caicos Islands Police Force, which operationally has a non-statutory Financial Crimes Unit. The TCI Financial Intelligence Agency (FIA) is an independent statutory body13 created in 2014 to 'receive reports of suspicious transactions from financial institutions and other persons; to gather, store, analyse and disseminate information to law enforcement authorities and relevant bodies; and for connected purposes'.14 The FIA is governed by a board of directors appointed by the governor. The FIA has significant investigatory statutory powers. The FIA's director is also a member of the TCI Anti-Money Laundering Committee,15 whose function is to advise the governor in relation to various matters, including the detection and prevention of money laundering and terrorist financing. The TCI attorney general, director of public prosecutions and the police commissioner are also among the Anti-Money Laundering Committee members. The FSC has broad powers to issue guidelines, set regulations and conduct supervision over those engaged in the financial services industry.16 To date, the FSC has preferred to issue guidelines rather than exercise its power to issue regulatory codes. Turks and Caicos is a member of the Caribbean Financial Action Task Force (CFATF), an organisation of Caribbean Member States who entered into a 1999 memorandum of understanding for the implementation of common anti-money laundering policy.
iii Publicly available information
Until recently there was no obligation for publicly available company information to detail beneficial (as opposed to merely legal) ownership. A Register of Beneficial Owners of Companies was created by Section 156 of the Companies Ordinance 2017, and the FSC is currently undertaking the task of implementation of the register. Regulations pursuant to the new Companies Ordinance are yet to be published; though it is expected that this information will not be available to the general public but only TCI government bodies who then may receive requests to share that information with other governments. The Regulations would provide more detail and should come into operation by 30 September 2017. The register will be maintained and only searchable by the Financial Services Commission, though this will only be confirmed when the Regulations are published.
A registerable beneficial interest will include any person who holds (directly or indirectly) more than 2 per cent of the issued shares, or controls more than 25 per cent of the voting rights or has the right of appointment or removal of a majority of directors of the company, or has the right to significant control over the company.17 The register of beneficial ownership legislation was brought into force on 26 June 2017 pursuant to Schedule 1 of the Companies Ordinance 2017 but its operation in practice is awaited and regulations under the new Companies Ordinance are expected to be published and brought into force by the end of 2017.
The new Companies Ordinance 2017, when fully in force from 30 September 2017,18 will provide for the incorporation of four simplified categories of company: domestic companies,19 protected cell companies, international companies and non-profit companies. There is also provision for registration of foreign companies.20 Existing companies incorporated under previous categories according to the former legislation are to be automatically registered under transitional arrangements. This means, for example, that a former 'exempted' or a 'limited life' company becomes an international company21 under the new provisions. The standard vehicle for onshore businesses or for the holding of land within TCI will be a domestic company.22 A business whose activities will be carried on principally outside TCI will be an international company. Tax exemption certificates in respect of 'exempted' companies under the outgoing legislation continue to be valid under the new statutory regime. 23
The FSC, through its company registration operations, is the custodian of public information filed pursuant to the Companies, Partnership and Limited Partnership Ordinances.24,25 Searches may be made of the companies registry for information, including a company's registration number, status, number of authorised shares, total share capital and the date of the memorandum and articles of association. Searches for an ordinary (but not an exempted) company also provide details of the company's directors, secretary and shareholders.
Typical information available to the public includes:
- company information, including:
- the present and historical status of a TCI company;
- the identity of the registered agent;
- the place of its registered office;
- the date when it was incorporated;
- certificates of good standing (available to any member of the public for a TCI company);
- the contents of its memorandum and articles of association; and
- registered charges (if any);
- a list of entities regulated by the TCI Financial Services Commission;
- court documents and judgments; and
- certain details that are available from the Land Registry upon application, including confirmation of the owner of TCI land or real estate.
II LEGAL RIGHTS AND REMEDIES
As a British overseas territory TCI's legal system is based, in large part, on English law since its annexation as part of the Bahama islands by the British in 1799 (although there was a representative of the British Crown in Grand Turk from 1766). A Bahamian statute of 1799 provided that the common law of England 'is, and of right ought to be, in full force within these islands, as the same now is in that part of Great Britain called England', and expressly made the Bahamas – and, later, the separately administered Turks and Caicos Islands – subject to 207 specified English statutes.26 From 1873 to 1959, the Turks and Caicos Islands were administered as part of Jamaica.
The law of TCI is now derived from a number of sources, including:
- Orders in Council made by prerogative order of the British Sovereign and made specifically applicable to TCI;
- the English statutes surviving of the 207 specified in the 1799 statute and any UK statutes that have been expressly extended to apply in TCI;
- the 2011 TCI Constitution (in force from 15 October 2012);
- local TCI statutes and ordinances;
- subordinate legislation, such as regulations, orders and rules, made pursuant to local statutes; and
- case law.
When no specific statutory provision applies, TCI courts will apply common law and principles of equity as adapted to the circumstances of TCI. TCI courts have settled case law of their own on many issues and look (when applicable) to English and other common-law jurisdictions for persuasive authorities.
Supreme Court procedure in TCI is governed by a simplified version of the Rules of the Supreme Court of England (RSC), as were in force on 1 January 1999 (prior to the English Civil Procedure Rules (CPR)). The TCI rules are known as the Civil Rules 2000. Some English rules were omitted from the Civil Rules 2000 but the sequencing and numbering of the English RSC were retained to permit cross-referencing to English procedural case law. Consequently, the Supreme Court Practice 1999 (the final pre-CPR edition of the White Book) is commonly referenced in TCI proceedings as the relevant procedural textbook. The procedure in the Court of Appeal is governed by the Court of Appeal Ordinance27 and the Court of Appeal Rules, as adapted from the Court of Appeal Rules of the Bahamas.28 Historically, on certain occasions (such as when hurricane weather or damage has made it necessary), the TCI Court of Appeal has physically sat outside the jurisdiction. The appellate justices themselves are not based within TCI but elsewhere in the Caribbean.
i Civil and criminal remedies
The stages of civil proceedings are similar to those in England but without pre-action protocols that are in force in England. Other than summary judgment, there are no expedited trial procedures. As in England, there are a wide range of civil remedies, including interlocutory remedies.
The time frame for cases can vary depending on the complexity of the matter and the availability of court time.
Claims against those that have committed fraud
Many of the remedies and legal rights available to the victims of fraud under the laws of England and Wales are available in TCI. Victims of fraud can bring claims for breach of contract, tort (including deceit and conspiracy), breach of fiduciary duty, fraudulent misrepresentation and breach of trust or conversion. If a third party has received the proceeds of fraud, victims may be able to bring claims for knowing receipt or unjust enrichment, inviting the court to make declaratory orders as to the true ownership of the property.29 Causes of action include fraudulent misrepresentation, which is a statement of fact made without belief in its truth, knowingly or recklessly made with the intention that it should be acted upon. Bad faith is not a prerequisite to proof of fraudulent misrepresentation. When a contract has been entered into by reason of fraudulent misrepresentation, the person so induced may rescind the contract, claim damages, or do both.
Breach of trust and fiduciary duties
Breach of trust claims can be brought that are similar to English law principles and, as in England, acting as a trustee brings with responsibilities under the law of equity to the beneficiaries. If those responsibilities have been breached then the beneficiary has a potential cause of action against the trustee. Claims may also be available for breach of fiduciary duty or breach of trust at common law. The Companies Ordinance 2017 imposes a duty for directors to act in good faith and in the best interests of the company.30 A claim may be made when a third party receives assets in breach of trust or in breach of fiduciary duty, when that third party knows that the assets in fact belonged to the claimant and were disbursed in breach of trust or fiduciary duty. Remedies may include personal remedies (compensation) or proprietary ones (such as tracing or a constructive trust).
Constructive and resulting trusts
A claimant may seek constructive or resulting trusts over misappropriated assets. The former may arise when it is unconscionable for the owner of property to retain a beneficial interest in the property over that of the claimant. By contrast, resulting trusts arise from an intention by the individual transferring the trust property that he or she should retain his or her beneficial interest in it. The Quistclose (or purpose) trust is a special form of resulting trust that arises where the person transferring the trust property does so with an intention that it be used for a specific purpose.
The Insolvency Ordinance 2017 has not yet been enacted at the time of writing this chapter, but if it follows the BVI Insolvency Act 2003 (which is expected) then there will be statutory clawback provisions against those that have appropriated assets.
As is the case in England and Wales, when a company has been a victim of wrongdoing the cause of action lies with the company. Shareholders are prevented by the rule in Foss v. Harbottle31 from bringing claims to recover reflective losses (e.g., damages for a reduction in the value of their shares caused by that wrongdoing).32 However, shareholders are able to bring claims derivatively, subject to the requirement that they seek the court's permission to continue an action brought derivatively and in respect of which notice of an intention to defend has been given.33 Derivative claims arise at common law in circumstances such as when the company is controlled by wrongdoers who may commit a fraud on the company's minority shareholders or where there have been ultra vires acts that cannot be ratified by the company.
Rules of tracing are an important equitable tool, whereby a victim of fraud can identify its asset or the proceeds and those persons who have handled or received them and assert a proprietary claim against that property. To be traced, there must be a distinct equitable title to the property and the claimant can elect to follow the original asset and enforce his or her equitable title or alternatively trace the 'substituted' asset in the hands of the fraudster. The claimant can then choose whether to enforce an equitable lien for the value of the original asset or claim the entire beneficial ownership of the substituted asset under a constructive trust. Tracing can take place into a mixed fund to which the fraudster has contributed, although when the fund is mixed, beneficial ownership over the entire substituted asset cannot be asserted. Tracing into a mixed fund that includes funds belonging to an innocent volunteer, the court will use different identification rules that provide parity between the parties and when the mixed fund has been used to buy a further asset, the claimant will be able to trace his or her share in the new asset, which may increase or depreciate in value.
The TCI Supreme Court has the power to order a range of interim remedies available to the English High Court, including Mareva (or freezing) injunctions.34 Other similar offshore jurisdictions have ordered Mareva injunctions in support of foreign proceedings.35 The TCI courts have not yet confronted that issue. The equitable and common law remedies of tracing are available in TCI.36 Final remedies that may be sought in fraud claims in TCI are comparable to those available under the laws of England and Wales, including damages, orders for the return of specified property and an account of profits. Interest is at a set rate determined by the court and costs are normally awarded to the successful party.
Defences to fraud claims
The defences to the claims above are usually factual, that is to say, some element of the claim has not been made out on the evidence. Often, this element is dishonesty. In addition, there are 'safe harbour' defences of good faith, lack of notice of intention to defraud or good consideration to most of the clawback and equitable claims outlined above. Third-party claims may also be defended on the grounds of change of position by the party receiving the misappropriated assets.
Currently, there are no limitation periods (save in relation to fatal accident claims). However, a Limitation Bill that has been circulated in draft form and would bring TCI law in line with the English Limitation Act 1980 has been under consideration for some time. This was debated in the TCI parliament in August 2016, but has yet to be enacted.
TCI has legislation dealing with money laundering, the proceeds of crime and criminal fraud.37 The Theft Ordinance creates a number of statutory offences involving fraudulent activity, including obtaining property, services or pecuniary advantage by deception, evading liability by deception and false accounting. These offences carry a maximum sentence of imprisonment of five to 10 years. The Attorney General (as the TCI Civil Recovery Authority)38 is able to trace in respect of specific assets under proceeds of crime legislation.39 Various statutory tools are available to the authorities to deal with these offences, including confiscation orders, restraint orders and the appointment of a management receiver.
ii Defences to criminal fraud claims
As with all civil and criminal claims, a defendant may, as a defence, assert that one of the elements of the cause of action has not been established. In the case of fraud, the question will be whether the element of dishonesty has been proved to the requisite standard. An innocent party in receipt of the proceeds of fraudulent conduct (and therefore at risk of an unjust enrichment claim) may be able to rely on the defence of change of position: for example, the recipient would argue that he or she was unaware of the wrongdoing and had changed his or her position upon receipt of the proceeds in question.40
III SEIZURE AND EVIDENCE
i Securing assets and proceeds
As mentioned above, the TCI courts have the power to order Mareva injunctions (freezing orders), ex parte injunctions and search orders. Most interim remedies (in particular injunctions to restrain the disposal of assets) can be obtained without notice in urgent cases or where the relief sought would be frustrated if notice were given to the defendant. These are a useful tool in fraud cases for preventing or disrupting the disbursement of disputed assets before the outcome of substantive legislation. For such injunctions to be granted, the court must be satisfied that:
- there is a cause of action;
- the court has jurisdiction over the respondent or defendant;
- there is a good arguable case;
- there are assets within the jurisdiction that are available to satisfy any eventual judgment; and
- there is a risk of dissipation.
The TCI Supreme Court has opined that Mareva injunctions are 'draconian measures' that 'should not be regarded as orders the making of which is the norm' and 'which must not be granted without careful consideration'.41 Applications made without notice impose extra burdens on an applicant and their attorneys – in particular, an obligation to make full and frank disclosure to the court. In very urgent cases, the court can hear an application on the same day (or very shortly after) it is filed. Where an order is obtained without notice, the defendant is entitled to challenge the order at a later hearing. Injunctions can be mandatory or prohibitory.
The new Companies Ordinance refers to the Insolvency Ordinance 2017 that (at the date of writing) has not yet been published or enacted but is expected to be closely modelled on the BVI Insolvency Act 2003 (as amended).
This is a more drastic option than a freezing order, and where ultimately the liquidation of a TCI Company is being sought. The court has power pursuant to Section 135 of the outgoing Companies Ordinance to order the appointment of an official liquidator 'either provisionally or otherwise, as it thinks fit'. The provisional liquidator is appointed for 'the purpose of conducting the proceedings in winding up a company and assisting the Court therein'.
The new Companies Ordinance 2017 that replaces the existing legislation does not include this provision, as a new Insolvency Ordinance that will include appointment of liquidators is expected to be enacted later in 2017. As already mentioned, this Insolvency Ordinance is expected to closely follow the BVI Insolvency Act 2003. Assuming that the BVI model is followed,42 the court may appoint a provisional liquidator if:
- the company, in respect of which the application to appoint a liquidator has been made, consents; or
- the court is satisfied that the appointment of a provisional liquidator:
- is necessary for the purpose of maintaining the value of assets owned or managed by the company, or
- is in the public interest.
The court can appoint a receiver, whether interlocutory or final, in any case in which it appears to the court that it is just and equitable to do so.43 The role of the interim receiver will be to preserve assets that are liable to dissipation, pending the outcome of a claim.
Normally, the court need to be satisfied of three requirements for appointment of a receiver:
- there must be sufficient evidence to show a good, arguable case;
- there must be property to be preserved; and
- the claim must not be frivolous or vexatious.
The appointment of a receiver is often regarded as a remedy of last resort, and they are usually appointed ex parte when the court is faced with allegations of fraud and immediate action is needed to prevent the court's orders from being rendered futile.
Receivers by way of equitable execution
In addition to receivers appointed out of court by mortgagees or debenture holders, the court has the power to order the appointment of a receiver by way of equitable execution, a remedy commonly (but not invariably) sought by a judgment debtor to aid in the execution of a judgment debt.44
ii Obtaining evidence
A number of options are available to parties seeking to obtain evidence in TCI. These include:
- Anton Piller orders: a form of injunction requiring a respondent to allow an applicant's attorneys to enter its premises, to search for and remove evidence or property and to preserve it as evidence in the action pending trial;
- Norwich Pharmacal orders: court orders compelling delivery from those involved in or associated with an alleged wrongdoing who are unlikely to be parties to any contemplated substantive action;
- Bankers Trust orders: court orders similar to Norwich Pharmacal orders but that require a bank to divulge otherwise confidential information regarding its customer's accounts.45 The availability of this relief is potentially complicated in TCI by the statutory duties of confidentiality imposed under the Confidential Relationships Ordinance,46 which applies to confidential information with respect to business of a professional nature that arises in or is brought into TCI; and
- letters of request (or letters rogatory): court-directed formal requests for evidence from a foreign court seeking the assistance of TCI courts in procuring evidence in TCI. There are a number of avenues under which this may be achieved, including through bilateral and multilateral treaties that the United Kingdom has entered into with other nations and extended to TCI, and the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (in which TCI is included by virtue of the United Kingdom's ratification).47
Disclosure in the course of proceedings
TCI follows English procedure and practice prior to the CPR in England in respect of first-party disclosure. Documents may be withheld on the grounds of privilege – either litigation privilege (documents prepared for the dominant purpose of providing professional legal services in relation to actual or contemplated legal proceedings, or documents prepared for the dominant purpose of preparing for or conducting the proceedings) or legal professional privilege generally (documents prepared for the dominant purpose of giving the client legal advice). Privilege may be defeated by fraud if the otherwise privileged document is used in furtherance of the fraud to defeat privilege.
Evidence at trial
Evidence for use at trial is governed by the Evidence Ordinance and the Evidence (Special Provisions) Ordinance in relation to hearsay. Evidence is admissible that is 'relevant' (which distinguishes the test for admissibility from the test for disclosure). Evidence-in-chief is provided by way of witness statements that are exchanged pretrial. Parties do not normally take depositions of an adverse party's witnesses before trial.
IV FRAUD IN SPECIFIC CONTEXTS
i Banking and money laundering
TCI has, in recent years, exerted considerable effort in bolstering its anti-money laundering and counterterrorism financing (AML/CFT) framework. The current AML/CFT framework consists of the Proceeds of Crime Ordinance (POCO),48 the Anti-Money Laundering and Prevention of Terrorist Financing Regulations 2010 and the Anti-Money Laundering and Prevention of Terrorist Financing Code 2011. The FSC has also issued guidance to various business sectors in respect of the AML/CFT framework.49
In September 2015, the International Monetary Fund (IMF) published a Financial System Stability Assessment of TCI with a number of recommendations for the financial services industry, including in relation to corporate governance, the functioning of the FSC and the regulatory framework.50 The FSC has confirmed in its plans and priorities for 2016/2017 that it is prioritising the IMF's recommendations; in particular, that:
[o]n the supervisory front, over the next two years, the [FSC] will maintain its overall focus on transitioning to an assertive programme of risk-based supervision to strengthen the existing prudential infrastructure for supervision of banking and domestic insurance licensees, and continue its industry reviews of AML/[CFT] compliance. The [FSC] will also, in conjunction with other stakeholders, seek to prioritize strengthening of the legislative frameworks governing the insurance, trust and banking sectors.51
Proceeds of crime law
TCI's anti-money laundering regime is set out primarily in POCO Part IV, Sections 115–131, which imposes criminal penalties, including imprisonment for up to 14 years on conviction on indictment.52 Offences under POCO include concealing, disguising, converting, transferring or removing criminal property from TCI;53 entering into, or becoming concerned in, an arrangement that the individual knows or suspects facilitates the acquisition, retention, use or control of criminal property;54 and acquiring, using or having possession of criminal property.55
Criminal conduct is conduct that constitutes an offence in TCI, or would constitute an offence in TCI if it occurred there.56 Property is deemed criminal property if it constitutes a person's benefit from criminal conduct or if it represents such a benefit, in whole or in part and whether directly or indirectly, and the alleged offender knows or suspects that the property constitutes or represents such a benefit.57
POCO also prohibits tainted gifts – namely, gifts made by a defendant of property – within the six years prior to the commencement of the earliest proceedings being instituted against the defendant for the current offence (if he or she is determined to have a criminal lifestyle, or when that determination is yet to be made)58 or since the date on which the earliest of the current offences was committed.59
If an authorised disclosure is made to the FIA, this may provide a defence to the offences set out above.60
Offences relating to corruption, bribery and misappropriation of funds are governed by the Integrity Commission Ordinance61 and will soon also be covered by the Bribery Ordinance 2017.62 The TCI Integrity Commission has broad powers to investigate such offences, including the power of arrest and – with the assistance of the courts – entry, search and delivery-up powers.63
The Bribery Ordinance, which is intended to replace the common law offence of bribery and various offences contained in the Integrity Commission and the Elections Ordinances,64 combines these provisions into a single framework. The Ordinance covers bribery in both TCI and abroad, and creates several offences, including for:
- offering, promising or giving an advantage to induce or reward improper performance;
- requesting, agreeing to receive or accepting an advantage as an inducement or reward for improper performance;
- bribery of a foreign public official; and
- failure by a commercial organisation to prevent bribery.
The maximum penalty for these offences on indictment is a potentially unlimited fine or 10 years' imprisonment, or both, and disqualification from holding public office for five years from the date of conviction.
The outgoing Companies Ordinance provides various statutory causes of action to liquidators of insolvency companies (but not the companies themselves), including claims in respect of:
- avoidance of preference: any disposition made by an insolvent company in favour of a creditor with a view to giving that creditor a preference over others is invalid if made within three months prior to the commencement of liquidation;65 and
- fraudulent trading: the court may declare that any past or present director, secretary, official or other liquidator, or any officer of the company, has been guilty of any misfeasance or breach of trust in relation to the company, and compel that person to contribute to the assets of the company by way of such compensation as the court thinks just.66
Dennis Morrison's report67 recommended that TCI enact a new insolvency statute based upon the BVI Insolvency Act 2003. A new Insolvency Ordinance is expected later in 2017 that is expected to closely follow the BVI Insolvency Act 2003. If this is the case then a whole range of statutory clawback provisions will be incorporated into TCI law.
Assuming that the Insolvency Ordinance is implemented in the same form as the draft bill and follows the BVI model, this will grant new statutory tools to clawback assets; these include the following.
A director commits misfeasance if a company enters insolvent liquidation and the director has misapplied or retained or become accountable for any money or other asset of the company; or is guilty of any misfeasance or a breach of any fiduciary duty or other duty in relation to the company. The Supreme Court may order the director to repay, restore or account for any money or other asset (or any part of it) or pay compensation to the company in the amount, and interest at the rate, the court considers just.
A director will be liable for insolvent trading if the Supreme Court is satisfied that, at any time before the start of the company's insolvent liquidation, the director knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation. If a director engages in insolvent trading, the court may order the director to make a contribution to the company's assets in any amount the court considers proper. The court cannot make an order if it is satisfied that the director took every step reasonably open to the director to minimise the loss to the company's creditors. The facts that a director ought to know or determine, the conclusions that the director ought to reach and the steps reasonably open to the director that the director ought to take are those that would be known or determined, or reached or taken, by a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as those carried out by that director in relation to the company; and general knowledge, skill and experience possessed by that director.
A director will be liable for fraudulent trading if the Supreme Court is satisfied that, at any time before the start of the company's insolvent liquidation, any business of the company had been carried on with the intention to defraud the company's creditors or any other person or for any fraudulent purpose.
If a director commits fraudulent trading, the court may order the director to make a contribution to the company's assets in any amount the court considers proper.
iii Effect of fraud on evidentiary rules and legal privilege
TCI law in this area largely mirrors English law. Legal privilege does not generally protect documents created to further a criminal or fraudulent purpose, or communications made in the course of procuring advice for the purpose of carrying out fraud (whether or not the legal practitioner was aware they were being used for that purpose); in such circumstances, legal advice privilege and litigation privilege may be lost. Legal advice obtained to defend a fraud claim would be subject to legal privilege.
V INTERNATIONAL ASPECTS
i Conflict of law and choice of law in fraud claims
TCI follows the traditional common law rules on conflicts and choice of law. A TCI court's permission is required to serve civil claims against defendants outside the jurisdiction.68 The choice-of-law position also follows English common law, with matters of substantive law governed by the lex causae and matters of procedural law governed by the lex fori.
ii Collection of evidence in support of proceedings abroad
A number of international agreements concerning mutual legal assistance have been extended to TCI by virtue of its status as a British overseas territory. Requests for cooperation can be made under the US–UK and Cayman Islands Treaty on Mutual Assistance in Criminal Matters, the Vienna Convention and the UN Convention against Transnational Organised Crime.69 Various government agencies in TCI – for example, the FSC – have their own, separate bilateral and multilateral agreements with their counterparts in other jurisdictions, to share information and intelligence.
Letters of request
The court has jurisdiction to grant relief pursuant to letters of request from overseas courts (see above).70 This power is available in both civil and criminal proceedings. The court may grant such requests, in whole or in part, including when the request is for direct evidence that can be used in civil or criminal proceedings in the relevant foreign court.71
Norwich Pharmacal orders and Anton Piller orders
Norwich Pharmacal relief is likely to be available in aid of foreign proceedings on the basis of the underlying rationale to this type of relief (i.e., the ascertaining of legal rights and those infringing them). The court may also grant Anton Piller orders in aid of foreign proceedings.
iii Seizure of assets or proceeds of fraud in support of the victim of fraud
The Mutual Legal Assistance (USA) Ordinance72 (MLAO) governs requests for assistance from US agencies.73 The MLAO provides a framework for handling requests made by the US agency to the central authority in TCI (the magistrate). Available assistance includes taking evidence from witnesses, executing search and seizure requests, and immobilising criminally obtained assets.74 As stated above, TCI is a member of a number of international conventions that may allow the seizure of property, equipment and other proceeds to support the international fight against organised crime.
iv Enforcement of judgments granted abroad in relation to fraud claims
On paper, the Overseas Judgments (Reciprocal Enforcement) Ordinance75 allows foreign judgments made in designated countries to be enforced in TCI. This Ordinance would provide parties with the ability to register overseas judgments when the foreign jurisdiction gives reciprocal treatment. However, while the Ordinance is in force, at the time of writing, no reciprocal countries have been designated – with the effect that no overseas judgment may currently be registered under the statutory framework.
Foreign judgments therefore fall to be enforced at common law. The TCI law position closely follows English law in that the court will recognise and enforce an in personam foreign judgment in circumstances in which it can be satisfied that the judgment was rendered by a court of competent jurisdiction; final and conclusive; and of such a nature that the TCI court is required to enforce it on principles of comity
Furthermore, the court must be satisfied that, as a matter of TCI law, the foreign court had personal jurisdiction over the defendant. This will be the case if the defendant:
- was ordinarily resident in the foreign country at the time the foreign proceedings were commenced;
- voluntarily submitted to the proceedings before the foreign court;
- appeared as a party in the proceedings before the foreign court (whether as a plaintiff or counterclaimant); or
- agreed to submit to the jurisdiction of the foreign court by contract or subsequent conduct.
v Fraud as a defence to enforcement of foreign judgments granted abroad
A foreign defendant may challenge an application to enforce the foreign judgment on the grounds that the judgment in question was obtained either by fraud on the part of the claimant, or fraud on the part of the foreign court pronouncing the judgment.
vi Enforcement abroad of judgments granted in the TCI
The UK Administration of Justice Act 1920 was extended in 198576 to cover TCI, thereby enabling enforcement in the United Kingdom of a TCI judgment by registration (i.e., of the TCI judgment) rather than requiring a separate action.
vi CURRENT DEVELOPMENTS
i Reform to Company law
TCI is undergoing the biggest reforms to its company law and associated regulatory regimes in a generation. The new Companies Ordinance 2017 has been passed and some is already in force with more following later in 2017. An Insolvency Ordinance is expected later this year, which is already referenced in the Companies Ordinance. A system to allow the immediate sharing of beneficial ownership information between the BVI and other governments is expected to be announced later this year, while the relevant sections of the Companies Ordinance are in force.77
ii Beneficial ownership registry
A Register of Beneficial Owners of Companies was created by Section 156 of the Companies Ordinance 2017, and the FSC is currently undertaking the task of implementation of the register. Regulations pursuant to the new Companies Ordinance are yet to be published.
iii CFATF progress
TCI has expended considerable time and energy in improving its AML/CFT regime to meet the standards set by the CFATF. In 2015, the CFATF acknowledged that the TCI was making progress with its AML/CFT regime, but emphasised that there were still steps to be taken to ensure that TCI was wholly compliant.78 By 2016, TCI's continued efforts had been rewarded by an acknowledgment in the CFATF's June report that the Islands had 'addressed the deficiencies noted in the Core and Key Recommendations' in all areas previously highlighted and that AML/CFT standards had been raised 'to a level that is comparable to at least [largely compliant]' with the CFATF's requirements.79
iv Contemplated changes to the costs regime
Currently, no costs-budgeting or costs-capping regime is in force in the TCI. Costs are 'at large' and generally subject to the assessment (taxation) process that occurs after the conclusion of the proceedings. There may, however, be changes ahead: comments on the draft Legal Profession Bill closed on 12 August and the Bill continues to propose that lawyers be allowed to charge on a contingency basis.80
1 Tim Prudhoe and Alexander W Heylin are lawyers at Kobre & Kim, and David Cadman is a partner at Griffiths & Partners. The information in this chapter was current as of September 2017.
3 Schedule 1, Section 1 of the Companies Ordinance 2017.
4 Part IX of the Companies Ordinance 2017 (which creates the Register of Beneficial Ownership) came into effect on 20 June 2017, with the remainder of the Ordinance's provisions coming into effect on 20 September 2017. The Trusts Ordinance 2016 came into effect on 23 September 2016.
5 Turks and Caicos Islands Government Gazette, Volume 168, No. 18, 7 April 2017: Section 1(1) makes clear that commencement is on further Gazette announcement. The Integrity Commission is yet to prepare guidelines before the Ordinance can be brought into force.
6 The magistrate's court has jurisdiction in most civil claims up to the value of US$25,000 (Section 132 Magistrate's Court Ordinance (Cap 2.03)) save in relation to tort and contract claims, for which the limit of the magistrate's jurisdiction is US$10,000. Part IX of the Companies Ordinance 2017 (concerned with a register of beneficial ownership) came into effect on 26 June 2017, with the remainder of the Ordinance's provisions coming into effect on 20 September 2017. The Trusts Ordinance 2016 came into effect on 30 September 2016.
7 Supreme Court Ordinance (Cap 2.02) Section 3.
8 Cap 4.08.
9 Arbitration Ordinance Sections 17–18.
10 The Bay Hotel and Resort Limited v. Cavalier Construction Co Ltd  UKPC 34 (The Bay Hotel), per Lord Cooke at p. 6.
11 The Bay Hotel, pp. 10–11.
12 Section 28(1) Financial Services Commission Ordinance Cap 16.01.
13 Created by the Financial Intelligence Agency Ordinance Cap 3.20 as amended by the Financial Intelligence Agency (Amendment) Ordinance 2016.
14 Preamble to the Financial Intelligence Agency Ordinance Cap 3.20.
15 Created under Part IV of the Proceeds of Crime Ordinance Cap 3.15 (as amended).
16 The FSC's extensive general powers are stated in Section12 of the Financial Services Commission Ordinance Cap 16.01.
17 Section 146 Companies Ordinance 2017.
18 Companies Ordinance 2017, Schedule 1, Paragraph 1, Part IX came into force on 26 June 2017 (Schedule 2, Paragraph 1(1)) and the remainder of the Ordinance comes into effect on 30 September 2017 (Schedule 2, Paragraph 1(2)) with transitional provisions (Schedule 2, Paragraph 2).
19 A 'domestic company' will be defined as 'a company that is not an international company' (Section 2 Companies Ordinance 2017).
20 Part XVI of the Companies Ordinance 2017 deals with Foreign Companies.
21 Section 6(1)(f) and (g) Companies Ordinance 2017.
22 An international or foreign company will not be able to hold land in TCI (Section 29(1) Companies Ordinance 2017).
23 Companies Ordinance 2017, Schedule 1, Paragraph 21.
24 Cap 16.08, 16.15 and 16.16.
26 40 George III Chapter 2: 'An Act to declare how much of the Laws of England are practicable within the Bahama Islands, and ought to be in force within the same'.
27 Cap 2.01.
28 Pursuant to a decision made in 2009 by the President of the Court of Appeal under Section 21 of the Court of Appeal Ordinance, the Bahamas Court of Appeal Rules apply mutatis mutandis to the TCI Court of Appeal.
29 Arthur v. Attorney General of the TCI  UKPC 30, Paragraph 31.
30 Sections 102–105 Companies Ordinance 2017.
31 See, for example, the concession made at Paragraph 82 in Trinidad and Tobago Unit Trust Corporation v. Kinay & Serim (2011) CL 7/10.
32 Foss v. Harbottle (1843) 67 ER 189.
33 Order 15, Rule 12A(2) of the TCI RSC.
34 Trinidad and Tobago Unit Trust Corporation v. Kinay & Serim, Paragraph 52.
35 In the British Virgin Islands, see Black Swan Investments ISA v. Harvest View Limited and Others BVIHCV 2009/399, which was affirmed by the Eastern Caribbean Supreme Court of Appeal in Yukos CIS Investments Limited and Others v. Yukos Hydrocarbons Investments Limited and Others HCVAP 2010/028; and in the Cayman Islands, see VTB v. Universal Telecom Investment Strategies Fund SPC (2013 (2) CILR 94).
36 Arthur v. Attorney General of the TCI  UKPC 30, Paragraph 35.
37 Including the Anti-Money Laundering and Prevention of Terrorist Financing Regulations, the Anti-Money Laundering and Prevention of Terrorist Financing Code and the Proceeds of Crime Ordinance (Cap 3.15).
38 S.2 Proceeds of Crime Ordinance Cap 3.15.
39 See, for example, Section 63 of the Proceeds of Crime Ordinance (Cap 3.15).
40 See, for example, Olint TCI Ltd v. TCI FX Traders Ltd (2010) CL 12/10.
41 Per Williams J in Trinidad and Tobago Unit Trust Corporation v. Kinay & Serim (2011) CL 7/10, at Paragraph 109.
42 Section 170 (4) Insolvency Act 2003.
43 Civil Procedure Ordinance (Cap 4.01),Section 9; see also Order 30 of the TCI RSC.
44 Order 51 of the Rules of the Supreme Court 2000.
45 Norwich Pharmacal v. Commissioners of Customs & Excise  UKHL 6.
46 Confidential Relationships Ordinance (Cap 16.14) Section 3.
47 Under the procedure pursuant to Order 70, Civil Rules 2000. A similar provision whereby the TCI Supreme Court may make a request for evidence to be taken by a foreign court is available pursuant to Order 39.
48 Cap 3.15.
49 The FSC has produced handbooks specifically for the sectors of high-value dealers, accountancy, real estate and legal.
50 International Monetary Fund, Turks and Caicos Islands Financial Sector Assessment Program, October 2015, p. 34.
52 Section 124 POCO.
54 Section 125 POCO.
55 Section 126 POCO.
56 Section 5(1) POCO.
57 Section 122 POCO.
58 Section 9(1)–(2) POCO.
59 Section 9(3) POCO.
60 Section 123 POCO.
61 Cap 1.09.
62 All comments in this work are based upon the Bribery Ordinance 2017 (not yet in force).
63 Integrity Commission Ordinance (Cap 1.09) Sections 28–30.
64 Cap 1.05.
65 Companies Ordinance Section 197.
66 Companies Ordinance Section 198.
67 Report of Dennis Morris, Technical Support for Legislative Review of Company Law in the Turks and Caicos Islands – Insolvency Review, dated 27 May 2012.
68 Order 11, Rule 1, Civil Rules 2000.
70 The Evidence (Proceedings in Other Jurisdictions) (Turks and Caicos Islands) Order 1987 (UK SI 1266 of 1987).
71 TCI RSC, Order 70.
72 Cap 3.17.
73 Under the Treaty between the United States of America and the United Kingdom of Great Britain and Northern Ireland in the Form to be Extended to the Turks and Caicos Islands, Relating to Mutual Legal Assistance in Criminal Matters (MLAT).
74 Article 1, Paragraph 2 of the MLAT.
75 Cap 4.07.
76 See the discussion at 71/1/3, Volume 1 of the 1999 Supreme Court Practice at p. 1,334.
77 Sections 145–160 Companies Ordinance 2017.
78 CFATF's Report on TCI for 2015 Paragraph 23.
79 CFATF's Report on TCI for 2016 Paragraph 18.
80 Draft Legal Profession Bill 2016, Section 63 (2 April 2016).