Jmangladstone [2006] J 84
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HIGH COURT OF JUSTICE OF THE ISLE OF MAN CHANCERY DIVISION GLADSTONE v BRUNNING 07 March 2006 His Honour The Deemster Doyle IN THE MATTER of proceedings before the United States Bankruptcy Court, Southern District of California (case no. 02-08176-PB Chapter 7 with Terry Linn Brunning and Susan Jennifer Brunning as Debtors) and IN THE MATTER of the Petition dated the 29 th October 2004 of Leslie Gladstone Chapter 7 Trustee 1. The hearing of the petition in this matter took place on the 21 st , 22 nd and 23 rd February 2006. I reserved judgment. I now deliver that judgment. 2. In this case a foreign trustee in bankruptcy, appointed in the United States of America in August 2002 in respect of two debtors, seeks recognition in the Isle of Man and assistance from this court in vesting in the trustee movable assets of the bankrupts within the Isle of Man. 3. The creditors in the bankruptcy still await payment. The financial institution in the Isle of Man who presently holds funds approaching US$1 million on behalf of the debtors takes a neutral stance. The funds in the Isle of Man are presently frozen pursuant to a restraint order made by the common law division of the High Court of Justice of the Isle of Man in February 2003. 4. The bankruptcy court in the United States of America made orders in July 2003 and November 2005 in an endeavour to vest in the trustee the monies in the Isle of Man. In April 2003 the common law division of the High Court of Justice of the Isle of Man made an order permitting one of the bankrupts to transfer an amount not exceeding US$15,000 to her American lawyer. The lawyer acting for the trustee required that money to be paid over to the trustee. The bankrupts say that the trustee acted in breach of the order made in April 2003 and is in contempt of court. In such circumstances the bankrupts say that this court should not recognise the foreign trustee and should not grant assistance to the trustee in respect of the monies in the Isle of Man. 5. In October 2004 the trustee presented a petition to this court for recognition and assistance. The bankrupts having been arrested on the 11 th July 2003 were in a prison in Mexico and difficulties were experienced in service of the documentation upon them which led to delays. There were further delays while expert evidence was filed. 6. On the 29 th November 2005 the bankrupts were extradited from Mexico to the United States of America and are presently detained in a prison in the United States of America awaiting their criminal trial in that jurisdiction. The indictment contains charges relating to dishonesty and fraud within the bankruptcy proceedings and to money laundering. One of the bankrupts unsuccessfully applied before a court in the United States of America for a stay of the bankruptcy proceedings pending the determination of the American criminal proceedings. 7. The bankrupts submit that whilst there are still issues outstanding in respect of the validity of the appointment of the trustee and the consequent bankruptcy proceedings this court should not recognise the trustee and should not grant assistance to the trustee. 8. The bankrupts have for some time disputed the validity of the appointment of the trustee but have taken no civil action in the United States of America challenging the appointment. They say that these matters will be dealt with in the criminal proceedings pending against them in the criminal courts in the United States of America. They do not want to take action in the civil courts in the United States of America as they fear it may prejudice their position in the criminal proceedings. 9. The bankrupts say that they are without effective remedies in the United States of America and that their human rights have been breached and certain aspects of the bankruptcy proceedings have been contrary to basic principles of natural justice. The bankrupts in effect say that they cannot get justice in the United States of America. 10. I have reached the conclusion, applying well established principles of private international law, that it is appropriate to recognise the foreign trustee in bankruptcy and to provide assistance to the trustee in the circumstances of this case. There are no strong and compelling reasons to justify this court in refusing such recognition and assistance. I have also reached the conclusion that the bankrupts will receive justice in the United States of America. The Restraint Proceedings 11. On the 21 st day of February 2003 His Honour Deemster Kerruish sitting in the common law division of the High Court of Justice of the Isle of Man (CLA 2003/26) granted an order upon the application of Her Majesty's Attorney General for the Isle of Man on behalf of the Attorney General of the United States of America (the Restraint Order). The Restraint Order restrained Terry Linn Brunning (Mr Brunning ) and Susan Jennifer Brunning (Mrs Brunning ) (Mr and Mrs Brunning together referred to as the Brunnings ) from removing from the jurisdiction of this court or from otherwise disposing of, diminishing or otherwise in any way dealing with their assets and without prejudice to the generality of the foregoing two accounts numbered 600108277 – DEF1 – USD - 0002 and 600108277 – HICA – USD -0001 in the names of the Brunnings held at Abbey National International Limited in the Isle of Man (the Accounts). It was also ordered that notice of the making of the Restraint Order be given to the Brunnings . As at the 22 nd February 2006 there was US$ 14,624.30 in account numbered 600108277 and the sum of US$ 903,523.85 in account numbered 600108277. 12. In an affidavit sworn on the 20 th February 2003 in support of the application for the Restraint Order there was reference to a letter of request from the United States Department of Justice. There was reference to the Brunnings filing a voluntary petition for bankruptcy in the United States Bankruptcy Court for the Southern District of California (the US Bankruptcy Court). I refer to the proceedings before the US Bankruptcy Court as the US Bankruptcy Proceedings. There were allegations of failure to declare assets. It was said that in reliance of declarations by the Brunnings the US Bankruptcy Court granted the Brunnings a discharge of their debts and the Trustee had no assets to pay the Brunnings' creditors. The affidavit referred to Mr Brunning making urgent requests to Abbey National Treasury International Limited in the Isle of Man to close a fixed deposit account and transfer the funds to a bank account in Mexico and an early closure penalty of around US $1,600. It was believed that the purpose of the transfer was to defeat any restraint or forfeiture order that may be issued by the courts of the United States of America. It was stated that the prosecutor in the United States Attorney's Office for the Southern District of California anticipated filing criminal charges against the Brunnings for bankruptcy fraud and money laundering. 13. A copy of the indictment before the United States District Court Southern District of California (unsealed 30 th November 2005) has now been filed with the court. It is fair to say that the vast majority of the counts in such indictment relate to the bankruptcy proceedings. Count 1 is an allegation of conspiracy in respect of the bankruptcy, counts 2- 9 bankruptcy fraud – concealment of assets, count 10 bankruptcy fraud - false declaration, count 11 bankruptcy fraud – false declaration, count 12 bankruptcy fraud – false declaration, count 13 bankruptcy fraud – false claim, count 14 bankruptcy fraud – false account and count 15 money laundering. There is also an application for forfeiture of certain funds including the funds in the accounts in the Isle of Man. I refer to these proceedings as the US Criminal Proceedings. 14. On the 10 th April 2003 an order was made by the common law division of the High Court of Justice of the Isle of Man permitting Mrs Brunning to transfer a sum not exceeding £5,000 from an account at Abbey National Treasury International Limited to the client account at Quinn Kneale advocates. The order permitted Mrs Brunning to transfer an amount not exceeding the sum of US$15,000 to the account of Robert D Carrow (Mr Carrow ) in respect of legal fees in defending or taking legal action in the United States of America related to the investigation and proposed criminal proceedings of the United States Attorney for the Southern District of California in San Diego (the US Legal Expenses Order). The order also permitted Mrs Brunning to transfer an amount not exceeding US $1,500 each month to be used for her ordinary living expenses. 15. The Attorney General made an application for an order disallowing Mrs Brunning to transfer an amount not exceeding US$1,500 each month for living expenses. On the 28 th July 2003, that application was adjourned indefinitely. No application was made in respect of Mr Carrow's US$15,000. 16. On the 10 th November 2003 an order was made to the effect that Leslie Gladstone (Chapter 7 Trustee in Bankruptcy of the Brunnings ) (the Trustee) became a noticed party to the restraint proceedings. 17. On the 4 th February 2004 the Attorney withdrew his application for an order disallowing Mrs Brunning to transfer an amount not exceeding US$1,500 each month for ordinary living expenses.