COURT OF APPEAL
13th September, 2002
R.C. Southwell, Esq., Q.C., President,
Sir John Nutting, Bt., Q.C. ; and
M.G. Tugendhat, Esq., Q.C.
Jersey Financial Services Commission
A.P. Black (Jersey) Limited
Cater Allen Trust Company (Jersey) Limited
Peter Stuart Langton
Alistair Pollock Pederson Black
Mr. and Mrs. Stuart Elliott; Mr. David Sharpe; Mega Pacific International Limited (now Mosvold Farsund AS); Dr. and Mrs. I Walker; Mablyn Limited; and Zen Limited.
Appeal, with leave granted by the Royal Court on 8th May, 2002, under Article 13(e) of the Court of Appeal (Jersey) Law, 1961, from the Judgment of the Royal Court of 11th April, 2002, whereby it was adjudged that: (1) the claims made by the Representor/APPELLANT were prescribed by the effluxion of time; and (2) the Representor/APPELLANT pay the respondents’ costs.
Appeal by Respondent’s Notice under Rule 5(2) of the Court of Appeal (Civil) (Jersey) Rules, 1964, by the Second Respondent, asking the Court of Appeal to affirm the decision of the court below (1) on the ground relied on by the Royal Court, that the cause of action is founded on tort, within the meaning of Article 2(1) of the Law Reform (Miscellaneous Provisions)(Jersey) Law, 1960, and is therefore subject to a prescriptive period of 3 years; and/or (2) on the alternative ground that, if Article 2(1) of the said Law does not apply, the prescriptive period remains one of a year and a day under customary law; and/or (3) on the ground that customary law would require a prescriptive period of no longer than the 3 year period set out in the said Article 2(1).
Advocate A.J. Olsen for the Representor/APPELLANT;
Advocate D. Gilbert for the First and Fourth Respondents;
Advocate A.R. Binnington for the Second Respondent;
Advocate W. Grace for the Third Respondent;
Advocate A.D. Hoy for the Investors.
- This interlocutory appeal arises out of proceedings which are concerned with the operation of a scheme or schemes, referred to generally as “the Delta Scheme”. The Delta Scheme was operated by US and Bahamas companies and involved investment in foreign currency options dealings. The Delta Scheme ended up with investors having lost large sums of money; it is alleged about US$90 million worldwide and over £30 million equivalent for investors via these Respondents. It is also alleged to have been a major fraud on the investing public, though I stress that no allegation of fraud is made against the Respondents. The final collapse of the Delta Scheme seems to have been in September 1993.
- The present proceedings are brought by the Jersey Financial Services Commission (“the Commission”) in respect of four persons:
- A P Black (Jersey) Limited (“Blacks Jersey”), a company whose clients invested in the Delta Scheme;
- Mr A P Black, a director of Blacks Jersey;
- Cater Allen Trust Company (Jersey) Limited (“Cater”), a company which apparently carried out functions for Blacks Jersey;
- Mr P S Langton, a director of Cater and of Blacks Jersey at the relevant times.
I will refer to these persons collectively as “the Respondents”.
- Between 6 July 1995 and 23 July 1998 nine orders of justice were issued on behalf of several investors in the Delta Scheme against Cater and Mr Langton and/or Blacks Jersey. In these orders of justice the investors seek to enforce rights of action in respect of alleged breaches of trust and of other duties owed to the investors in Jersey private law, including duties of care and the statutory duty under Article 21 of the Collective Investment Funds (Jersey) Law 1988 (“the 1988 Law”), as well as other rights of action such as those arising out of alleged misrepresentations. Further progress of these nine actions has been adjourned.
- The Commission was established by the Financial Services Commission (Jersey) Law 1998 (“the JFSC Law”). It is clear from the JFSC Law that the Commission has been established as a regulatory body in respect of financial services provided in and from Jersey. Its functions (under Article 5 of the JFSC Law) include “the supervision and development of financial services provided in or from within the Island” and a number of ancillary functions. Under Article 6 of the JFSC Law there were transferred from the Finance and Economics Committee of the States (“the Committee”) a number of major regulatory functions previously performed by the Committee, including the supervision of banking and other deposit-taking business, and insurance business, and in particular
and in addition other similar regulatory functions. Under Article 7 the Commission is required (inter alia) to have regard in particular to three “guiding principles”:
- I have emphasised these matters for two reasons. First, in the exercise of the functions relevant to these proceedings, everything which has been done by the Commission has been as a regulatory body carrying out public law functions such as are, in appropriate instances, open to judicial review by the Jersey Courts. The Commission has not been acting as a private person seeking remedies in private law based on causes of action arising in private law. Secondly, in the course of the lengthy written and oral submissions ably and helpfully put forward on behalf of Cater by Advocate Binnington sight has not infrequently been lost of these fundamental points.
- The present proceedings were brought on 30 June 2000 by the Commission under Article 20(7) of the 1988 Law by Representation against the Respondents. Article 20(7) will be set out below. The primary questions arising on this appeal turn on the true interpretation of Article 20(7) as a statutory provision viewed in the full context of the 1988 Law. This point also has been to some extent lost sight of by those representing the Respondents.
- Turning to the 1988 Law it is of relevance to note that until 1998 most of the relevant public functions under the 1988 Law were to be and were performed by the Committee. Thus under Article 20(7) an application would until 1998 have been made by the Committee. When the Commission was brought into existence by the JFSC Law, substantial amendments were made by the Collective Investment Funds (Amendment) (Jersey) Law 1998 and by the JFSC Law, including the insertion of many additional Articles and the substitution in many places of the Commission for the Committee.
- Under Article 1A the functions of the Commission in the 1988 Law as amended are set out in these terms:
“Collective investment funds” and “functionaries” are defined in Articles 2 and 3 respectively. Under Article 4 functionaries are required to hold permits (save in certain exceptional circumstances) and it is made a criminal offence to act as or to hold oneself out as a functionary without such a permit. The grant or refusal of permits, the imposition of conditions, and the cancellation of permits, by the Commission, and the regulation of appeals to the Court in that regard is governed by Articles 5 to 7. By Article 8 the Commission is given extensive powers to obtain information and require production of documents. Under Article 9 the making of misleading statements, promises and forecasts in connection with collective investment funds is made a criminal offence. By Article 12 the Commission is given the widest powers to give directions in connection with the operation of collective investment funds, and contravention of or failure to comply with any such direction is made a criminal offence. By Article 13 the Committee is given extensive powers on the recommendation of the Commission to regulate by Orders the promotion of collective investment funds, especially prospectuses, and more general powers, on the recommendation of the Commission, to make Orders are given to the Committee by Article 17. Under Article 13A the Commission is given power to lay down codes of practice. Article 14 contains provisions making a large number of different types of contravention of the 1988 Law or Orders made under it criminal offences.
- Article 15 is headed “Legal Proceedings”. Because of certain submissions which Advocate Hoy was permitted to make on behalf of certain of the investors as interveners, I set out Article 15 in its entirety as it stood in 1988 as follows:
Article 15(4) as it then stood made provision for periods of prescription in respect of criminal offences under the 1988 Law, in lieu of or in addition to the three year prescription period laid down in Article 2 of the Law Reform (Miscellaneous Provisions) (Jersey) Law 1978. When by the Criminal Procedures (Prescription of Offences) (Jersey) Law 1999 prescription periods for criminal offences in Jersey were all abolished, Article 15(4) of the 1988 Law was repealed. I anticipate the answer which I will give to Mr Hoy’s submission by saying that, though Article 15 is headed, ambiguously, “Legal Proceedings”, it is in my judgment plain that Article 15 is directed solely to criminal offences and criminal proceedings.
- Article 19 gives the Commission powers to investigate the affairs of holders of permits relating to a collective investment fund by the appointment of an inspector, and various types of failure to cooperate with an inspector are made criminal offences under Articles 19 and 19A. Articles 19B to 19L extend the Commission’s regulatory powers in a number of ways, including obtaining from the Court warrants to enter and search premises, cooperating with other supervisory authorities in other jurisdictions, disclosing information obtained by the Commission for certain purposes, and keeping a register of holders of permits. In a number of instances failure to comply with these Articles is made a criminal offence.
- I set out the whole of Article 20 which is headed “Applications to Court”, including paragraph (7) under which these proceedings have been brought by the Commission:
- Article 21, which is headed “Action for Damages”, reads as follows:
Article 21 gives to a person suffering loss as a result of a failure to comply with any provisions of the 1988 Law, or any Regulation or Order made under it, as the States may by Regulation specify as actionable, a civil right of action in private law for breach of statutory duty. Such person can rely on this right of action in tort where as plaintiff he can prove the existence of the duty, breach of the duty and damage caused by and flowing from such breach. It is a right of action which the plaintiff, if those elements are proved, is entitled as of right to have enforced by the Jersey courts by an award of damages (and in certain circumstances by an injunction).
- Progress of these proceedings has been slow. The Respondents sought lengthy particulars of the Representation which were delivered on 1 May and 15 August 2001. On 28 September 2001 the Royal Court ordered that there be tried as a preliminary issue the following:
“Are the claims made in this action prescribed by the effluxion of time as pleaded in paragraph 4 of [Cater’s] Amended Answer?”
As will appear later, the ordering of this issue will have proved to result not in the shortening but in the lengthening of the time taken to bring these proceedings to trial. The Bailiff in paragraph 4 of his judgment adopted a shorter wording for the issue, namely “What (if any) is the prescription period applying to proceedings under Article 20(7) of the  Law?”
- The issue was heard in January 2002 before the Bailiff, and he delivered judgment on 11 April 2002. He held that (1) the Commission was seeking to enforce a right of action vested by Article 20(7); (2) this right of action was one “founded on tort” and therefore fell within Article 2(1) of the Law Reform (Miscellaneous Provisions) (Jersey) Law 1960 (“the 1960 Law”); (3) the right of action had arisen not later than 27 September 1993, and therefore more than three years before the Representation was issued; and accordingly (4) the proceedings were prescribed.
- Before the Royal Court the Commission contended that no prescriptive period applied, alternatively that if any such period did apply, that period was 30 years. The Respondents contended that the prescriptive period was three years under Article 2(1) of the 1960 Law (as the Bailiff held), alternatively that the prescriptive period was under Jersey common law either a year and a day, or three years. Before this Court the Commission sought to substitute a period of 10 years as an alternative, replacing its alternative reliance on a period of 30 years. The parties have produced a panoply of arguments and authorities in support of their rival contentions.
- In my judgment the point in issue can be resolved quite shortly by analysing what is the nature of the proceedings contemplated in Article 20(7) of the 1988 Law, with Article 20(7) put in its proper context in this statute.
- The Commission is a public regulatory body. It exercises important regulatory functions under the JFSC Law, and more particularly under the 1988 Law. In line with modern developments in the regulation of financial services in the public interest, the Commission is given a choice of sanctions where the 1988 Law (or any Order or Regulation made under it) is contravened. The Commission may, if the Attorney General gives his consent under Article 15(3), bring criminal proceedings in respect of such contravention. So far as I can judge (and we have not been shown any Orders or Regulations under the 1988 Law) almost every such contravention, if proved to the criminal standard of proof, will involve a criminal offence. But the Commission has as an alternative civil sanctions. These are primarily set out in Article 20. They include, for example, the power to apply to the Court to order the removal of a functionary and his replacement with a nominee of the Commission, and if appropriate to order that the new functionary procures the winding up of the collective investment fund: see Article 20(3). It could not for a moment be contended that in applying to the Court under Article 20(3) the Commission would be seeking to enforce a right of action in private law: plainly the Commission in so applying would be seeking to enforce public regulatory powers in public law, subject to all the protections afforded to persons affected under public law. Similarly under Article 20(6) the Commission can apply to the Court for an order either preventing, in advance, a failure to comply with the 1988 Law, or requiring persons involved in an existing failure to comply to take the steps ordered by the Court to remedy the failure. Again, it could not for a moment be contended that an application under Article 20(6) would amount to seeking to enforce a private law right of action: that would plainly be an exercise of regulatory powers in a public law sphere.
- But in relation to Article 20(7) on which the Commission relies in these proceedings, it is the Respondents’ primary case that an application under Article 20(7) constitutes an attempt to enforce a private law right of action “founded on tort” within Article 2 of the 1960 Law to which the prescription period of three years in the 1960 Law applies.
- At first sight this seems a rather surprising contention. An application under Article 20(7) for a person who has failed to comply with the 1988 Law to be ordered by the Court to pay such sum into Court as the Court considers just, and for the Court to order the distribution of that sum, appears to be simply another example of the regulatory powers in public law afforded to the Commission. But it has been argued at great length, and with a large volume of authority, that this is not so, and that Article 20(7) gives to the Commission a right of action in tort which it is seeking to enforce in the present proceedings.
- The essentials of a right of action in tort, and therefore of an action “founded on tort” for the purposes of Article 2(1) of the 1960 Law, were considered by me when delivering the judgment of the Court of Appeal in Arya Holdings Ltd v Minories Finance Ltd (1997) JLR 176 (“Arya”). Those essentials include a duty owed to the plaintiff by the defendant otherwise than by virtue of a contract or trust, and whether pursuant to Jersey common law or statute, a breach of this duty by the defendant, and actual or threatened damage caused by and flowing from the breach (which in some torts may be assumed), giving rise accordingly to a right of action which the plaintiff can require the Court to uphold.
- Arguments have been advanced as to the extent to which “tort” (in French) as part of Jersey common law may differ from “tort” (in English) as part of English common law. One example of a difference between Jersey law and English law in this regard can be seen in Arya, where a Jersey right of action described as a “D’Allain claim”, unknown to English law, was held to be a right of action in tort in Jersey law. What is significant for the present case is that a D’Allain right of action involves, just as much as other rights of action in tort in Jersey law, the three essentials of duty, breach of duty and damage. Whatever differences there may be between Jersey law and English law as to the range of torts on which reliance may be placed under either legal system, torts under each system involve the existence of those three essentials.
- This can be illustrated by examining Article 21, on which (inter alia) the investors rely in their Orders of Justice. They are relying on a tort, that is to say, they rely on the statutory duty said to be imposed on the relevant Respondents by Article 21 and owed to each of the investors, on breaches of that duty, and on damage alleged to have been caused by and to flow from those breaches.
- The contrast between Article 21 and Article 20(7) could not be clearer, in my judgment. Article 21 gives to investors a right of action in tort, and a private law right of action. Article 20(7) gives to the Commission a regulatory power exercisable as a matter of public law to apply to the Court for a civil, as opposed to a criminal, sanction for contravention of the 1988 Law. In so far as a duty arises in connection with Article 20(7), it is a public duty imposed by the 1988 Law which is not a duty owed to the Commission. Breach may involve, at the Commission’s discretion, proceedings for either criminal or civil sanctions. An application under Article 20(7) is an attempt to enforce a civil sanction. There is no question of damage or loss being suffered by the Commission, or of damages being paid to the Commission under Article 20(7). What Article 20(7) makes possible is an order in the Court’s discretion for a sum of money to be paid into Court of whatever amount the Court thinks just, and for that sum to be distributed by the Court as the Court thinks just.
- Mr Binnington argued (at length in his written submissions) that “tort” (in French) in Jersey law has a much wider scope than the English law of tort, citing for this purpose many texts and cases. I will not lengthen this judgment by extended reference to those texts or cases, for these reasons: first, Article 20(7) can by no stretch of imaginative licence be forced into the mould of “tort” (in French) in Jersey law even if all the texts and earlier cases are read in the way that Mr Binnington seeks to read them (which is in my judgment much overstated); and secondly, in Arya this Court has, after detailed examination of the Jersey law of tort, reached the conclusion which I have already stated, that the three essential elements of tort are substantially the same in Jersey law and in English law.
- Mr Binnington also sought to erect the large edifice of his argument on a number of further points, of which I will mention only an appropriate selection:
- He referred to a book review of the 3rd edition of Winfield on Torts written in 1947 by Denning J (as he then was). All Lord Denning’s observations deserve careful attention. But in this review Lord Denning was making some speculative comments which have not subsequently found a resting place in any decided cases.
- He also referred to observations of Lord Denning MR in Biss -v- Lambeth, Southwark & Lewisham Area Health Authority (Teaching)  1 WLR 382. Biss was a case involving dismissal of an action for want of prosecution, and was as Lord Denning indicated an extreme case of delay and prejudice to the defendant hospital authority. It assists in no way in defining what a tort is in either English or Jersey law.
- He spent some time in spelling out the policy in English and Jersey law which results in there being prescription or limitation periods whether by statute or at common or customary law. In relation to all classes of civil proceedings in private law that is a sensible and satisfactory policy. But our task is to determine whether there is, in Jersey law, a prescription period applying to an Article 20(7) application. This Court cannot conjure up a prescription period where none exists.
- He referred to the English case of re Farmizer (Products) Ltd  BCC 655, in which the English Court of Appeal held that a liquidator’s claim to recover money for the company under a specific statutory provision was subject to a limitation period as an action to recover a sum of money under a statute. But that was a different situation, in which a liquidator was seeking on behalf of a company to enforce a private law right of action to recover money under a statute. A specific limitation period applied to that right of action under the English Limitation Act 1980 s.9, to which there is no corresponding provision in Jersey law. Here this Court is concerned with civil sanctions sought to be applied by a regulatory body, and Farmizer provides no near analogy.
- He cited an observation by Steyn LJ (as he then was) in Securities and Investments Board –v- Pantell S.A. & ors (No 2)  Ch. 256 at p.282, that proceedings by the Board under a provision of the Financial Services Act 1986 (which was different from Article 20(7)) was “a type of representative action for the benefit of investors”. As a broad statement no doubt those proceedings (like these by the Commission) might have been (and these may be) “for the benefit of investors”. But it is plain that the Commission is not bringing here a “representative action” as that term is used as a technical term in legal practice and procedure in Jersey.
- He drew attention to the recognition by a majority of the House of Lords in Attorney-General -v- Blake  1 AC 268 that damages in tort in English law may in exceptional cases be measured by the defendant’s gain rather than by any loss suffered by the claimant. To what extent this will be followed in Jersey law in the future (rather than Lord Hobhouse’s trenchant dissenting views) remains to be seen. On the present appeal this citation carries the Respondents’ argument no further.
- As I have indicated, Mr Binnington raised a plethora of observations and citations in an effort to expand the role of “tort” (in French) in Jersey law so as to make it sufficiently wide to encompass even an application under Article 20(7). In my judgment he succeeded not at all. The reality is that once Article 20(7) is seen in its true context in the 1988 Law, it is plain that such an application is not “founded on tort” in Jersey law.
- Mr Binnington raised, though rather faintly, as an alternative, that this Court should develop Jersey customary law by adopting a prescription period applicable to an Article 20(7) application, whether of three years by reference to the 1960 Law, or of a year and a day by reference to the period applicable in Jersey law to certain types of private law rights of action. He relied especially on the situation of a respondent to an Article 20(7) application if the Commission was subject to no prescription period, and so could bring such an application many years after the relevant events. As I will spell out later in this judgment the situation of respondents is not as he described. All that I need to say about this alternative is that Mr Binnington offered this Court no foundation on which such a novel construction of a prescription period could be based.
- As already indicated, there is a short answer to Mr Hoy’s ingenious attempt to use Article 15 to construct a statutory prescription period applying to Article 20(7) applications, and trumping Mr Binnington’s reliance on the 1960 Law. The short answer is that Article 15 deals with criminal proceedings and not civil proceedings under the 1988 Law.
- In my judgment, therefore, the simple propositions presented briefly and well by Advocate Olsen who appeared for the Commission are correct. An Article 20(7) application is not founded on tort. There is no prescription period applicable to such an application.
- As Mr Olsen made clear, this does not mean that the Commission can linger until doomsday before bringing such an application to the Court. The respondent or prospective respondent to any such application has a number of routes to ensuring that such an application (if there has been long and unjustified delay) fails at the outset or when the Court exercises its discretion:
- As soon as an application is launched the respondent can apply to the Court to strike out the application as an abuse of process. It may be also that a threatened application can be prevented by applying to the Court, for judicial review of the Commission’s threatened use of its Article 20(7) power.
- If the application proceeds, the Court has a complete discretion whether to make an order at all. Lapse of time may be a strong factor leading to no order being made, particularly if the lapse of time is long and cannot be justified by the Commission. It must, however, be kept in mind that financial irregularities in activities such as collective investment funds are likely to take no little time to unravel.
In these proceedings it is not suggested that (i) above would apply, and in any event an application based on abuse would have to have been made at the outset of the proceedings and anyway not later than when the preliminary issue was sought. But it will be open to the Respondents to rely on the lapse of time at the trial and to seek to persuade the Court not to make any order. The protection which (i) and (ii) above give to respondents to an Article 20(7) application may indeed be stronger protection than is afforded by a mere prescription period.
- In my judgment, therefore, the answer to the preliminary issue is “no”. These proceedings are not prescribed.
- As indicated I have concerns about preliminary issues of this kind being raised as in this case. In Public Services Committee v Maynard 1996 JLR 343 CofA at p.360 the Court of Appeal gave a general warning in respect of the ordering by the Royal Court of preliminary issues, warning relevantly that too often the ordering of preliminary issues results not in speeding up but in delaying the resolution of proceedings. That has been the position in this case. The Court of Appeal has repeated this warning in subsequent judgments.
- The delay is the more unfortunate for these additional reasons:
- The investors’ proceedings have been adjourned pending resolution of the Commission’s application, and the delay has therefore delayed also resolution of the investors’ rights of action.
- If, and I stress “if”, the allegations by the Commission in its Representation are correct, serious misconduct has occurred and the sooner that this misconduct is brought to book the better.
- If, and again I stress “if”, the Commission’s allegations are not well-founded, then the sword of Damocles hanging over the Respondents (and particularly over Mr Langton and Mr Black) should be removed as soon as possible.
- Regulatory proceedings such as these (and particularly here where the investors’ actions await resolution of these proceedings) should be given an appropriate degree of priority in hearing by the Royal Court.