515 South Orange Grove Owners Association v Orange Grove Partners [1995] CKHC 1; 208.1994 (6 November 1995)

IN THE HIGH COURT OF THE COOK ISLANDS
HELD AT RAROTONGA
(CIVIL DIVISION)
Plaint No 208/94

BETWEEN

515 SOUTH ORANGE GROVE OWNERS ASSOCIATION
a California Non-Profit Mutual Benefit Corporation
FIRST APPELLANT

JAMES E LUDLAM and
JANE H LUDLAM
SECOND APPELLANTS

DEAN SCHNEIDER
as Trustee of the Schneider Trust
THIRD APPELLANT

GEORGE G LANCASTER and
FRANCES R LANCASTER
as Trustees of the GG and FF Lancaster Trust
FOURTH APPELLANTS

FRANK J NOBLE and
LOIS D NOBLE
FIFTH APPELLANTS

JANE BURNHAM
as Trustee of the Jane D Burnham Trust
SIXTH APPELLANT

GERALD J LYNCH
as Trustee of the Gerald J and M Romaine Lynch Family Trust
SEVENTH APPELLANTS

RAY JUDSON and
MARY L JUDSON
as Trustees of the Judson Family Trust
EIGHTH APPELLANTS

CONSTANCE J CORNET
NINTH APPELLANT

ROBERTA S MacDONALD
TENTH APPELLANT

AND

ORANGE GROVE PARTNERS
a California Corporation
FIRST RESPONDENT

VICTOR ILLIG
SECOND RESPONDENT

EVANGELINE ILLIG
THIRD RESPONDENT

25/25 HOLDINGS LLC
a limited liability company a corporation
established in the State of Nevada
FOURTH RESPONDENT

25/25 1993 INVESTMENT TRUST - VICTOR J ILLIG
an international trust registered pursuant
to the International Trusts Act 1984
FIFTH RESPONDENT

SOUTHPAC TRUST INTERNATIONAL INC
an international company incorporated under the International Companies Act 1981 - 82
as trustee of the 25/25 1993 Investment Trust - Victor J Illig
SIXTH RESPONDENT

Coram: Sir Duncan McMullin (Presiding)
Hillyer J
McHugh J

Counsel: B.H. Giles Q.C. and W.N. Brandon for the Appellants
T. Arnold for the Respondents

Hearing: 7 and 8 September 1995
Judgment: 6^th November 1995

JUDGMENT OF THE COURT
DELIVERED BY SIR DUNCAN McMULLIN

This appeal against the judgments of Dillon J delivered on 10 and 11 March 1995 raises interesting questions about the enforceability in the Cook Islands, under legislation in force there, of judgments obtained in Courts of competent jurisdiction in other parts of the world.

The appellants were the purchasers of apartments in a condominium project known as 515 South Orange Grove in Los Angeles, California. They bought these between 30 November 1988 and 16 November 1989. The first, second and third respondents were the developers and general contractors in the condominium project.

It appears that some time after the purchases had been made, and possibly before, defects in the apartments were discovered. There were problems arising from faulty constructions and each apartment was found to be less in area than that represented by the developer. On 25 October 1991 a letter was written on behalf of the appellants to the first respondent, Orange Grove Partners, setting out the defects and seeking redress.

On 23 April 1992, the appellants issued proceedings in the Superior Court of California for the County of Los Angeles claiming damages against the first, second and third respondents for faulty construction and breach of warranty. The action was defended by the first, second and third respondents who were represented by counsel. They participated fully in the hearing of the action before a jury which commenced on 14 February 1994, cross-examining witnesses and calling evidence. On 13 April 1994 the jury found for the appellants, awarding them damages against the first, second and third respondents. The jury also found that the second and third respondents were individually liable for damages as the "alter-ego" of the first respondent, Orange Grove Partners. The first appellant, 515 South Grove Owners Association, of which the other appellants were members, was awarded US $5,753,874. Each of the other nine appellants was awarded sums between US $56,000 and US $86,850 and totalling US $593,850. A judgment signed by Judge J Michael Byrne, a Judge of the Superior Court, was issued and served on the first, second and third respondents on the same day.

Interest on the awards accrues at the rate of US $1383.79 per day. As at 1 October 1994, after deducting payments made by the first, second and third respondents, the sum of US $5,703,379.16 remained owing on the judgment.

Mr Giles told this Court that under the law of California a further period of 6 years, running from 13 April 1994, would have been available there to the appellants in which to enforce the judgment. This is the same period of limitation which would have prevailed in the Cook Islands but for the passing of the International Trusts Act 1984 on which this case turns and to which more extensive reference will be made later in this judgment.

Mr Giles also said that up to the point when they obtained judgment in California, the appellants' status in California, qua the respondents, was that of "claimants", not that of "creditors", and that they had no rights under Californian law to proceed against the California based assets of the respondents unless they could establish grounds for an interim charging order. But once the judgment was obtained, the appellants as judgment creditors had the right to satisfy the judgment from assets owned by the first, second and third respondents.

Following the entry of judgment in California on 13 April 1994, the appellants endeavoured to enforce their judgment, but with only limited success. They found that the first, second and third respondents had divested themselves of the assets they had formerly owned in California and which, but for the dealings referred to shortly, would have been available to satisfy the judgment. According to an affidavit filed in these proceedings, that of Mr. J A Goldman whose firm acted for the appellants in the Californian litigation, the respondents had begun to divest themselves of their Californian assets even before the commencement of the hearing in California. Mr Goldman's affidavit refers to the following steps taken by the respondents:

(1) In about December 1993 the first, second and third respondents established the fifth respondent, 25/25 1993 Investment Trust - Victor J. Illig, under the International Trusts Act 1984 of which the sixth respondent (Southpac) is the trustee.

(2) On 14 January 1994 they incorporated the fourth respondent, 25/25 Holdings, LLC, a limited liability company in the state of Nevada.

(3) On 10 December 1993 the second respondent, for no consideration, assigned all his rights and interests in Illig Investment Company, a company which owned a number of properties, to 25/25 Holdings LLC with effect from 14 January 1994.

(4) On 27 January 1994 the second respondent transferred US $900,000 to the account of the sixth respondent with the Bank of New Zealand at Singapore.

(5) The second and third respondents borrowed US $450,000 on a lending facility which they had with the First Interstate Bank of California on the security of a condominium unit they owned in Pasadena, California, and transferred this amount to the fifth and sixth respondents in April 1994.

(6) The second and third respondents have since abandoned this condominium unit and have not made any of the monthly payments due on the security with the result that they are in default of their obligations.

(7) The first, second and third respondents have obtained payment of US $433,341.17 from a stock brokerage account in the United States of America and have transferred this to the first and sixth respondents.

In his affidavit, Mr Goldman alleges that by virtue of the transactions just referred to, the first, second and third respondents have left themselves without property in the United States of America to satisfy the judgment obtained by the appellants against them and which, but for these transactions, would have been available to satisfy the appellants' claims.

There is also an affidavit sworn by one of the appellants to the effect that on 13 April 1994, a Mr F B Mooney, one of the attorneys acting for the second and third respondents, told her that the appellants would never see any money from the case nor would they be able to find any assets. These allegations are not denied and at this stage, where all that is sought is a mareva injunction, must be accepted.

On 22 December 1994, the appellants issued proceedings in the High Court of the Cook Islands to recover the amount of the judgment they had obtained in the Californian Court. They brought these proceedings pursuant to s 13B of the International Trusts Act 1984 and on 23 December 1994 they applied to the High Court of the Cook Islands for a mareva injunction to restrain the first, fifth and sixth respondents from removing the administration of the trust and any property from the jurisdiction of the Cook Islands. The appellants did so in apprehension that the second and third respondents would continue to avoid the appellants' efforts to enforce the judgment by attempting to transfer their assets to entities elsewhere in the world, including Mexico where the second and third respondents now live.

From 24 December 1994 Dillon J made an interim order on the mareva injunction. The respondents had not at that stage entered any appearance in the proceedings. They did not do so until 30 December 1994. On that day the fifth and sixth respondents applied to set aside the interim mareva injunction on the ground that the cause of action upon which the appellants had sued in California had arisen in 1988 and 1989 (the dates of purchase by the appellants of apartments in the condominium project) and that these dates fell outside the period of two years allowed for the bringing of proceedings in the Cook Islands under the International Trusts Act 1984.

In a written judgment delivered on 10 March 1995, Dillon J set aside and discharged the interim mareva injunction made on 24 December 1994 on the grounds that the proceedings taken in the Cook Islands had not been brought in time. On 15 January 1995, that is between the grant of the interim injunction and the date of judgment, the appellants filed an amended statement of claim alleging actual and constructive knowledge on the part of the sixth respondent of the purpose for which the fourth and fifth respondents were established. They alleged that the sixth respondent knew or ought to have known of the existence of the proceedings in the Californian Court; that the sixth respondent had actual or constructive knowledge of the first and second respondents' fraudulent and unconscionable design and conduct; that the sixth respondent's actions and/or omissions condoned the same; that the powers of the sixth respondent as trustee were exercised subject to the direction and control of the first, second and third respondents; and that, in the circumstances, the acts or omissions of the sixth respondent were fraudulent, unconscionable, and to the detriment and prejudice of the appellants. The Judge heard submissions on the amended statement of claim in a lengthy international telephone conference and on 11 March 1995, the day following the first judgment, held that there was no or no sufficient evidence to support these allegations. He confirmed the decision made on 10 March 1995 discharging the mareva injunction. Although not making any order striking out the proceedings, the Judge concluded that they did not comply with the time constraints of s 13B and that this failure was fatal.

On 9 May 1995 leave to appeal to this Court was given in respect of the judgments of 10 and 11 March and an order made staying the order discharging the mareva injunction pending the determination of this appeal.

At the hearing in this Court, it was common ground between counsel that the appeal fell to be determined by reference to the International Trusts Act 1984 of the Cook Islands and that s 13B, in particular, of that enactment was at the heart of the case. Both counsel made an extensive review of the International Trusts Act and its amendments. Mr Arnold said that it is one of a number of statutes passed in the Cook Islands to create a tax and cash haven there which was intended, inter alia, to protect the funds of overseas investors from the enforcement of a foreign judgment. Other statutes creating the "off-shore legislation" of the Cook Islands are:

Monetary Board Act 1981

Trustee Companies Act 1981-82

Off-Shore Banking Act 1981

International Companies Act 1981-82

Off-Shore Insurance Act 1981-82

International Partnership Act 1984

It is necessary to examine some of the provisions of the International Trusts Act. Section 2 of the Act defines "International Trust" as meaning:

"... a trust or disposition which is registered under this Act and in respect of which:

(a) at least one of the trustees, donors or holders of the power of appointment or power of maintenance or power of advancement is either:

(i) a registered foreign company, or

(ii) an international company; or

(iii) a trustee company; and

(b) the beneficiaries are at all times non-resident,"'

Section 5 of the Act relates to the trusts covered by the Act. It provides:

"Application of this Act

(1) Unless the context otherwise requires the provisions of this Act shall apply to:

(a) international trusts; and

(b) all registered instruments whether they take effect on, before or after the

commencement of this Act.

[(c)any disposition to or by an international trust.]

(2) A trust registered under this Act shall be a valid trust notwithstanding that it may be invalid according to the law of the settlor's domicile or residence or place of current incorporation.

(3)In determining the existence and validity of a trust registered under this Act the Court shall apply,

(a) the provisions of this Act; and

(b) any other law of the Cook Islands; and

(c) any other law, which would be applied;

if to do so, would validate the trust."

Section 13D provides that foreign judgments are not enforceable in the case of an international trust, notwithstanding the provisions of any treaty or any statute or of any rule of law or equity to the contrary. There are some imperfections in the draftsmanship of the particular section but that is the tenor of the provision.

The International Trusts Act applies only in respect of international trusts and not to what may be called "on - shore" trusts which continue to be governed by the domestic legislation of the Cook Islands. The statute 13 Elizabeth Ch 5 of 1571 continues to operate in respect of domestic transactions enabling creditors to pursue their remedies against the property of defaulting debtors under that statute. So does s 60 of the Property Law Act 1952 (NZ). Both these statutes are in force in the Cook Islands by virtue of s 615 and s 616 Cook Islands Act 1915.

As mentioned, it is common ground that this appeal falls to be determined mainly on the interpretation to be given to s 13B of the International Trusts Act. But s 13K of the Act needs also to be examined. The relevant parts of the two sections provide:

S.13B

"Fraud-

(1) Where it is proven beyond reasonable doubt by a creditor that an international trust settled or established or property disposed to an international trust

(a) as so settled established or disposed by or on behalf of the settlor with principal intent to defraud that creditor of the settlor; and

(b) did at the time such settlement establishment or disposition took place render the settlor, insolvent or without property by which that creditor's claim (if successful) could have been satisfied,

then such settlement establishment or disposition shall not be void or voidable and the international trust shall be liable to satisfy the creditor's claim out of the property which but for the settlement establishment or disposition would have been available to satisfy the creditor's claim and such liability shall only be to the extent of the interest that the settlor had in the property prior to settlement establishment or disposition and any accumulation to the property (if any) subsequent thereto.

(2) In determining whether an international trust, settled or established or a disposition, has rendered the settlor insolvent or without property by which a creditor's claim (if successful) may be satisfied, regard shall be had to the fair market value of the settlor's property, (not being property of or relating to the trust) at the time immediately after the settlement establishment or the disposition referred to in subsection (1)(b) and in the event that the fair market value of such property exceeded the value of the creditor's claim, at that time, after the settlement establishment or disposition, then the trust so settled or established or the disposition shall for the purposes of this Act be deemed not to have been so settled established or the property disposed of with intent to defraud the creditor.

(3) An international trust settled or established and a disposition to such trust shall not be fraudulent as against a creditor of a settlor...

(a) [[if]] settled established or the disposition takes place after the expiration of 2 years from the date that creditor's cause of action accrued; [[or]]

[[(b) where settled, established or the disposition takes place before the expiration of 2 years from the date that the creditor's cause of action accrued, that creditor fails to commence such action before the expiration of 1 year from the date such settlement establishment or disposition took place.]]

(4) An international trust settled or established and a disposition of property to such trust shall not be fraudulent as against a creditor of a settlor if the settlement establishment or disposition of property took place before that creditor's cause of action against the settlor accrued or had arisen.

(5) A settlor shall not have imputed to him an intent to defraud a creditor, solely by reason that the settlor–

(a) Has settled or established an international trust or has disposed of property to such trust within two years from the date of that creditor's cause of action accruing;

(b) Has retained, possesses or acquires any of the powers or benefits referred to in paragraphs (a) to (f) of section 13C;

(c) Is a beneficiary.

(6) Where an international trust is liable to satisfy a creditor's claim in the manner provided for in subsection (1) but is unable to do so by reason of the fact that the property has been disposed of, other than to a bona fide purchaser for value, then any such disposition shall be void.

(7) For the purpose of this section the onus of proof of the settlor's intent to defraud the creditor lies on the creditor.

[[(8) For the purposes of this section, -

(a) the date of the cause of action accruing shall be, the date of that act or omission which shall be relied upon to either partly or wholly establish the cause of action, and if there is more than one act or the omission shall be a continuing one, the date of the first act or the date that the omission shall have first occurred, as the case may be, shall be the date that the cause of action shall have accrued.

(b) in the case of an action upon a judgment, the date of the cause of action accruing shall be, the date of that act or omission or where there is more than one act or the omission shall be a continuing one, the date of the first act or the date that the omission shall have first occurred, as the case may be, which gave rise to the judgment itself.

(9) The provisions of this section shall apply to all proceedings by every creditor alleging fraud against a settlor of an international trust, or against any person who shall settle property upon, or dispose of property to, or establish an international trust on behalf of that settlor, to the exclusion of any other remedy, principle or rule of law whether provided by statute or founded in equity or common law.

(10) In this section the term "creditor" includes any person who alleges a cause of action.]]"

S. 13K

"Commencement of proceedings - (1) No action or proceedings whether pursuant to this Act or at common law or in equity to,-

(a) set aside the settlement of an international trust; or

(b) set aside any disposition to any international trust;

shall be commenced, unless such action or proceedings is commenced,

(c) in the High Court of the Cook Islands; and

(d) before the expiration of 2 years from the date of the settlement of the international trust that is sought to be set aside; or to the disposition to the international trust that is sought to be set aside, as the case may be.

(2) No action or proceedings whether pursuant to this Act or at common law or in equity shall be commenced by any person,-

(a) claiming to have had an interest in property before that property was settled upon or disposed to an international trust; and

(b) seeking to derive a legal or equitable interest in that property, unless such action or proceedings is commenced; and

(c) in the High Court of the Cook Islands; and

(d) before the expiration of 2 years from the date that the property referred to in paragraphs (a) and (b) was settled upon or disposed to an international trust.

(3) No action or proceeding to which subsections (1) or (2) of this section or section 13B shall apply, whether substantive or interlocutory in nature, shall be determined and no order shall be made or granted by the High Court (including any injunction that shall have the effect of preventing the exercise of, or restoring to a person any rights, duties, obligations or powers or preserving, granting custody of, detaining or inspecting any property) unless, the applicant shall first satisfy the High Court by affidavit, filed therein, that,-

(a) the action or proceeding has been commenced in accordance with subsections (1) or (2) of this section; and

(b) where the action or proceeding shall allege fraud or be founded upon some other action or proceedings alleging fraud, the determination or order sought would not be contrary to the provisions of section 13B.

(4) Every affidavit required to be filed pursuant to subsection (2) shall be made by the person on whose behalf the action or proceedings is brought or, in the case of a body corporate, an officer thereof, and every person or officer as the case may be, shall depose as to,-

(a) the circumstances of the cause of action in respect of which the action or proceedings are brought;

(b) the date upon which the cause of action shall have accrued;

(c) the date upon which the property, in respect of which the action or proceedings is brought, was settled upon or disposed to the international trust;

(d) whether an action or proceedings have been commenced in respect of the cause of action and if so, the date upon which that action or those proceedings were commenced.

(5) The provisions of this section shall apply to every international trust expressed to be governed by the law of the Cook Islands and, in the event that a trust shall be registered as an international trust, and shall change the law by which it shall be governed to that of the Cook Islands, then every proceeding after the date of registration by a person claiming to be interested in, or to be prejudiced by, the settlement of property upon such trust, or any disposition of property to such trust before registration, shall be commenced subject to subsections (1) and (2) and every determination and order shall be made subject to subsection (3) as if upon the date that such settlement or disposition was made the trust was an international trust governed by the law of the Cook Islands.]"

There appear to be some errors in the lettering and numbering of paragraphs in subsection (1). Paragraphs (c) and (d) should be (i) and (ii) and subparagraphs (i) and (ii) should be renumbered or relettered. But these imperfections do not affect this judgment.

Section 13K(1) plainly covers an action or proceeding to "set aside" the settlement of an international trust or any disposition to such a trust. The definition of international trust in s 2 has already been set out. "Disposition" is also defined in that section. It includes every form of conveyance, transfer, assignment, sale, gift, etc, by which any legal or equitable interest in property is created, transferred or extinguished. The phrase "set aside" is not defined in the Act and must bear its ordinary dictionary meaning which is "reject, disregard, annul".

The proceedings issued by the appellants in the High Court of the Cook Islands in December 1994 are not proceedings falling within s 13K(1). They do not seek to annul any international trust or any disposition of property to such a trust. They leave intact any such disposition to the respondents' international trust in the Cook Islands, seeking only a judgment for the amount awarded to the appellants in the Californian Court with interest and costs and a declaration that the sixth respondent satisfy that judgment out of the fifth respondent's trust. That trust, however, remains on foot notwithstanding the appellant's proceedings. Hence the time restrictions imposed by s 13K(1) have no application to this case.

Section 13K(2) also has no application to this case. It relates to claims to a legal or equitable interest in property in which the plaintiff claims to have had an interest in property before the property was settled or disposed of to an international trust. We pause to note that there is again an error of draftsmanship in s 13K(2). Paragraphs (c) and (d) should be (i) and (ii) respectively.

However, s 13K(3) has limited application to s 13B. It requires a claimant or applicant in proceedings under both s 13K(1) or (2) or s 13B, including interlocutory proceedings, which have the effect of preserving or detaining property, to satisfy the Court by affidavit of the matters set out in paragraphs (a) and (b) of subsection 3. That would require the appellants as applicants for a mareva injunction to satisfy the Court that (a) their action was commenced in accordance with subsections (1) or (2) of s 13K and (b) that the determination or order sought would not be contrary to s 13B. Plainly paragraph (a) has no application to this case because the appellants' proceedings do not relate to the kind of relief mentioned in subsections 1 and 2. And, it is to be noted that s 13K(e) does not prohibit the filing of proceedings unless an affidavit complying with paragraph (b) is filed at the same time as the proceedings. The use of the words "no action or proceeding ... shall be determined and no order shall be made or granted" do not forbid the filing of the proceedings or an application without the requisite affidavit. The requirement is that the action shall not be determined nor an order made until an affidavit is filed stating that "the determination or order would not be contrary to the provisions of s 13B". As a matter of practice the required document may generally be filed with the action or application, but its absence at that point will not be fatal to the proceedings. The use of the words quoted would suggest that subsection (3) is aimed at preventing the final determination of the proceedings or application or the making of an order without the requisite affidavit being filed. Any affidavit under s 13K(4) can be filed at any time prior to final resolution and is procedural only.

To summarise, save to the limited extent arising from subsection (3) just discussed, s 13K has no application to this case because s 13K is primarily about setting aside the settlement of an international trust or a disposition to such trust, that is, proceedings to annul a trust or transaction. This is not such a case.

As Mr Giles emphasised, this case turns on s 13B and its limitation provisions. Section 13B differs from s 13K. Whereas the latter is aimed at the complete destruction of an international trust or disposition, s 13B is not. Its purpose is to provide funds to satisfy a creditor's claim out of property settled on or disposed of to an international trust which, but for the settlement or disposition, would have been available to satisfy the creditor's claim. But s 13B does not render the trust or disposition void or voidable. The trust or disposition remains on foot. In short, s 13B achieves a balancing action. It preserves the integrity of the trust while, at the same time, granting access to the trust assets fraudulently settled or disposed of to the trust. The burden of proving fraud is placed on the claimant and that beyond reasonable doubt.

As the arguments proceeded in this Court where the matter was more fully argued than in the High Court, the appeal narrowed down to the construction to be placed on s 13B(8). For convenience we set out ss (8) again.

"[[(8) For the purposes of this section,-

(a) the date of the cause of action accruing shall be, the date of that act or omission which shall be relied upon to either partly or wholly establish the cause of action, and if there is more than one act or the omission shall be a continuing one, the date of the first act or the date that the omission shall have first occurred, as the case may be, shall be the date that the cause of action shall have accrued.

(b) In the case of an action upon a judgment, the date of the cause of action accruing shall be, the date of that act or omission or where there is more than one act or the omission shall be a continuing one, the date of the first act or the date that the omission shall have first occurred, as the case may be, which gave rise to the judgment itself."

In the judgment under appeal, Dillon J accepted that the appellants were within s 13B(1) but held that the cause of action in the proceedings before him arose in 1988 or 1989 (when the apartments were purchased) at the latest and that the proceedings were therefore out of time. Such a construction would be justified if the date of the cause of the action in paragraph (b) were treated as the same date as the cause of action in paragraph (a).

However, Mr Giles contended that the two paragraphs contemplated different dates. He submitted that paragraphs (a) and (b) provided two different formulae to determine when the cause of action arose. He submitted that paragraph (a) relates to proceedings which are not founded on a judgment but paragraph (b) relates to proceedings which have proceeded to judgment, as is the case in the present appeal. Therefore, he argued, had the appellants not obtained a judgment in California they would, to the extent that they could sue in the Cook Islands, be obliged to rely on the cause of action arising in 1988 and 1989 when they bought the apartments. That is, they would be covered by paragraph (a) of ss (8). But, having obtained a judgment in California, on which they now sue in the Cook Islands, they are entitled to rely on paragraph (b). It is noteworthy that the appellants both in the original statement of claim and the amended statement of claim filed in these proceedings do not mention the purchase of the apartments as the cause of action nor do they claim in negligence or for breach of warranty. They rely on the debt created by the judgment of 13 April 1994.

Mr Giles contended that effect must be given to the opening words of paragraph (b) "in the case of an action upon a judgment" and that these words are intended to recognise the more advantageous position which a person suing upon a judgment holds. . In the course of his submissions he referred to a person who brought an action on a judgment as a judgment creditor. Mr Arnold submitted that s 13B(8)(b) made no reference to a judgment creditor and that both a person who sued under paragraph (a) and one who sued under paragraph (b) were creditors, particularly in the light of s 13B(10) which treats "any person who alleges a cause of action" as a creditor.

There was considerable argument on whether a mere claimant for damages could be a creditor. By reference to s 13B(10) Mr Arnold submitted that a creditor was not confined to one who has a judgment and that it extended to persons who had an undetermined claim. He prayed in aid various cases in which, for the purposes of particular statutes, a "creditor" has been held to be not confined to a person who has acquired the status of a creditor in the sense of having a defined and enforceable debt but also one who has an undetermined claim.

In our view, the word "creditor" must be construed against the background of the legislation in which it is used and, in the end, references to cases decided under other statutes do not throw much light on the problem. Even if a mere claimant for a quantifiable sum may be called a creditor as distinct from a mere claimant, such a person can hardly be described as bringing "an action upon a judgment". Until a creditor (even one within the extended definition of s 13B(10)) obtains a judgment, he cannot bring an "action upon a judgment". It seems to us that, in its use of the words "'in the case of an action upon a judgment", the Cook Islands statute gave a status to a person suing upon a judgment different from those it gave to a person suing upon the original cause of action.

Mr Arnold in his submissions made a comprehensive examination of the International Trusts Act. He made no apologies for contending, as he was entitled to do, that, in enacting the International Trusts Act, the Cook Islands Parliament intended to derogate from the rights which creditors would otherwise have enjoyed, bearing in mind the best interests of the settlors and the trust companies registered under the Act to administer international trusts. He argued that the cause of action referred to in both paragraph (a) and paragraph (b) of s 13B(8) was the same underlying cause of action on which the proceedings in the Californian Court were based. It follows from his argument that once a claimant has a cause of action that cause remains constant from the beginning to the end of the litigation wherever brought.

Mr Arnold submitted that if the appellants' interpretation of s 13B(8)(a) and (b) were to be accepted, the trust companies whom, he said, had had a considerable input into the framing of the legislation, could take no comfort from the time restrictions in s 13B(3) and that there would be uncertainty as to how and when the time limits for an "action upon a judgment" would begin to operate, thereby creating difficulties for the operations of the trust companies concerned.

Both counsel made submissions on the purposes behind the legislation. Mr Arnold said that the Cook Island legislature had embarked upon a programme of legislative amendment to facilitate the use of international trusts for "asset protection" purposes. He said, "Briefly stated, the purpose of an asset protection trust is to put assets beyond the reach of creditors essentially to foil the attempts of creditors to pursue assets of a settlor, albeit within the limits of the protection provided by the Act". He conceded that if his argument on the date of the accrual of the cause of action was right, then the time period within which the appellants could bring proceedings in the Cook Islands had expired before the international trust in this case was ever established. But he explained this by saying that "Parliament was not out to assist creditors. It was out to make it as difficult as possible for the creditors. It was out to assist trust companies"

We also noted him as saying that "The purpose of the legislation is the unashamed soliciting of funds to improve the economic position of the Cook Islands by giving protection against creditors exercising their rights". And, "The Cook Islands have to compete against other tax or money havens".

We return to the purposes for which the legislation was passed. We find some difficulty in pursuing a purposive approach to the International Trusts Act. There is no long title in the Act from which its overall intention may be derived. On one view, the purpose of the Act may be said to be to provide a haven which protects funds deposited with trust companies to the exclusion of the rights of creditors. On another view, the purpose of the Act may be said to protect funds against actions by creditors but only after giving those creditors a chance of recovery within certain time limits.

In the end we think the Court should strive to give a common sense approach to a piece of legislation which is at once very sophisticated but also ineptly drafted in parts. We think that the better view is that Parliament, in attempting to balance the interest of settlors, trustees and creditors, has prescribed certain specific limitation periods; that the right to sue on either a cause of action or a judgment is abridged but not eliminated, and that a common sense interpretation should allow for intention to be given to those two concepts. It should not be lightly assumed that Parliament intended to defeat the claims of creditors by allowing international trusts to be used to perpetrate a fraud against a creditor.

The question is what meaning should be given to the words in s 13B(8)(b), namely, "the date of the cause of action accruing shall be the date of that act or omission ... which gave rise to the judgment itself." We omit the intervening words because there is, in our view, only one act or omission which can be relied on in the present case.

The judgment upon which the action in the Cook Islands is founded is that given by Byrne J in the Californian Court on 14 April 1994. It records the jury's verdict and the entry of judgment consequent upon that verdict. That judgment is a formal order of the Court. The act which gave rise to it was the jury's verdict. Until that was given, no judgment could have been entered. There were, therefore, two stages in the process. The first was the jury's verdict. The second was the entry of judgment by Judge Byrne after the happening of that event. This interpretation in our view is supported by the reference to the judgment "itself". It is not the basis for the judgment; it is the actual judgment.

Section 13B(8)(a) and (b) distinguish the date when the original cause of action arose from the date of the judgment given upon it. As mentioned, the date of the act which gave rise to the judgment was the date of the jury's verdict. It so happens that this was also the date of judgment. But that might be because the appellant's attorneys were expeditious in completing the legal formalities on the same day. (In many cases, at least in this country, the judgment is not entered until some time after the return of the jury's verdict.) On this view, the act which gave rise to the judgment was the jury's verdict, not the date of purchase of the units. If Parliament had intended that a person suing on a judgment would be thrown back on the original cause of action, there would have been no purpose in enacting paragraph (b).

This leaves the question as to what construction is to be placed upon the word "omission". What would be an "omission" which gave rise to a judgment? Mr Giles suggested this might be the refusal of a defendant to participate in the proceedings. It may be that the draftsman has done no more than blindly repeat the phrase "act or omission" from paragraph (b) out of an abundance of caution. Judgments usually follow on positive acts, not omissions. But one example of an omission giving rise to a judgment would be the failure to enter an appearance within a prescribed time, leaving the claimant to enter judgment by default.

Some difficulty is occasioned by the use of the words in paragraph (b) "or where there is more than one act or the omission shall be a continuing one, the date of the first act or the date that the omission shall have first occurred, as the case may be." This could in the example given above be the continued failure to enter an appearance. However, we think that these words add nothing to paragraph (b) and, to adopt the words of Lord Bridge of Harwich in McGonagle v Westminster City Council [1990] 2 A.C. 716 at 727, they-

"should be treated as surplusage and as having been introduced by incompetent draughtsmanship..."

They should not defeat the purpose of the Act.

There are occasions when the Court may refer to the relevant parliamentary debates for guidance as to the intention of the legislature in enacting particular provisions. Marac Life Assurance Ltd v Commissioner of Inland Revenue [1986] 1 NZLR 694 and NZ Maori Council v Attorney-General [1987] 1 NZLR 641 at 658 are two such cases We were referred to the language of the Prime Minister; Mr G A Henry, as he then was, when the 1989 amendment to the International Trusts Act was introduced.

He extended his thanks to "those in the industry who have spent so much time putting this amendment bill together for the sake of an industry that is becoming extremely important in the economic development of this country. " He went on to emphasise the extreme importance of maintaining "high quality services and to maintain the integrity of the industry ... ". The Bill was a bi - partisan measure. The Leader of the Opposition, Mr N George also referred to the industry as "growing in confidence and stature" and said that to get the confidence "we must display total integrity and stability". In the light of those words we would be loathe to interpret the International Trusts Act as a statute which was intended to give succour .to cheats and fraudsters by totally excluding the legitimate claims of overseas creditors.

To modify the aphorism of Scrutton LJ in Czarnikow v Roth, Schmitt & Co [1922] 2 KB 478 at 488, we cannot think that Parliament ever intended that by passing of the International Trusts Act the Cook Islands should become an Alsatia in the South Pacific from which the commercial comity of nations was completely ousted.

For the reasons expressed in this judgment, the appellants' action in the High Court of the Cook Islands and their claim for a mareva injunction are founded on a judgment given in the Californian Court on 14 April 1994 which in turn was founded on a jury's verdict returned on the same day. The appellants in suing on that judgment are entitled, in terms of s 13B(8)(b) of the International Trusts Act 1984, to rely on the jury's verdict as providing their cause of action. Therefore, their proceedings in the High Court were brought timeously within s 13B(3) of the Act. They should be allowed to remain on foot and the mareva injunction should be reinstated.

We allow the appeal and reinstate the mareva injunction.

Mr Giles asked that the question of actual or constructive trust alleged in the amended statement of claim filed on 15 June 1995 be reserved. In the light of our decision to reinstate the mareva injunction, this question need not be dealt with at this stage.

We will receive submissions under s.23(2) of the Act within fourteen days of delivery of this judgment as to whether leave should be given to publish

Costs are reserved.

SIR DUNCAN McMULLIN

Solicitors:
For the Appellants: Clarkes, Rarotonga.
For the Respondents: Timothy Arnold, Rarotonga.