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The Jersey Law Review – October 2006
This section of the Review contains selected cases from Guernsey as well as Jersey. The following key indicates the court to which the case reference refers.
JRC - Royal Court of Jersey
GRC - Royal Court of Guernsey
JCA - Jersey Court of Appeal
GCA - Guernsey Court of Appeal
JPC - Privy Council, on appeal from Jersey
GPC - Privy Council, on appeal from Guernsey
CHEQUES – BANKER’S NEGLIGENCE
Izodia v Royal Bank of Scotland International Ltd. Royal Ct: (Birt, Deputy Bailiff and Jurats Georgelin and King)  JRC 111
O. A. Blakeley for the plaintiff; M. St. J. O’Connell for the defendant.
A corporate customer, out of whose account some £27 million had been transferred, issued proceedings against the bank on the ground inter alia that the transfer had not been effected in accordance with the mandate. Questions arose as to: (1) whether the bank mandate, evidencing a fictitious (though subsequently ratified) board meeting of the customer was binding on the customer; (2) whether the transfers out of the customer’s account under delegated authority had been effected in accordance with that mandate; (3) if not, whether those payments were made under the actual authority of the customer; (4) whether the customer ratified the payments; (5) whether the customer elected to treat another party as its debtor rather than the bank; (6) whether the customer was estopped from claiming against the bank; and (7) whether the bank had been negligent.
Held, upholding the customer’s claim against the bank –
(1) On the facts, the meeting of the board evidenced by the mandate was fictitious. Accordingly, considered on its own, the mandate was not binding on the customer. However, the following day the customer’s board had in effect ratified both the opening of the account and the mandate and therefore, notwithstanding its initial invalidity, the mandate was binding on the customer.
(2) A bank is authorised by a bank mandate to accept instructions from the authorised signatories as described in the mandate. In the absence of negligence on its part, the bank is protected when making a payment on the instructions of authorised signatories even if those signatories are acting for fraudulent or otherwise improper purposes. In this case, the transfer of funds out of the customer’s account had been effected by way of delegated power by persons who were authorised signatories on the mandate to persons who were not so authorised. This did not mean that the transfers effected by the latter were in accordance with the mandate. In the absence of express or implied authority, an agent cannot delegate his authority in whole or in part. The authorised signatories on a mandate are the agents of the company for the purposes of giving payment instructions to the bank. In the absence of any express or implied authority, they may not in turn delegate that function. It is only the company which may appoint additional or alternative authorised signatories and this had to be done by a further board resolution with an appropriate new mandate. This was reflected in the terms of the mandate itself: it expressly stated that it was to remain in force until any amending resolution of the board had been communicated to the bank. The transfers allowed by the bank were not, therefore, in accordance with the mandate.
(3) If the transfers were actually authorised by the customer, that would provide a defence to the bank even though the transfers were not made in accordance with the mandate. A bank mandate is a document between the bank and the account holder, comprising an instruction and authority by the account holder to the bank to act on the instructions of the signatories. It is a form of ostensible authority which reveals nothing about the ostensible agent’s actual authority. Accordingly the Court had to investigate the facts in order to ascertain whether actual authority had been given. The burden of proof to show actual authority lay on the bank. On the facts, the Court had no difficulty in concluding that the customer’s board did not give actual authority for the transfers; nor did it delegate that authority to anyone who authorised the transfers.
(4) If the customer afterwards duly ratified the transfer, that would also provide a defence to the bank. Ratification is the supply of authority after the event by approval or adoption of the unauthorised act. It may be express or implied. Ratification of an unauthorised act carried out on behalf of a company must be done by the company itself. It may be ratified by the directors if they have power to do so but only by the shareholders if the actual transaction was beyond the powers of the directors. It followed that, in considering a ratification by the directors, the Court had to consider whether, in doing so, they were acting bona fide and for proper purposes in the best interests of the company because it was only in those circumstances that the directors had actual authority to act for the company. The Court had no hesitation in concluding that, in purporting to confirm that the transfers had been properly made the board had not acted bona fide in the best interests of the customer. It followed that the customer’s board had not ratified the transfers.
(5) Counsel for the bank argued that the customer had elected to treat another company (to whom the funds had been transferred) as its debtor rather than the bank. In order to establish an election to treat one party rather than another as debtor, there had to be an unequivocal act, with full knowledge of all the relevant facts, showing that the plaintiff had chosen that course. If, with full knowledge of all relevant facts, a plaintiff unequivocally adopted a transaction, and pursued one claim rather than another, and sought to obtain an advantage by pursuing one course of conduct, it could not subsequently turn round and say that the transaction upon which it had sought to rely was invalid. Any such election by the board had to be within the proper authority of the board. The threshold for showing an unequivocal act was also high. On the facts the bank did not show that these criteria had been met and there had been no election.
(6) On the facts, the bank failed to establish that it had suffered detriment by acting in reliance on any relevant representation and accordingly it could not establish that an estoppel had arisen against the customer.
(7) A bank is entitled to rely on the ostensible authority of the signatories under a mandate, unless it has notice that a signatory is acting outside or beyond his actual authority. There is also an implied term in the contract between the bank and its customer that the bank will observe reasonable skill and care in executing the customer’s orders, and a matching duty in tort. Although these issues were conceptually distinct, in practice they overlapped and it was convenient simply to consider the issue of negligence, which was the wider concept. On the Court’s findings, the question of negligence did not arise. The question of negligence only arose if the payments had been made in accordance with the mandate but without actual authority, whereas the Court had found that the payments had not been made in accordance with the mandate. However since this was the first occasion on which the Court had considered a bank’s duty of care under Jersey law the Court set out some extracts from Barclays Bank PLC v Quincecare Ltd. The law as stated in those cases reflected the law of Jersey and gave a flavour to the way the Court should approach the competing considerations of a bank’s duty to act on its customer’s instructions and the need to exercise reasonable skill and care in doing so. A fair balance had to be struck. A bank must refrain from executing an order if and for as long as the bank is put on enquiry in the sense that it has reasonable grounds for believing that the order is an attempt to misappropriate the funds of the company. The external standard of the likely perception of an ordinary prudent banker is the governing one. Factors such as the standing of the corporate customer; the bank’s knowledge of the signatory; the amount involved; the need for a prompt transfer; the presence of unusual features; and the scope and means for making reasonable enquiries may all be relevant. It was, however, often decisive that the basis of the bank’s relationship with its customer was trust, not distrust, and full weight had to be given to that consideration. The Court also had to guard against the use of hindsight in relation to decisions that in practice had had to be taken in minutes. In this case, applying Quincecare and Lipkin Gorman, the Court found that, had the bank acted in accordance with the mandate (for example, if the transfers had been effected directly on the written instructions of authorised signatories under the mandate) the bank could not in the circumstances be considered to have been put on enquiry as to the real possibility of misappropriation and accordingly it would not have been in breach of its duty of care. What happened, however, was that the bank allowed the transfers to be made otherwise than in accordance with the mandate. Its defences of ratification, election and estoppel having failed, the bank was liable to the customer.
Shaham v Lloyds TSB Offshore Ltd. & Fooks (Intervenor)Royal Ct: (Collas, Deputy Bailiff) GRC 67/2005
A.D. Laws for the plaintiff; C.H. Edwards for the defendant; N.J. Barnes for the Intervenor.
Monies were held in a joint account by two Israeli nationals. One of the joint account holders died leaving the other as sole owner of the account. The survivor gave instructions to the bank for the plaintiff to be made joint account holder with him but he died not long after and before the bank’s due diligence process had been completed, leading to a dispute between the plaintiff and the estate. The bank applied for interpleader relief and for its costs and expenses of investigating the matter.
Held, allowing costs after a certain date, and adopting the principles set out in The Lycaon, that -
(1) the general rule was that a person granted interpleader relief recovered his costs and charges out of the fund;
(2) notwithstanding the general rule, the Court retained a complete discretion on the issue of costs, and in an appropriate case, this discretion might be exercised so as to deny the party granted interpleader relief any of his costs;
PLEADING – EXCEPTIONS DE FORME
Magloire v Wright Royal Ct: (Hancox, Lieutenant Bailiff) GRC 45/2005
P. Richardson for the plaintiff; C.H. Edwards for the defendant.
The plaintiff pleaded lengthy exceptions de forme in response to a counterclaim, without filing substantive defences. The issue before the Court was the legitimacy of the exceptions pleaded.
Held, disallowing a number of exceptions, that
(1) the Royal Court was guided by English procedural law in this context as set out in those authorities concerning RSC O18 r 12. Every pleading had to contain the necessary particulars of any claim, defence or other matter pleaded;
(2) the six functions of particulars set out at paragraph 18/12/1 in the 1999 White Book had been adopted by the Royal Court, viz-
(i) to inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved;
(ii) to prevent the other side from being taken by surprise at the trial;
(iii) to enable the other side to know with what evidence they ought to be prepared and to prepare for the trial;
(iv) to limit the generality of the pleadings or of the claim or the evidence;
(v) to limit and define the issues to be tried and as to which discovery is required;
(vi) to tie the hands of the party so that he cannot without leave go into any matters not included.
SERVICE OF PROCESS OUT OF THE JURISDICTION
United Capital Corp v Bender and others CA: (Smith, Jones and McNeill, JJA)  JCA 094
J. P. Speck for the appellants (first and second defendants); S. Young for the plaintiff; P. D. James for the fifth and sixth defendants; the fourth defendant, Mr Wijsmuller appeared for himself.
The questions arose inter alia (1) whether it was necessary, for the purposes of Rule 7(c) of the Service of Process Rules 1994 (the “1994 Rules”), that, in the case of the person served within the jurisdiction, the proceedings were “properly” brought in order to establish that the foreign defendant was a necessary or proper party; (2) whether Rule 7(j) of the 1994 Rules applied only to express trusts; and (3) as to the scope and territoriality of Rule 7(q) of the 1994 Rules.
Held, dismissing the appeal,
(1) Having regard to the legislative heritage of Rule 7(c) of the 1994 Rules, the Court of Appeal was unable to conclude that it was intended that the word “brought” should be construed as meaning “properly brought”. The thrust of the applicants’ argument was that the claims against the domestic defendants had not been brought in good faith, their introduction into the action having been merely a device to enable the plaintiff to rely on Rule 7(c). The applicants contended that the Deputy Bailiff did not give sufficient weight to the fact that the means of the domestic defendants were “very limited” and that there was no realistic prospect that they could satisfy the plaintiff’s claims. For these reasons, they argued, the case was not a proper one for service out of the jurisdiction. However on the evidence before him the Deputy Bailiff had been quite entitled to reject the argument that the domestic defendants were minor players and that they had been convened only as a device to justify service on the defendants who were out of the jurisdiction.
(2) Rule 7(j) of the 1994 Rules provides that leave to serve out of Jersey may be granted where the claim or application is brought within the terms of article 5 of the Trusts (Jersey) Law 1984 (the “1984 Law”). The applicants argued that Rule 7(j) applies only to express trusts, and they pointed to Rule 7(q) which, in terms, applies to constructive trusts. They submitted that support for this proposition is to be found in the case of Chellaram v Chellaram (No. 2). However Chellaram was of no assistance; it dealt with the interpretation of differently worded English rules. The definition of the word “trust” in the 1984 Law was wide enough to encompass constructive trusts. Nor did it matter that Rule 7(q) explicitly referred to constructive trusts; it was possible to envisage circumstances in which a constructive trustee would fall within Rule 7(j) but not within 7(q). The Deputy Bailiff had been entitled to conclude that the plaintiffs had made out a good arguable case that that their claims fell within Rule 7(j).
(3) Rule 7(q) of the 1994 Rules provides that leave to serve out of the jurisdiction may be granted where the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant’s alleged liability arises out of acts committed, whether by the defendant or otherwise, within the jurisdiction. The applicants contended (a) that the scope of Rule 7(q) did not extend to claims for accessory liability for breach of trust (i.e. dishonest assistance and unconscionable receipt) such as was alleged against them and (b) that, in any event, the plaintiff had failed to make out a good arguable case that the rule applied to them because there was no territorial connection between their alleged liability and Jersey. However, the statutory provisions governing service out of Jersey fell to be construed sympathetically with the statutory provisions which defined the extent of the Court’s jurisdiction. The term “constructive trustee”, when it is used in Rule 7(q), therefore, had to be construed in the same way as when it is used in the 1984 Law. The plaintiff had made out a good arguable case that both applicants had made or received a profit, gain or advantage from the alleged breach of trust and were, therefore, constructive trustees within the meaning of article 33 of the 1984 Law and of Rule 7(q). The plaintiff’s case was not restricted, therefore, to reliance only on accessory liability. The applicants accepted that the law of Jersey recognised certain causes of action for accessory liability, frequently in the past described as constructive trusteeship. They argued, however, that in accordance with the views of Lord Millett in Dubai Aluminium Co Ltd v Salaam, such liability, not giving rise to proprietary claims, fell outside Rule 7(q). In the Court of Appeal’s view, this was wrong for a number of reasons. First, Lord Millett was not excluding such claims as being illegitimate, but addressing proper taxonomy. Secondly, Rule 7(q) was enacted at a time when such claims were considered to be claims of constructive trusteeship. Thirdly, Rule 7(q) includes “other relief”, which is manifestly neither a proprietary claim nor a claim for an account. As to the question of territoriality, for the purposes of Rule 7(q) it was necessary that the defendant’s alleged liability arose out of acts committed “within the jurisdiction”. The Court of Appeal accepted the Deputy Bailiff’s view that it was sufficient for this purpose that the acts are committed to material extent in Jersey.
DIRECTORS – POWERS AND DUTIES
International Steel and Tube Industries Ltd. v Masood Royal Ct: (Hancox, Lieutenant Bailiff) GRC 50/2005
M.G.A. Dunster for the applicant; J.M. Wessels for the respondent.
The respondent minority shareholder sought to impeach a resolution passed by the applicant company removing him as a director. The applicant applied to strike out part of the defence alleging that the meeting had been convened lawfully and the resolution duly carried.
Held, dismissing the application, that -
(1) it was necessary for the Court to have regard to all the surrounding circumstances rather than simply to ascertain that a meeting was regularly convened and to inquire into whether the resolution passed matched that of which notice was given in the requisition;
(2) adopting English and Commonwealth authority, powers conferred must, like all other powers, be exercised subject to those general principles of law and equity which were applicable to all powers conferred on majorities and enabling them to bind minorities. They must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole and must not be exceeded;
(3) the appropriate question to be posed was whether the resolution was for the benefit of the members as a whole. If the answer was affirmative, then it followed that the shareholder requisitioning the meeting, and voting for the resolution at the meeting thus convened, acted for the benefit of the company as a whole; if it was in the negative he or she was not acting for the benefit of the company as a whole;
(4) the respondent was entitled to include in his pleading the circumstances which he alleged showed that the resolution, and the events leading up to it, were not in the interests of the company as a whole. Strict legal rights would be observed in the normal case, but if the impeaching party could show that he had been unfairly disadvantaged the door could remain open to him on equitable grounds.
Comment [G Dawes]
The judge did not disagree with authorities cited by counsel for the company to the effect that members may vote in their own interests, including director members, assuming that they have discharged their duties qua directors. However the strict legal rights of the members were held not to be unfettered, at least not to the point that the application to strike out could succeed. A puzzling feature of the case is the non-reliance on the minority shareholder protection provisions at s. 75 of the Companies (Guernsey) Law 1994, as amended.
INSOLVENCY – PAULINE CLAIMS
Flightlease Holdings (Guernsey) Ltd. v International Lease Finance Corporation Royal Ct: (Southwell, Lieutenant Bailiff) GRC 55/2005
J.M. Wessels for the applicants; P. Richardson for the respondent.
The proceedings were within the ambit of the liquidation of a number of Guernsey companies forming part of the Swiss Air group. The liquidator of the Guernsey companies rejected the respondent’s proofs of debt and applied to the Court for three issues to be determined. The Royal Court had granted the application and the current judgment resulted from a later application to strike out a part of the respondent’s claims.
Held, making the following orders, that -
(1) the procedure adopted had departed from what would have been the appropriate way to determine the respondent’s claims, which would have been for the respondent to be permitted or required to start an action in the Royal Court against the Guernsey companies;
(2) English procedural law principles would be adopted as to the appropriate test for determining the applications to strike out, and reduced to the simple test of whether the causes of action relied upon by the respondent were reasonably arguable;
(3) English principles of law relating to actual or apparent authority to enter into contracts were reasonably clear and would be adopted in the absence of any suggestion that Guernsey agency law was different from English law;
(4) likewise, the English law principle that principals were liable for the frauds of their agents if the agents were acting within the scope of their authority would be adopted;
(5) liberty was given to the respondent to plead a Pauline claim, citing with approval Re Esteem Settlement as to the essential ingredients of such a claim, those principles forming part of Guernsey law.
SENTENCING – DRUGS OFFENCES
Andrews v Att. Gen. CA: (Beloff, Nutting and McNeill JJA)  JCA 099
J. C. Gollop, Crown Advocate, for the Crown; D. Gilbert for the appellant.
The appellant and his co-defendants had participated in the importation of nearly 5 kilos of heroin concealed in a car. He pleaded guilty to being knowingly concerned in the fraudulent evasion of the prohibition on the importation of a controlled drug contrary to article 62(2)(B) of the Customs and Excise (Jersey) Law 1999. The heroin had a street value of between £1.5 million and £2.2 million. It was the largest importation of Class A drugs ever intercepted in Jersey. Of the co-defendants, the appellant was regarded as the main organiser. The Crown moved for a starting point of 25 years and allowing for a reduction of 3 years for an inevitable guilty plea suggested that the sentence should be 22 years. In giving judgment on behalf of the Royal Court the Deputy Bailiff emphasised the size of the consignment and the harm to the local population. He pointed out that the Rimmer guidelines suggested starting points of 14 years and upward for Class A drugs weighing 400 grams or more but were silent on any brackets for weight of drug higher than this. He emphasised that, while an exponential increase based on the difference between 400 grams and 4 kilos was manifestly inappropriate, a starting point significantly higher than 14 years was inevitable for both offences. The Court decided that 21 years should be the starting point for the appellant, rather than the 25 year figure suggested by the Crown. Making allowance for mitigation and having regard to the pleas of guilty, the Royal Court increased the allowance from 3 years to 6 years for the appellant making a final sentence of 15 years. The appellant applied for leave to appeal against sentence on the ground inter alia that the sentence of 15 years was too long having regard to Durkin and Howard v Att. Gen. and Att. Gen. v Carter, Allan & Hume.
Held, dismissing the application –
(1) The significant features of Durkin were that it was a conspiracy to import approximately 1,000 grams of heroin; the offenders were considered to be organisers; the pleas were not guilty; and the starting point was 15 years with a 13 year final sentence. In the case of Carter, Allan and Hume, the offence was importation, the total weight of drugs, heroin and cocaine, approximately 2,500 grams; the defendants were considered to be couriers; the plea was guilty; and the starting point was 16 years with an 8 year final sentence. Counsel for the appellant made the point that Carter involved 2½ times more Class A drugs than occurred in Durkin resulting in an increase in starting points of only one year. By contrast in the instant case, twice the amount of drugs resulted in an increase in starting points of 5 years. However, the offenders in Carter were mere couriers and thus in the present instance the starting points of Carter less helpful than those of Durkin.
(2) A comparison between Durkin and the instant case showed, notwithstanding the obvious differences between them, that the amount of drugs increased by four times and the starting point by 6 years. This was not inappropriate. As stated by the Deputy Bailiff in Carter, referring to cases where a defendant plays a minor part, there had to be some tapering off of the curve as the level of drugs increased. The Court of Appeal agreed with this principle but it was of more general application and included those more deeply involved as well as minor players. Nevertheless, as observed by the Deputy Bailiff, this did not mean a complete flattening of the curve and quantity remained an important element in sentencing for drug offences. The Court found nothing in the instant case to criticise in the way in which the Royal Court reached its decision, nor in the decision itself.
Burnard v Burnard CA: (Beloff, Steel & Mantell JJA) GCA 44/2005
P.A. Allen for the appellant; A.J. Ayres for the respondent.
The appellant wife had applied under article 47 of the Matrimonial Causes (Guernsey) Law 1939 for maintenance in order to assist in the discharge of third party liabilities. The Lieutenant Bailiff at first instance decided that article 47 did not extend to this purpose, the relevant provision reading: “… the Court may … order that one party shall pay … the other party … such annual or other periodic sum of money for or towards the support of such other party as the Court may deem reasonable …”.
Held, allowing the appeal, that -
(1) the Lieutenant Bailiff had given an unduly restrictive interpretation of article 47. Periodic payments to discharge the debts of another party were, in its ordinary and natural meaning, conducive to that other party’s support;
(2) English authority on the meaning of “maintenance” encouraged, by analogy, a broader construction of “support”.
DUTIES OF LICENSEES – “DRUNK” – “UNDER THE INFLUENCE”
Att. Gen. v Le Hocq Inn Ltd. Licensing Assembly: (Bailhache, Bailiff, and Jurats de Veulle, Le Brocq, Bullen, Le Breton and Le Cornu)  JRC 078
S. C. Nicolle Q.C., Solicitor General, for the Attorney General; R. C. L. Juste for Le Hocq Inn Ltd.
On 7 May 2006 an inexperienced and untrained barman, aged 20, was left in sole charge of the bar at Le Hocq Inn on a Saturday evening and served a drunk and aggressive man with four double vodkas and lemonade. When the man left the pub he drove his car and struck a pedestrian causing very serious injuries. The man was subsequently convicted of various offences and sentenced to 15 months’ imprisonment. The Attorney General referred the matter to the Licensing Assembly under article 9 of the Licensing (Jersey) Law 1974 (“the Law”).
(1) The Licensing Assembly emphasised the obligations of licensees in three respects:
(a) Managers must be fully aware of the provisions of the Law and able to instruct others working on the premises as to its essential provisions. Ideally managers will have received formal training and obtained a qualification from the British Institute of Inn Keepers or some equivalent certificate.
(b) All persons working in licensed premises must be aware of the principal provisions of the Law and be sufficiently mature and competent to enforce the law in any reasonably foreseeable circumstances. Ideally such persons will have received a formal induction course or training involving some form of simple test to ensure they understand their obligations under the Law.
(c) All licensees and those working in licensed premises must understand the distinction between being “drunk” and being “under the influence of alcohol”. As stated in the Attorney General’s reference in relation to Overend Holdings (1982) Ltd., the States had drawn a distinction between these two states of intoxication. A person who is drunk is not permitted to remain on licensed premises. A person who is under the influence of alcohol may not be served with alcohol, but may, subject to the discretion of the manager or person in charge, remain on the licensed premises. Where there is any doubt as to whether as person is drunk or under the influence of alcohol a prudent licensee should persuade the customer to leave. There was a duty to identify the two stages so that, in relation to any customer, a person under the influence of alcohol is no longer served with alcohol, and a person who is drunk is required to leave. As a general guideline, a person who is unable to stand upright, is unsteady on his feet, incoherent, aggressive or uncooperative is likely to be drunk. A person whose speech is mildly slurred or whose physical coordination is affected is likely to be under the influence of alcohol.
(2) In this case, the licensee had been guilty of gross breaches of its obligations. Having regard to all the circumstances of the case the licences held in respect of the premises were suspended for one month.
PETITION OF DOLEANCE
Att. Gen. v Michel and Gallichan Royal Ct: (Birt, Deputy Bailiff, and Jurats Le Breton, Georgelin, Clapham, King and Newcombe)  JRC 089
C. E. Whelan, Crown Advocate; D. F. Le Quesne for Michel
The applicant made a petition of doléance in respect of a decision of Commissioner Tucker on 20 June 2006 to refuse an application for an adjournment of the trial for not less than one month.
Held, dismissing the application –
(1) Doléance was well established under Jersey law: Re Doléance of Barker; Doléance of Lagadec. A doléance is a remedy “in last resort” when all other doors are closed and a grave injustice will remain unless remedied. A doléance is not an ordinary appeal. It was a review and the Superior Number may only intervene to overturn a decision where the petitioner satisfies the heavy burden of showing that a grave injustice will result whether it be from an excess of jurisdiction, a breach of natural justice, an error of law or some other manifest judicial error. The burden was particularly heavy when a defendant seeks to challenge an interlocutory decision of a trial judge during the course of case management in relation to criminal proceedings.
(2) Although, save in the case of preparatory hearings under the Police Procedures and Criminal Evidence Law (Jersey) 2003, it was correct to say that there was no immediate right of appeal against an interlocutory decision, it was not correct to say there was no right of appeal at all. If a defendant was convicted he could appeal to the Court of Appeal and could raise as a ground of appeal any criticism which he may have of any interlocutory decisions made by the trial judge. Such interlocutory decisions also often depend very much upon a detailed knowledge of, and a feel for, the case in question. The same submissions raised by the applicant were put to the Commissioner. The decision as to whether to grant an adjournment was par excellence a discretionary decision for the trial judge, which involved balancing a number of matters. The Commissioner’s decision not to grant an adjournment was within the band of reasonable decisions open to him and did not disclose a manifest judicial error which would entitle the Court to intervene. The petition was therefore dismissed.
SECURITY INTERESTS - PRIORITY
Hammerschmidt v Barclays Bank PLC Royal Ct: (Hancox, Lieutenant Bailiff) GRC 27/2005
R.I.C.E. Harris for the plaintiffs; C.H. Edwards for the defendant.
The plaintiff paid substantial sums into Barclays accounts held by a third party. It was common ground that the plaintiff retained an equitable interest in the monies under a constructive trust. The third party entered into agreements with the defendant bank securing the monies against payments made by the bank to the third parties’ order. At the time when the security agreements were made the bank had no notice of the plaintiff’s interest. The payments were made. The individuals behind the third party entity were subsequently arrested and the monies lost as a result of their fraud. The bank purported to enforce its security over the sums deposited by the plaintiff. The parties sought the determination of a preliminary issue on agreed facts as to the priority of the competing interests of the parties.
Held, determining the question of law in the defendant’s favour, that -
(1) the determination of preliminary issues of law formed a part of Guernsey procedural law. The jurisdiction to dispose of a case on a point of law on the basis that the facts in question were all accepted as proved was derived, both in Guernsey and England from the same source, namely the ancient plea of demurrer;
(2) citing and adopting general principles of equity in English law, prima facie, estates and interests primarily ranked in the order in which they were created;
(3) there were, however, two relevant exceptions, namely the purchaser for value of a legal interest in property without notice of an earlier equitable interest and the rule in Dearle v Hall to the effect that where there is (i) a fund holder (ii) someone who has, or has had, a beneficial interest, (iii) an assignee no. 1 and (iv) an assignee no.2, then priority as between assignees depended upon the order in which notice of the interest created by the dealing was given to the person affected by it, e.g. in the case of assignments of a debt, the debtor;
(4) the Court was willing to accept for the purposes of the case that the rule in Dearle v Hall would apply in Guernsey but it did not apply on the facts because there had not been successive assignments;
(5) the defendant bank nonetheless qualified as a bona fide purchaser for value without notice, the material time being the creation of the security interest, not the enforcement, and adopting a broad definition of the word “purchaser”. Notwithstanding the fact that the bank had acquired an equitable interest at the time of the making of the security agreements the bank was able to perfect its legal title acting in reliance on a power of attorney created at the time of the agreements. The Security Interests (Guernsey) Law 1993 did not affect the outcome.
Comment [G Dawes]
The case is noteworthy for the great number of old English cases cited to the Court without consideration of whether it was appropriate for a Guernsey court to conduct such an analysis given the status and age of that case-law; i.e. whether it was an appropriate starting point for a Guernsey court. There is no evidence from the judgment that either customary law (Basnage in particular) or Pothier were cited, notwithstanding their potential relevance.
SUBMISSION TO JURISDICTION OF FOREIGN COURT
X Trust Company Ltd. v RW and others Royal Ct: (Birt, Deputy Bailiff and Jurats Tibbo and Le Cornu)  JRC 057
G. Robinson for the representor; the first respondent was not represented; J. Michel for the second respondent; the third, fourth, fifth and sixth respondents were not represented; the seventh respondent appeared in person.
The representor was the trustee of a discretionary trust which, at the material time, was governed by Jersey law. The first respondent (the “Husband”) and the second respondent (the “Wife”) were beneficiaries of the trust. In divorce proceedings against the Husband in England, the Wife obtained an order from the Family Division of the High Court, which, amongst other things, joined the trustee to the English proceedings. The trustee sought the directions of the Royal Court as to whether inter alia it had been correct in refusing to submit to the jurisdiction of the English courts.
Held, approving the trustee’s stance –
(1) If a trustee does not submit to the jurisdiction of a foreign court exercising jurisdiction in the matrimonial affairs of beneficiaries, it will remain a matter of discretion for the Royal Court as to the course it should take in the light of the foreign order, whereas if the trustee has submitted, the overseas order is likely to be enforced without reconsideration of the merits. The Family Division of the English High Court was concerned to do justice between the two spouses before it, sitting in a matrimonial context, and its objective is to achieve a fair allocation of assets between those spouses. It had no mandate to consider the interests of the other beneficiaries of any trust involved. Conversely, the Royal Court would be sitting in its supervisory role in respect of trusts and its primary consideration would be to make or approve decisions in the interests of the beneficiaries.
(2) It followed that, in most circumstances, it was unlikely to be in the interests of a Jersey trust for the trustee to submit to the jurisdiction of an overseas court which is hearing divorce proceedings between a husband and wife, one or both of whom may be beneficiaries under the trust. In some cases, however, it might well be in the interests of a trustee to appear before the English court in order to put forward its point of view. For example, where all the trust assets are in England, the English court would be able to enforce its order without regard to the trustee or the Royal Court by reason of the location of the assets.
(3) These observations did not mean that the Royal Court would ignore a decision of the Family Division or other overseas court. That court will have investigated the matter very fully and will have made a decision intended to achieve a fair allocation as between the spouses. In such cases the interests of comity as well as the interests of the beneficiaries will often point strongly in favour of the Royal Court making an order which achieves the result contemplated by the order of the Family Division.
(4) In the present case, the trustee’s decision not to submit to the jurisdiction of the English court was approved.
RIGHT TO BE INDEMNIFIED OUT OF TRUST FUND
Alhamrani v Russa Management Ltd. and others Royal Ct: (Bailhache, Bailiff, sitting alone)  JRC 081
P. D. James for the representor; J. P. Speck for the second respondent; M. H. Taylor for the third, fourth, fifth, sixth, seventh and eighth respondents; S. J. Young for the ninth and tenth respondents.
The trustee of a Jersey trust appealed against the order of Greffier Substitute whereby he had substantially reduced its bill of costs submitted on taxation in litigation involving the trust. The questions arose, inter alia, as to the circumstances in which a trustee is entitled to be indemnified out of the trust fund in respect of costs and liabilities incurred by it, the appropriateness of appointing non-Jersey legal advisers in relation to a Jersey trust, the extent to which trustees should, in seeking directions, be pro-active in recommending to the Court a particular course of action and, where a trustee’s costs are ordered to be paid by another party to litigation, the Factor B uplift on taxation.
Held, allowing the appeal and remitting the taxation of the bill of costs to the Greffier Substitute for reconsideration –
(1) The issues raised were not restricted to taxation. There were also issues of trust law and it was the interplay of those issues with the procedural rules of taxation which had given rise to some confusion. The Court had to consider the circumstances in which a trustee was entitled to be indemnified out of the trust fund when acting properly and reasonably in the interests of the beneficiaries. (Different considerations applied where the trustee was defending himself in adversarial proceedings against allegation of breach of trust etc.) The starting point was that, where the trustee was acting properly and reasonably, he was entitled to be indemnified out of the trust fund for all expenses and liabilities reasonably incurred: article 26(2), Trusts (Jersey) Law 1984. In relation to legal proceedings before it, however, the Court could deprive a trustee of costs if the Court considered that the trustee had acted unreasonably: article 29, Civil Proceedings (Jersey) Law 1956; article 53, Trusts (Jersey) Law 1984. But the general principle was that a trustee was entitled to be indemnified for costs reasonably incurred, and this principle had been applied by the Court on a number of occasions: e.g. Re Esteem Settlement. The principle applied even though, in so far it related to the costs of litigation, it placed a trustee in a more advantageous position than other litigants. It followed that where a trustee is acting reasonably the question of taxation of costs should not arise.
(2) Notwithstanding the above, it was good practice for trustees in appropriate circumstances to forward accounts received in respect of legal fees and other expenses to beneficiaries in order to ascertain whether the beneficiaries had any objection to such accounts and, if so, to give consideration to such objections. Whilst it was not generally in the best interests of beneficiaries for trustees to fall out with their legal advisers, the trustee has a duty to be robust in contesting any charges made by his lawyers which he considers to be excessive or to relate to work which was unauthorised or unnecessary. This duty embraced an obligation to consider whether a particular lawyer or firm of lawyers was appropriate to the problem upon which advice was sought, and the scale of trust assets. Some firms were more expensive than others. Trustees should be alert to the necessity of employing advisers whose skills and charges bore a proper relationship both to the nature of the problem and to the size of the trust fund.
(3) In complex trust litigation it may be appropriate to seek advice and assistance from large firms of English solicitors and specialist counsel at the Chancery Bar for at least three reasons: (a) Jersey law of trusts has much in common with English law of trusts; (b) Jersey is a small jurisdiction and the management of complex trust litigation can often better achieved by drawing upon the resources and experience of large firms of English solicitors; and (c) there are few specialist practitioners in Jersey working principally in the field of trusts. However the seeking of such advice must be considered, reasonable and proportionate. Jersey legal advisers have a continuing duty to apply their minds to the reasonableness and proportionality of the involvement of English solicitors and counsel. If serious default were shown in this respect the Court would not hesitate to use its powers under article 53 of the Trusts (Jersey) Law 1984 to make an appropriate order against a legal adviser personally. A beneficiary or other interested party who wishes to complain of such misconduct has a right of recourse to the Court, which would not hesitate to use its supervisory jurisdiction to impose appropriate orders or penalties.
(4) In seeking the directions of the Courts, trustees should be impartial but this does not necessarily involve acting as a colourless cipher. There can be occasions when the Court is assisted by, and indeed needs, the trustee actively to participate in order to give impartial and constructive advice on the opposing contentions of the different beneficiaries or claimants to the trust fund. The Court was entitled to expect the fullest assistance from a trustee who should ensure that all relevant law is before the Court and that all the arguments for and against the various possible courses of action are rehearsed. It will of course then be for the Court to decide whether it agrees but it would not be in the public interest for trustees to be discouraged from making recommendations for fear of being penalised in costs just because the Court decides against the recommendation: Re Esteem.
(5) On the facts, the trustee had acted reasonably and properly in relation to the proceedings in question and was entitled to be indemnified out of the trust fund.
(6) As regards the orders of the Greffier Substitute whereby he had ordered that the trustee’s costs be paid by other parties to the litigation, the Greffier Substitute had erred in allowing only a 35-50% mark-up for Factor B. The Factor B uplift on taxation must take account of the nature of the case as a whole. This means not only its complexity and the other circumstances set out in paragraph 2(2) of Practice Direction 05/11 but also the risk factor to the lawyer. Certain litigation, especially but not exclusively heavyweight commercial litigation, was inherently more risky to conduct. The stakes were higher, and the clients may be hyper-critical and more prone to blame their advisers when things go wrong. The element of risk was a consideration when assessing the appropriate Factor B uplift for care and control. The present case involved a dispute over the destiny of trust funds worth more than $100 million and was bitterly contested. It was the kind of case which, when it came to trial, the Court would expect to attract a Factor B uplift in the region of 100%. Even in terms of the interlocutory skirmishes involved in the present appeal, the correct range was between 60% and 75%. The appeal was therefore allowed and that the taxation of the bills of costs was remitted to the Greffier Substitute for reconsideration in the light of the Court’s judgment.
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