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The Jersey Law Review – June 2005

CHOICE OF LAW IN PROPERTY TRANSACTIONS IN JERSEY LAW

Paul Matthews

Introduction

1       The sixteenth century French jurist Bertrand D’Argentré was one of the earliest to develop a modern theory of the conflict of laws.  Although he was a writer on the Coutume de Bretagne rather than on that of Normandy his work on conflicts is said to have had – and to continue to have – considerable influence on the development of Jersey private international law.[1]  Nevertheless, the body of rules dealing with the conflict of laws, or private international law as it is also known, is underdeveloped in Jersey relative to larger jurisdictions such as England. 

2       There are good historical reasons for this.  In the past Jersey was not only an insular community, but also an overwhelmingly agricultural one.[2]  Although much produce was exported, individual shipments of vegetables would not be of high value, and hence were not normally worth litigating about if something went wrong.  Moreover, in those rare cases where litigation about Jersey exports or merchant adventures did ensue, it was usually brought in the place to which the exports went or the adventures occurred, i.e. more likely London than Jersey.  Thus the opportunities for the Island’s lawyers and courts to deal with private international law issues were very few.  Very few of Le Geyt’s or Poingdestre’s writings, for example, concern such issues.[3]

3       But times change, and Jersey is now a leading offshore international finance centre.  There are modern laws expressly enacted to deal with all aspects of commerce and financial services, and many of these lay down conflicts rules.[4]  However, these express rules are situation specific, and do not lay down principles of general application.  So, where the enacted laws are silent, postwar Jersey lawyers have usually[5] referred to and followed the English common law principles of the conflict of laws.[6]  The same appears to be true for Guernsey lawyers.[7]  However, in the last twenty-five years or so the English rules in this area have become increasingly statute based.  As a result, a premium has been put (for Channel Islands lawyers, at least) on old editions of classic English textbooks such as Dicey and Morris on the Conflict of Laws, or Cheshire and North’s Private International Law. 

4       This article considers the Jersey rules on choice of law in transactions involving property, whether movable or immovable.  Central to the discussion about movable property is a case decided by the Royal Court in 1983, Re Representation of the Viscount re Nield.[8]  Although two short notes on this case, dealing with propositions of law for which the case is said to stand, are to be found in the Jersey Law Reports,[9] the case has not hitherto been fully reported anywhere.  The Act of the Court (summarising the pleadings) and a transcript of the judge’s reasons are however available.  To facilitate readers’ access to these materials, they are reproduced in an appendix to this article.  The Act of the Court is printed unaltered.  Although the actual text of the reasons for judgment is printed exactly as given in the transcript, it is accompanied by a number of footnotes which form no part of the original, but which have been contributed by the present writer in order to draw attention to certain features.

5       The pattern adopted in this article is first to consider the rules for choice of law in relation to immovables, and then those relating to movables. Within each part, consideration is given, in summary form and by way of comparison, to the corresponding rules in typical common law and civil law systems.  Finally there is a short conclusion.

IMMOVABLE PROPERTY

Common law

6       In the common law world it is a rule of great longstanding that the applicable law for determining questions relating to immovables is the law of the place where it is, the lex situs, or (as it is sometimes put) the lex rei sitae.[10]  This applies to transactions on death[11] as it does to those inter vivos.[12]  This question of choice of law is conceptually distinct from the issue of which courts should have jurisdiction to deal with such matters.  There is no logical reason why they must be the same.  But there is a practical connection, which is why it is mentioned at all.  It was and is much easier for English courts to apply English law to English land, rather than to apply some other law.  So English courts not only adopted the lex situs as the choice of law rule,[13] but also embraced the procedural rule that – with limited exceptions[14] – the English courts had no jurisdiction to determine questions of title to foreign land.[15]  This meant that English courts would rarely if ever be called upon to apply foreign law to land. 

7       In fact, the jurisdiction rule has now been partly abrogated by statute, so that in some cases where the European rules[16] do not apply the English courts now have jurisdiction to try cases of trespass or other torts to foreign land, where this does not involve trying questions of title.[17]  On the other hand, the choice of law rule, although much criticised,[18] is still in force today.  Its main value is that it reflects the practical realities of the situation: immovable property is under the direct control of the legal system in force where the immovable is.  And, unlike movable property, land has an almost mystical importance in the concept of nationhood, and is thus to be protected from the influence of alien ideas, including law.  For another system to disregard these facts and to seek to apply (say) its own law, inconsistent with the lex situs risks becoming a brutum fulmen.

Civil law

8       Looking to the civil law, the French choice of law rule for immovables – whether the dealing is inter vivos or on death – is the same pragmatic one as in England, i.e. that the lex rei sitae should apply.  This is express for immovables situated in France,[19] and derived from caselaw for other cases.  Belgian law is heavily based on French law, but it recently enacted a new Code on private international law.[20]  This makes the same rule express in all cases.[21] 

9       As for the related question of jurisdiction, it is well known that the French rules contain exorbitant provisions enabling a French national to sue[22] anyone, including foreigners, in France and to be sued[23] only in France if he wishes, even though the obligation concerned has no other connection with France.  These provisions do not prevent other systems from asserting jurisdiction according to their own rules, but mean that judgments from these systems will not be recognised in France.[24]  They can apply where a French national claims as heir to a donatrix of a foreign immovable to enforce obligations attaching to the donation against the donee.[25]  But they do not apply where actions about inter vivos dealings with immovables are concerned, and the rule is again like the common law one, i.e. that French courts have no jurisdiction to deal with questions affecting foreign immovables.[26]  And once more the new Belgian Code expressly makes international jurisdiction depend on the asset being situated in Belgium.[27]

Jersey

10     Not surprisingly, the rare statements on the question of choice of law for immovables to be found in the Jersey cases come to the same conclusion.  Thus, in Lane v Lane, where there was a dispute about a Jersey immovable which had been the subject of an order in an English divorce, the then Deputy Bailiff said, obiter -

“We note that Sheldon J [the English judge concerned] was careful not to decide questions of Jersey law, which of course govern the transfer of immovables in the Island.”[28]

11     Frankly, given the unanimity of the English and French rules on this point, it would be surprising if in Jersey it were otherwise, at least as a general proposition.   Le Geyt took the same view in relation to transfer on death.[29]

12     As for jurisdiction, there appears to be no clear authority that the Jersey courts have no jurisdiction to decide questions concerning title to foreign immovables, but there are express rules conferring (discretionary) jurisdiction on those courts in relation to land situated within Jersey.[30]  Probably the Jersey courts would be content to adopt the common law rule (and its exceptions) here as they have done in other parts of the conflict of laws.

MOVABLE PROPERTY

Common law

13     Most questions about choice of law in relation to tangible movables concern dealings with them, such as using them as security or transferring them outright, whether inter vivos or on death.  In English law there are not many authorities on the point, but there are at least three theories, each with some support.  They are (1) the law of the domicile of the owner, (2) the proper law of the transfer (or other dealing), and (3) the lex situs. 

14     The first of these is accepted to govern questions of substance in the case of transfer on death.[31]  There are dicta in old cases in favour of applying it to inter vivos transfers as well,[32] but none in modern times, and the weight of authority takes a different view.  The second theory would be advantageous in cases where a single transaction dealt with things in different places, or with things actually in transit, but less useful where the same thing were subject to two or more simultaneous transactions governed by different laws.  Moreover, in some cases, where there were various international factors involved, it might be difficult to know which was the proper law.  It is however probably the best theory for dealing with the contractual – as opposed to proprietary – consequences of the transaction.[33]  But the third theory provides the most certainty, and is the one nowadays preferred by common law courts for inter vivos transactions, whether the situs remains constant at all material times,[34] or changes.[35]

15     In relation to intangible movables, ascertaining the situs is sometimes problematic.  Hence the lex situs is not the appropriate test.  Instead, the English courts in the past usually applied that of the place where the dealing itself takes place, the lex loci actus.[36]  But there was strong academic support for a different test.   This was the proper law of the transaction by which the right was created.[37]  And in fact this is the test now applied under the Rome Convention of 1980 on the Law applicable to Contractual Relations[38] (which now has the force of law in the United Kingdom)[39] in determining the assignability of the right, the relationship between the assignee and the debtor, and any question of discharge of the debtor’s obligations.[40]  But the mutual obligations of the assignor and assignee remain governed by the law of the contract between them.[41]  There are special rules for negotiable instruments[42] and company shares.[43]

Civil law

16     In French law the choice of law rule is the same for inter vivos dealings with tangible movable property as for immovable, i.e. the lex rei sitae.[44]  Thus the effects of a pledge of movables situated in France must be governed by French law alone.[45]  However in cases of sale it may be necessary to draw a distinction between the terms of the transfer of ownership of the goods (which are regulated by the proper law of the contract) and the protection of the property rights involved (which are governed by the lex rei sitae).[46] The new Belgian statutory position is also the same,[47] except that there is a special rule for goods in transit, when the law of the place of the destination applies.[48] 

17     It is slightly more complicated for inter vivos dealings with intangible movables.  In France the original rule was that they were generally governed by the lex rei sitae of the property affected by them, although the Rome Convention approach has now superseded this where the convention applies.[49]  But intellectual property rights are governed by relevant international conventions,[50] and protection against infringing acts done in France is regulated by French law.[51]  In Belgium the Rome Convention applies to contractual rights,[52] and there are special rules for negotiable instruments, and for intellectual property.[53]

18     The French rule for choice of law in relation to succession to movables on death is governed by the law of the deceased’s domicile (in the French sense of the place where he has principally established himself)[54] at the time of death.[55] The new Belgian rule refers to the deceased’s habitual residence at the time of death, although there is also provision for the deceased himself to select the applicable law in some cases (obviously without prejudicing forced heirship rights).[56]

Jersey

19     What then is the position in Jersey?  In relation to transfers of movables on death, it is clear that the interpretation of a will is governed by the law of the deceased’s domicile at death.[57]  On the other hand, the capacity of a person to receive a legacy has been held to be governed by the law of the testator’s or the legatee’s domicile.[58]  Even more curiously, however, the jurisdiction of the Jersey court to vary a will of movable estate[59] after the death of the testator has been held to apply even where the testator died domiciled outside Jersey.[60]  So the lex domicilii rule does not hold complete sway in this area.

20     There is no jurist’s comment or case which the writer has been able to find dealing expressly with the choice of law for inter vivos dealings with tangible movable property.  Were it not for the case of Re Representation of the Viscount re Nield,[61] the lex situs rule (being the law of both France and England) would be the obvious one to apply. Re Nield is a case dealing with policies of life assurance, intangible movables, and we must consider it further in that context hereafter.  But for now we should notice that in that case the judge drew no distinction between tangible and intangible movable property.  He looked at the matter simply as one for the proper law of the transaction concerned, in that case an attempt to create security interests in the movables.  The merits of applying the proper law test to tangibles have already been considered above.  It must be an open question whether the Jersey court, faced with the question in a case involving tangible movables, would adopt the lex situs rule, or follow Re Nield.  We must simply note that, if it were the latter, it would put Jersey law at odds with both English and French law on this point.

21     In relation to intangible movables, there are at least decided cases to consider.  One is Marriott v AG,[62] a criminal case decided in 1987.  In that case a son, appointed curator of his mother’s property under the mental health law, was convicted of fraudulent conversion after he instructed his bank to sell British Government stock standing in his mother’s name without the (Jersey) court’s authority.  However, although the stock was indeed sold and the money paid, the Bank of England would not register the transfer without an order of the (English) Court of Protection, which had not been obtained.  On appeal, he argued that he had never been ‘entrusted’ with the stock for the purposes of the offence, because he had never had control of it, because he never had the Court of Protection’s order for transfer of the stock to the purchaser. 

22     The argument included the point that -

“The fraudulent conversion alleged here was of British Government stock.  This stock for legal purposes is situated in England and the relevant rules governing its disposition are the rules of English law.  English law does not permit the transfer of stock into the name of a foreign curator except with the authority of an order of the Court of Protection.  In this case, such an order was never obtained and the stock continued to be registered in the name of [the mother].”[63]

23     The court expressly accepted that -

“the appellant was not in a position in which he could obtain the transfer of the stock to a third party and the sale which he tried to arrange therefore was ultimately aborted.”[64]

24     In other words, the requirements of English law applied to any disposition of these British Government stocks. However, this did not help the appellant, as the Court of Appeal dismissed his appeal on the basis that being given control of his mother’s property as curator was sufficient for him to be ‘entrusted’ with it for the purposes of the offence.  So the decision ultimately turned on a rather broad meaning being given to the word ‘entrusted’, rather than to technical points of private international law.

25     What significance then does this case have beyond establishing that English law applied to the stock?  It is clear that the argument was that the stocks were situated in England; it is not clear whether the court accepted this, though it certainly did not dissent.   Nor indeed is it clear from the facts given where the attempted dealing took place, though probably this was in England too.  The proper law of the original transaction (the issue of the stock by the British Government) was almost certainly[65] English.  So this case does not help us to decide between the lex situs, the lex loci actus or the proper law tests for intangible movables.  (In England and France there is now the Rome Convention.  But in Jersey, of course, this does not yet apply.)

26     The other case to be discussed is Re Nield.  It is dealt with second because, although it was decided earlier[66] than Marriott, it was not reported (and then only in very brief note form)[67] until afterwards.  Consequently, it was not brought to the attention of the court in Marriott. 

27     In Nield a Jersey resident had taken out four life assurance policies in Jersey with two English life companies trading there.  Two of the four policies were expressed to be governed by English law, and a third referred to the payment of premiums in Jersey; the fourth was silent on either point.  In 1977 the policyholder (probably in Jersey, though this is not stated) executed four documents, purporting to create a legal mortgage of each of the four life policies in favour of a Jersey branch of an English bank.  Each such document expressly provided that “this mortgage shall be governed by English law”.  In 1980 the policyholder’s movable property was declared “en désastre” and the Viscount proceeded to take control of it, with a view to realising it for the benefit of the creditors.  This property included the four policies.  The bank argued that it had a valid security interest in the policies, or if not that then an outright assignment of them, and claimed the surrender values.

28     The then Deputy Bailiff, sitting alone, held that the four documents did not create valid security interests, and did not amount to outright assignments of the policies, so that the bank’s claim failed. Unfortunately the judge appears not to have taken time to consider his judgment, and the oral reasons given are consequently somewhat unstructured and disjointed.  Added to that, some of the material facts are not stated, in particular where the documents were executed, and what their most material terms were, which adds to the difficulty in working out what the case stands for.[68]  The matter is also not helped by the fact that it is apparent from a reading of the official transcript of the oral reasons that at least some of the words in the transcript are unlikely to have been those actually used, or at any rate intended.  Nonetheless we must do our best to understand and analyse the reasons given.

29     The judge appears to have held the following -

(1)     The 1977 transactions were attempts to create legal mortgages as known to English law, not outright assignments;

(2)     Jersey law did not permit the hypothecation of movables;

(3)     Jersey law permitted parties to a contract to choose the governing law, provided the choice was bona fide and legal, and there was no objection on public policy grounds;

(4)     It was not ‘bona fide and legal’ for parties to pretend to contract under one law in order to validate an agreement whose closest connection was with another law, under which the contract would not be valid;

(5)     All four parties were firmly connected with Jersey, and the 1977 transactions were not so closely allied with the UK that the proper law governing them was English; instead their closest connection was with Jersey law;

(6)     Hence Jersey law and not English law applied, and the 1977 transactions were not valid.

30     A number of comments can be made on this reasoning. The most important from the point of view of the present article is that, despite the practice of Jersey lawyers up till then, the court did not overtly attempt to ascertain what was the relevant conflicts rule in English law, let alone in French law, much less to follow either.  And it did not go into the question of the correct test for the choice of law in any depth.  It may be that it was not argued in detail, although it is plain from the Act of the Court that the question of choice of law was fairly and squarely raised on the pleadings. 

31     Instead, without any discussion, the judge treated the test for choice of law as one of the proper law of the contracts concerned (i.e. the transactions in 1977), and then proceeded to consider what that involved.  Despite the express English choice of law clauses, the judge held that the proper law of the 1977 transactions was Jersey law (under which he held that they were invalid) rather than English law (under which they may or may not have been valid).[69]

32     Whether the judge was right to hold that the 1977 transactions were attempts to create mortgages in the English sense[70] rather than outright assignments is impossible to know, as the relevant terms of the documents are not given.  Each of the documents was labelled “Legal Mortgage of Life Policy”, but we must look to the substance, not to the form; labels are not conclusive.[71]  And in Jersey, as in England, judges should interpret documents if possible so that they are valid, not void.[72] 

33     A further matter is whether, having held that the test was one of the proper law of the transaction and that in Jersey law the parties to a contract could select the governing law as long as the choice was bona fide, the judge was right then to hold that the choice of English law to govern the 1977 transactions was not bona fide.  His reasons appear to have been that the policies were governed by Jersey law and entered into in Jersey with English companies trading in Jersey, and the policyholder was a Jersey resident.  (He could have added, but did not, that the other party to the 1977 transactions was a Jersey branch of an English bank.) 

34     He concluded that the system with “the closest connection” to the 1977 transactions was that of Jersey.  That is, with respect, not a self-evident conclusion.  The underlying policies were taken out with English companies resident in England (and hence the policies were situated in England),[73] and the bank lending the money to the policyholder on the security (or so it thought) of those policies was an English resident bank, even though carrying on business in Jersey. 

35     But, and much more seriously, the judge has confused the test of good faith with that of closest connection.  The whole idea of freedom of choice exercised in good faith is to enable the parties to select a law which does not have the closest connection with the events in question.  As the test of “closest connection” is dependent on objective phenomena, freedom of choice would otherwise be simply meaningless.  But this judge considers that the fact that the parties have selected a law to govern which is not that which (in his eyes, at least) has the closest connection to the events in question, demonstrates bad faith – and conclusively at that, entitling him to ignore the choice made!

36     It is clear what the subtext in this case was.  Jersey law at this time did not permit security to be given of valuable intangible movables, such as life assurance policies, bank deposits, and so on.[74]  Consequently, and as always happens, there was pressure to find a commercial solution for Jersey residents.  This was to use English law, by means of an express choice of law clause.  Finally a case raising this issue came before the Royal Court, which did not like the practice, and struck it down. 

37     It is a strange irony that a jurisdiction such as Jersey, which makes its money in modern times by offering an alternative legal system for investors and businessmen elsewhere to take advantage of so as to avoid inconvenient rules and indeed lacunae in their own system, should have been so offended by the fact that, its own legal system not providing a sensible solution, some of their own investors and businessmen sought to go elsewhere.  A case of the biter bit.  And a deficiency remedied the very same year by the enactment of the Security Interests (Jersey) Law 1983.

38     Despite the weaknesses in the reasoning, and the perhaps rather unfortunate subtext, on the face of it this case is nevertheless an authority in favour of the test for the choice of law being the proper law of the transaction, rather than the lex situs (because the situs of the policies was England, where the debtor companies were).[75]  But we should note that, since the 1977 transactions probably took place in Jersey, the result would have been the same if the test had been that of the lex loci actus.  So it is not so strong an authority as it might have been.  However, if the Rome Convention were adopted in Jersey, the test would change to that of the proper law of the underlying transaction by which the right was created.  As it happens, in this case the result would actually still have been the same, as the judge had earlier held that the life policies were governed by Jersey law.  Nowadays, of course, the 1983 Law provides a solution for giving security in intangibles, though Re Nield is still relevant in relation to other dealings with intangibles, and as we have seen may indeed extend to tangible movables as well. 

Conclusion

39     For historical reasons, private international law in Jersey is underdeveloped.  Particularly so in this area.  For modern commercial reasons it needs not to be.  Re Nield gives us the worst of all possible worlds: a rule based on weak foundations, uncertain in scope, and clear only in ignoring both English and French law.  This is hardly conducive to confidence in Jersey’s legal system as a sensible place to do business and, in the unfortunate event of any disputes arising from that business, to resolve those disputes.  It was all very well, in the past, relying on English common law principles of the conflict of laws.  But English statutes and international conventions, to which Jersey is after all not subject, have changed a great many of these principles in their application in England.  And, as Re Nield shows, the ones that are left are not always well applied in Jersey.

40     Jersey has been happy in the last quarter century or so to enact a raft of modern commercial (and indeed non-commercial) legislation to support and regulate the modern society which it has become, and to attract business from outside the Island.  But surely a comprehensive private international law statute – as last year enacted in Belgium – is now highly desirable too.  For a legal system which is no longer insular, merely concerned, say, with the price of potatoes, but which instead claims to be international and outward looking, to maintain a situation in which a Jersey lawyer can tell his client what the relevant Jersey commercial law is, but not whether it – or, if not it, which other law – will be applied by the Jersey court in an international situation, is simply no longer acceptable.[76]

APPENDIX

IN THE YEAR ONE THOUSAND NINE HUNDRED AND EIGHTY-THREE, THE TWENTY-FIFTH DAY OF APRIL.

BEFORE Peter Leslie CRILL, Esq., C.B.E
DEPUTY BAILIFF OF JERSEY, sitting alone
by virtue of the provisions of Rule 3/6
of the Royal Court Rules, 1982.

Whereas on the 5th February, 1982, the Viscount represented to the Court:

1.      That prior to the 4th November, 1977, one Michael Vaughan Nield (hereinafter called ‘the debtor’) effected certain policies of life assurance with certain life assurance companies.  That details of the said policies are as follows:

Policy No             Assurer
11497690             Prudential Assurance Company Limited
11804475             Prudential Assurance Company Limited
2448258A             Pearl Assurance Company Limited
3221158A             Pearl Assurance Company Limited

2.      That on the 4th November, 1977, the debtor executed, in respect of each of the said policies, a document entitled "Legal Mortgage of Life Policy" in favour of the National Westminster Bank Limited, St. Brelade (hereinafter called  ‘the bank’).

3.      That on the 25th July,1980, the moveable property of the debtor was, by Act of this Court, declared "en désastre".

4.      That the bank has notified the Viscount that it claims to be entitled to certain monies representing the surrender values of the said policies in virtue of the said transaction of the 4th November, 1977.

5. That the Viscount has notified the bank that the said transaction of the 4th November, 1977, may be invalid in point of law and that, in that event, the said monies representing the said surrender values become payable into the said "désastre" for the benefit of the creditors who prove their claims therein.

Wherefore the Viscount prayed the Court to convene the bank before it and:

(1)     determine the validity of the said transaction of the said 4^th November 1977;

(2)     direct that the said monies, together with interest accrued, should be paid to the Viscount for the benefit of the creditors who prove their claims in the said "désastre";

(3)     make provision for the  costs of this application; and

(4)     make such other order as it deems fit and just.

And whereas the Court ordered that the bank be convened and it appeared forthwith.  Whereupon the Court placed the matter on the pending list;

And whereas on the 24th May, 1982, the bank filed the following answer:

1.      That paragraphs 1, 2, 3 and 4 of the Viscount's representation are admitted.

2.      That the document entitled "Legal Mortgage of Life Policy is not invalid In point of law as the document was a valid form of assignment of the policies issued by the Prudential Assurance Company Limited and the Pearl Assurance Company Limited referred to in the representation and as notice of assignment of such policies had been properly given to the said assurance companies who, subsequent thereto, were in a position to acknowledge such assignments and treat the bank as the absolute owner of the policies.

3.      That notwithstanding the valid assignment of the policies in accordance with the lex fori, such policies were Issued In accordance with the Law of England and that the proper law of the document entitled “Legal Mortgage of Life Policy" is the Law of England as evidenced by the documentation and the intention of the parties.

And whereas on the 10th June, 1982, the Viscount filed the following reply:

1.      That the Viscount joins issue with the bank on paragraph 2 of its answer.

2.      That the Viscount will object that the further matter raised in paragraph 3 of the answer, which is admitted, is not sufficient in law to render the said transaction valid as against the Viscount as administrator of the debtor’s moveable property;

And whereas on the 14^th September, 1982, on the application of the Viscount, the matter was set down for hearing;

Now this day, upon hearing the Viscount and the bank through the intermediary of their advocates, the Court, for the reasons set out in a judgment that was delivered by the Deputy Bailiff, held that the said transaction of the 4^th November, 1977, was not valid according to the law of Jersey and accordingly (a) made an order in the terms of paragraph (2) of the prayer of the said representation, and (b) ordered that the costs incurred by the Viscount in the matter be paid by the bank.

The reasons for the Court’s judgement will be found in Unreported Judgements (1983/8).

TRANSCRIPT OF ORAL REASONS FOR JUDGMENT

41     The need for deciding this issue before me in future has been resolved by recent legislation,[77] but that doesn’t mean to say that the principles which have been canvassed before me were not until the passing of that legislation of great importance.  This is an application for the determination of two issues; first, what is the proper law of four documents described therein as ‘legal mortgages’, and which contain a clause which is as follows (clause 7) – ‘This mortgage shall be governed by English law’, and secondly, whatever may be the proper law of the contract, whether it’s English or Jersey, has there been by the means of those documents four valid assignments of life insurance policies by the person named therein?  The short history of the matters before me is as follows.  Each of the policies were effected before the 4^th November 1977, by Mr Malcolm Vaughn Nield.[78]  On the 4^th, he executed the four documents I have been referred to and purported to create four ‘legal mortgages’ in favour of the National Westminster Bank.  Each of the documents which purported to create the ‘legal mortgage’ is headed in the top left hand corner, ‘NWB 1021 (Jersey) Legal Mortgage of Life Policy by Person or Company’.  That leads me to suppose that it is a standard form used in the United Kingdom but referred to in the heading as being suitable for use in Jersey.  There is nothing that I can find in it which is particularly applicable to Jersey, except the claim in the heading.  On the 25^th July Mr Nield’s assets were declared en désastre.  The bank now claims the surrender values of the policies.  The Viscount claims those surrender values for the benefit of the general creditors.

42     The law of Jersey does not permit the hypothecation of movables and therefore it cannot be said that, prima facie, the four transactions, if they are legal mortgages as understood in English law, can be valid according to Jersey law.  I have however been asked by Mr Cridland to look at the wider effect of the documents, and to say that, whatever the wording was in each one and in whatever way it is couched, that really is no more than an assignment properly executed and lawful, and known to the law of Jersey.  I am not prepared to go as far as that.  I have no doubt that the intention, both of Mr Nield and the bank, was to create what it purported to do, if it could, that is to say a ‘legal mortgage’ as known to the law of England.  Indeed it would be absurd to put in clause 7, ‘this mortgage shall be governed by English law’ if the form indeed of the document was something unknown to English law.  Furthermore, it is my belief that the proper purpose of all four documents, was for the bank to obtain preference over the assets of Mr Nield if by mis-chance he were to fall on ill times and his assets were to be declared en désastre.  I hasten to say, as Mr Day was at pains to point out, and the Court accepts it, that the documents were not an attempt to achieve a fraudulent preference in favour of the bank.  Indeed the dates between the signing of the document and the unfortunate financial collapse of Mr Nield’s affairs speaks for themselves.

43     I was referred to a number of authorities as regards the issue of the proper law of the contract and by Mr Day in particular, to the tenth edition of Cheshire on Private International Law[79] at page 201. There the learned author, having discussed the Vita Food case which is a Privy Council case, and is therefore of great weight in this Court, nevertheless drew attention to certain limitations which were to be found in the case itself.  That case, although it has been criticised in subsequent decisions, but not in the Privy Council is, as I say, one which is to be preferred to other authorities unless there are reasons to the contrary.  That case is a authority for the position, in general terms, that the parties to a contract are able to choose the law of that contract.  However, that choice is limited as the Vita case shows in two ways.  First, there is a limitation on the freedom of choice, that is to say the parties’ choice must be bona fide and legal, and secondly, there should be no reason for avoiding the choice on the grounds of public policy. If the Royal Court is to be asked to declare a choice of law, in a deed which may be English, and then for the reason of public policy, not to implement it, I would not be prepared to go as far as that unless it were clear to me that it would be right to do so.  But it is the question that ‘bona fide’ should be interpreted in the widest possible sense that concerns me.  There the learned authority of Cheshire says at page 201, ‘That the statement of the claim[80] must be bona fide and legal is not free from ambiguity’, what he presumably means is that the parties cannot pretend to contract under one law in order to validate an agreement that clearly has it’s closest connection with another law and under which the agreement would not be valid.[81]  It seems to me that as regards the policies themselves, two of them are specifically stated to be governed by the law of Jersey, one of them refers to the payment of the premiums in Jersey and one is silent; nevertheless, all four have a firm connection with Jersey, inasmuch as the person who insured his life and took out the policy lived in Jersey and the contract was actually concluded in Jersey with English companies who were trading here.  As regards the ‘legal mortgages’, as called in the documents, I cannot find that they are so closely allied with the United Kingdom, that would be right for me to hold that the proper law of those documents should be English.  In my view the closest connection with these contracts is indeed this Island and its laws.  That being so I have been asked to declare on behalf of the Viscount in the presentation as to the validity of the agreement.  I find they are not valid according to the law of Jersey, inasmuch as they purport to create a hypothecation of immeubles[82] which is contrary to Article 3 of the law on real property.[83]  Secondly, even if that were not so, I’m not satisfied that they are an assignment in the ordinary sense as understood in Jersey law.  They do not categorically transfer to the bank the choses in action with a re-transfer clause, which is customary in proper assignments, for it to transfer the assignment back after re-payment.  The form is quite clear, it purports to be a ‘legal mortgage’.  There is no such thing known to Jersey law.  It therefore follows that I should direct that the assets (or surrender value) be paid to the Viscount for the general benefit of the creditors.  As regards the question of costs, I think it is right and proper that the bank should pay the costs.

44     I’m grateful to counsel for helping me in this matter and had the law not been passed I might well have delivered a much longer and much more detailed judgment, but I don’t think it is necessary for me to do more than consider the actual documents before me.

45     Order:  Direction that the monies representing the surrender value of the policies together with interest accrued, be paid to the Viscount for the benefit of the creditors who prove their claims in the désastre; order that the costs incurred by the Viscount in the matter be paid by the bank.

Paul Matthews is a solicitor of the Supreme Court of England and Wales and a consultant with the firm of Withers LLP, 16, Old Bailey, London, EC4M 7EG.

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