2002/60
royal court
(Samedi Division)
12th March, 2002
Before:
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M.C. St. J. Birt,
Deputy Bailiff, and Jurats de Veulle,
and Georgelin.
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IN THE MATTER OF a settlement made on
21st August 1981 between Sheikh Fahad Mohammed Al Sabah and Abacus (CI) Limited (“The Esteem
Settlement”)
AND IN THE MATTER OF a settlement made
on 24th August 1992
between Sheikh Fahad Mohammed Al Sabah
and Abacus (CI) Limited (“The Number 52 Trust”)
Between
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Abacus
(C.I.) Limited, trustee of the
Esteem Settlement and the
Number 52 Trust
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The Trustee
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And
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Grupo
Torras SA
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Plaintiff
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And
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Sheikh Fahad Mohammed Al Sabah
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First
Defendant
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And
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Barbara Alison Al Sabah
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Second Defendant
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And
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Mishal Roger Al Sabah
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Third
Defendant
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And
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Advocate Michael St. John
O’Connell,
representative of the minor and
unborn beneficiaries of the Esteem
settlement and the Number 52 Trust
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Fourth Defendant
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And
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Advocate Michael St. John O’Connell,
representative of any person who may
in the future be the spouse or former
spouse of any child or remoter issue
of the first defendant
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Fifth Defendant
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And
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Ceyla Establishment
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Sixth Defendant
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And
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Esteem Limited
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Seventh Defendant
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Judgment on the claim to profits in a Pauline
action and to costs arising out of the Judgments delivered in the Royal Court in this
action on 17th January and 11th March, 2002.
Advocate J. A. Clyde-Smith for Abacus (CI)
Limited and for the Sixth
and Seventh Defendants
Advocate N.F. Journeaux
for the Plaintiff
The First Defendant did not appear and was
not represented
Advocate N.M. Santos-Costa for the Second and Third Defendants
The Fourth and Fifth Defendants did not
appear and were not
represented
judgment
the deputy bailiff:
1.
We must
now consider the question of who is entitled to profits earned on an asset
alienated in fraud of creditors, but subsequently recovered pursuant to a
Pauline action.
2.
As
described in the main judgment, following the sale of the farms in 1996, Ceyla loaned the net proceeds of sale to Abacus as trustee
of the Esteem Settlement. The
Settlement was of course the owner of the founder’s rights of Ceyla. The loan
was interest free. Certain of the
assets loaned were placed on deposit by Abacus in accordance with a direction
from the Court. The remainder were
placed on deposit or invested by Abacus.
It would appear that most if not all of the income arising, other than
on the fixed deposit ordered by the Court, has since been spent on legal fees
incurred in these proceedings.
3.
The gift
of the founder’s rights in Ceyla having been
set aside, GT argues that it should receive the interest earned by Abacus on
the moneys loaned interest free from Ceyla to Abacus
from the date upon which the loan was made. GT asks for the taking of an account in
this respect.
4.
Mr Journeaux accepts that the weight of authority is against
him but submits that the texts in question are not binding on us and we should
not follow them. In particular, we
should hold that it is unfair that an innocent recipient should be able to keep
the fruits of the thing given in fraud of creditors at the expense of the
victim. Alternatively, he argues
that the Court has an inherent power to award interest against those who are in
a fiduciary position and he submits that we should treat the innocent recipient
in a Pauline action as being in a fiduciary position towards the creditor who
has been defrauded.
5.
We deal
first with two preliminary points taken by the defendants. First, they say that GT cannot raise
this claim as it has not been pleaded.
It is true that the pleadings do not specifically allude to this
particular category of interest but they do make clear that GT will be seeking
interest upon any sums recovered.
Furthermore, paragraph 144 of GT’s
original skeleton argument filed before the hearing in October, 2001, outlined
its claim to interest in this respect.
We do not think that any prejudice is caused to the defendants. There is no reason for them to have been
taken by surprise and we see no reason why GT should not advance its claim for
interest on the Ceyla loan.
6.
Secondly,
the defendants argue that the assets transferred in fraud of creditors were the
founder’s rights in Ceyla. No income has arisen on those
founder’s rights; accordingly there are no fruits, as that expression is
used by the commentators, of the thing which has been alienated in fraud of
creditors. It is true that the
normal way of receiving the profits from a corporate entity is by way of
dividend paid to the shareholder, but if, instead of paying a dividend, the
corporate entity lends all its assets interest free to its shareholder so that
the shareholder earns and keeps the profit on the company’s assets that
would normally have been earned by the company itself, we think that that is
equivalent to the shareholder receiving the fruits or profit derived from
ownership of the company.
7.
This, of
course, only applies where the company’s assets are applied in this way
for the benefit of the shareholder rather than a third party. It is clear from the various writers on
the Pauline action that the creditor must take the thing alienated in the
condition in which he finds it upon its return. So, if the assets of Ceyla
had been poorly invested, and had declined in value, that is tough luck on the
creditor. Similarly, if Abacus had
chosen to cause Ceyla to leave all its assets on
current account at the bank, so that no interest was earned, the creditor would
have no claim for the interest that ought to have been earned. But in our judgment the position in this
case is different. In reality,
Abacus has received the benefit of the income earned on the assets of Ceyla and the position is equivalent to a dividend or
distribution having been paid on the founder’s rights.
8.
We must
therefore turn to the question of whether a creditor in a Pauline action is
entitled to the fruits of the thing alienated whilst the thing is in the hands
of an innocent recipient who is a volunteer. The writers are consistent in saying,
that subject possibly to two exceptions, he is not.
9.
We refer
first to Digest of Justinian (translated by Watson)
where it is said as follows in connection with the Pauline action at book 42 at
8.25.4:
“Restoration requires return
of not only what was alienated but also, if it be land, of the produce growing
in the land at the time of the alienation, because they passed in fraud of
creditors, as well as that gathered after proceedings have commenced. Produce taken in the interim is not
subject to restoration. Similarly, a child born in the interim to a slave woman
alienated in fraud does not have to be handed over, for it was not part of the
debtor’s estate. Proculus says that if the woman conceived after her
alienation and gave birth before proceedings began, there is no doubt that the
child is not to be handed over; but if she was already pregnant when alienated,
it may be said that the child, too, is to be restored. Labeo says
that he is not wholly clear on produce growing on the land, whether that the
praetor means only that which is already ripe or also that the unripe is
included. But even if it be only that which is ripe, this would not add to the
obligation to restore the land. For
when land is alienated, all pertaining to it and its produce constitute one
thing, the land and, whatever the form of its alienation, its produce goes with
it”.
10. It would appear therefore that fruits in
existence at the time of the alienation may be claimed by the creditor, as may
fruits earned after litigation to set aside the alienation is commenced. But all fruits earned between these two
dates remain with the recipient.
11. This view of Roman law is consistent with the
understanding of Henri Bailhache who, writing in
1875, on Droit Romain de l’action paulienne said
this at pages 48 to 49:-
“Des difficultés
sérieuses se sont élevées au sujet de
la restitution des fruits. Elles naissent du conflict de la loi 10,§
20, et de la loi 25, § 4. Nous devons, avant d’aborder
cette difficulté, rappeler le principe qui régissait, en droit romain, la restitution des fruits. Le possesseur
de bonne foi n’était tenu que de restituer les fruits par lui perçus depuis la litis contestatio, sans qu’il y eût à examiner si ceux qu’il
avait perdus (Judge’s
note: This would appear to be a misprint for ‘perçus)
avant cette époque avaient été
consommés par lui et ne
se trouvaient pas encore existants
à ce moment. Quant au possesseur de mauvaise foi, l’obligation
dont il était
tenu était plus rigoureuse et comprenait, outre les fruits perçus depuis la litis contestatio, non-seulement ceux qu’il avait perçus avant, mais encore ceux qu’il avait négligé de percevoir.”
Quant aux fruits perçus depuis la litis contestatio, les principes généraux s’appliquant
en matière d’action
Paulienne.
Bien plus, le possesseur
même de bonne foi est obligé
de comprendre, dans sa restitution, les fruits “Qui alienationis
tempore terris cohaerebant,”
parce que ces fruits étaient alors in bonis debitoris. C’est ce que décide la loi. 1.25, § 4 h. t. Mais que dire quant aux fruits qui, dans l’époque intermédiaire entre l’aliénation et l’introduction
de l’instance, ont été produits par le
fonds et perçus par
le possesseur?
La méme, 1.5 § 4, prévoyant cette hypothèse, décide qu’ils ne pourront être exigés du défendeur: “Medio autem tempore perceptos in restitutione non venire.” Certes, nous comprenons cette décision quant aux possesseurs de bonne foi, pour lesquels notre texte a déjà apporté une dérogation aux principes généraux, dérogation
que semble critiquer Labéon, dans un passage rapporté
un peu plus bas, par Venuleius.
(L25, § 6.).
Ce jurisconsulte fait, en effet, remarquer que, si un fonds
valant cent, en hiver, vaut cent dix lors
de la moisson ou des vendanges, il ne
faut pas cependant voir là deux choses distinctes,
le fonds qui vaut cent et
les fruits qui valent dix, mais bien une
seule chose, le fonds qui vaut cent”.
12. French law is to the same effect save that it
is unclear whether an exception still exists for fruits arising after the
litigation has commenced. Thus Dalloz Titre 4, Chapter 6, Section 3, Article 3, 1014, said
this:-
“Dans
les cas où l’action en révocation
peut être intentée, ou peut produire quelque
effet à son ègard, le possesseur de bonne foi, évincé
par l’action révocatoire,
ne serait pas tenu de restituer les fruits perçus durant sa jouissance (V. MM. Toullier, t. 6, no. 354; Proudhon,
de l’Usufruit, no. 2360; Rolland de Villargues, vº Fraude, no
20). Mais
le tiers aquéreur de mauvaise
foi est tenu
de les restituer”.
13. Aubry et Rau: Cours de droit
civil francais, (1902) at page 234 have this to say:-
“Quoique
l’action paulienne, dirigée contre un acte d’aliénation, diffère essentiellement de
la revendication, quant à son fondement et quant à son objet, elle est
cependant, en ce qui concerne les fruits perçus
par le défendeur, les améliorations
qu’il a faites, ou les dégradations qu’il a commises, régie par des règles
analogues à celles
qui sont admises en matière de revendication. C’est ainsi que ce
dernier est tenu de faire état des
fruits qu’il a recueillis,
à moins qu’il ne les ait perçus de bonne foi”.
14. Planiol & Ripert: Traité
Pratique de Droit Civil Français in a passage already cited at paragraph 316
of the main judgment, which we will repeat for convenience, expresses the
matter in the following way at paragraph 962 on page 267:-
“L’acquéreur
à titre gratuit au
contraire, lorsqu’il est
de bonne foi, n’est tenu que dans la mesure
de son enrichissement, tel qu’il subsiste, lorsque la demande est introduite contre lui. Il ne répond pas de la perte ou des dégradations survenues à la chose, même par son fait; il garde les fruits déjà perçus
et a droit au remboursement
intégral de ses impenses; s’il a vendu la chose, il ne doit restituer
que le prix qu’il a
touché.”
15. Finally there is a statement to the effect that
Jersey law is consistent with this
approach. At page 211 of his Les
Lois et Coûtumes de L’Ile
de Jersey, Poingdestre
states in connection with the Pauline action as follows:
“Et de la aussy
s’ensuit que puisque le contract est valable de Droict, jusques à Reuocation, l’Acquisiteur cependant demeure proprietaire & fait les fruicts
siens”.
16. There is, therefore, an unbroken line of
commentary to the effect that the innocent recipient does not have to account
for the profits earned whilst he is the owner of the thing which has been
alienated, at any rate prior to commencement of proceedings. Mr Journeaux
contends that a rule such as that described is unfair and unprincipled; why
should a volunteer receive a windfall profit from assets which should never
have been transferred to him and for which he has given no value. The profits earned should be accounted
for to the creditor who is out of pocket.
The court should not follow these authorities.
17. The defendants argued that there was an
underlying principle to the rule; namely that title of the thing alienated by
the debtor had passed to the recipient.
Unless and until he was deprived of that title by order of the court
setting aside the alienation, the recipient was entitled to the fruits of the
thing which he owned. The position
was analogous to that considered in Mendonca-v-Le Boutillier (1997) JLR 142 where the court held in reliance
inter alia upon the principles expounded by Pothier (Traité du Contrat de Vente
(1830 ed): para 326 at 363), that a transferee, who
acted in good faith in accepting movable property from a transferor who did not
have good title did acquire the right to receive any income or benefits from
that movable property arising in the meantime, without having to account for
them to the owner.
18. The defendants argued that if that rule applied
to a transferee who did not have any title to the property, albeit that he
thought he did, it must apply a fortiori to a person in the position of a
recipient in a Pauline action who does have good title until the court sets his
title aside. In other words the
rule in the Pauline action was consistent with the approach in other areas.
19. Mr Journeaux argued
that any injustice to the recipient in having to account for profits could be
avoided by allowing him a change of position defence. However, as we have described in the
main judgment, this requires the recipient to have incurred expenditure in a
way that he would not have done but for receipt of the profits. It would often be difficult for a
recipient, who no longer has the profit in his hands, to show that he changed
his position rather than just spent the money in the ordinary way. The evidential difficulties are likely
to be greater for him in the case of a modest stream of income than in respect
of a one-off substantial capital payment; yet he might suffer financial
hardship if called upon to repay the aggregate income all at once. It may be that considerations of this
nature also underlay the decisions of Roman law and French law not to require
the innocent recipient to account for profits earned.
20. In essence Mr Journeaux
invited the Court to depart from Roman law, French law and Jersey
law, as outlined by Poingdestre, on the grounds that
it would be fairer to make the recipient account for the fruits subject to a
change of position defence.
21. We accept that the customary law may be
developed in order to suit the requirements of a modern community. But this must be done in accordance with
the underlying principles. The
Court cannot change a long established rule simply because the members of the
particular Court may consider that some other rule would be fairer. The Pauline action at Jersey law has its
roots in the civil law and in the light of the overwhelming evidence of the
position at Roman, Jersey and French law that we have described, we do not
think it is open to us to introduce a wholly new rule to the effect that an
innocent recipient is liable to account for profits earned during his period of
ownership of the thing transferred subject only to a change of position
defence.
22. As an alternative argument, Mr Journeaux sought to rely on the passage from Justinian which states that crops in existence at the time
of an alienation of land are to be accounted for to the creditor on the basis
that they formed part of the thing alienated. From the further example given by Justinian of the pregnant slave girl, he drew the principle
that it was only where some new act after the alienation had to be done in
order to produce the fruits, e.g. planting a new crop, conceiving a baby, that
those fruits remained with the recipient.
By contrast where cash or founder’s rights were transferred no new
act was required to earn the fruits.
23. We cannot accept this argument for two
reasons. First we do not think that
Justinian was laying down any such principle as
contended for by Mr Journeaux. There is nothing in the text to suggest
that he was and it does not seem to have occurred to any of the subsequent
commentators to whom we have referred that he was laying down such a
principle. Secondly, even if the
principle does exist, we do not agree that, in the case of assets such as cash,
shares, etc. the recipient does not have to do anything to earn the
fruits. On the contrary it is the
recipient who decides whether to place the cash on deposit and if so at what
rate and for how long or how the assets of the company are to be invested,
thereby determining the amounts which will become available as fruits.
24. As a further alternative, Mr Journeaux argued that the Court had an inherent equitable
jurisdiction to award interest where money has been withheld or misapplied by a
person in a fiduciary position. As
with all equitable principles it should be applied to soften the rigours of a
rule of law; in this case, the rule that we have described earlier concerning
the application of fruits.
25. We have to say that we are quite unable to
categorise an innocent transferee, who has no relationship with the creditor
and who, by definition, is wholly unaware of the fact that he is not the owner
of the asset transferred and therefore free to deal with it as he pleases, as
owing fiduciary duties to that creditor, whose very existence he is unlikely to
be aware of. Accordingly, we reject
that argument.
26. However, it is clear from Justinian
and the extract from Bailhache that, at Roman law,
the position changed upon the issue of the proceedings to recover the asset
which had been alienated in fraud of creditors. The creditor, if successful in setting
aside the transfer, was entitled to fruits earned after the litigation
started. It is true that Dalloz and Aubry et Rau, in the
passages we have cited above, make no mention of this exception to the general
rule concerning fruits; nor does Poingdestre. However, it is fair to say that all of
these commentators dealt with the whole issue of fruits extremely briefly.
27. The extract from Planiol
& Ripert, on the other hand, suggests that French
law may be in accordance with the old Roman law. The text refers to the state of the
recipient’s enrichment “lorsque la demande est introduite
contre lui”. This must refer to the initiation of
proceedings. The passage then goes
on to say that the recipient may keep the fruits “déjà perçus”.
In the context this must relate back to the same time as considered
earlier in the passage, namely at the institution of the proceedings. Accordingly Planiol
& Ripert are saying that the fruits gathered
before the creditor institutes legal proceedings may be kept by the
recipient. They are silent as to
what happens to subsequent fruits, but the natural inference would seem to be
that the creditor may claim them.
28. Mr Santos-Costa argued that nothing changes as
a result of the institution of legal proceedings. Unless and until the creditor is
adjudged by the court to be successful, the asset belongs to the recipient and
he is therefore entitled to its fruits.
As an illustration of the fact that, even in modern times, this was an
appropriate principle to apply, he referred to the position in Australia. The Bankruptcy Act 1966: s.121
provides that a disposition of property with an intent to defraud creditors is,
if certain conditions are met, void.
In the case of Official Trustee in Bankrupcy v
Alvaro [1966] 483 FCA1, the Federal Court of Australia had to consider who was
entitled to interest earned on the monies fraudulently transferred. At page 56 the judgment had this to say:
“Although s 121 states that a
disposition to which it applies is void, the courts will treat the disposition
as effective until impugned in proceedings brought by the trustee in
bankruptcy. Thus, where there is a
disposition of property to which s 121 of the Act applies, the title which the donee receives is a defeasible
one. (See Brady-v-Stapleton (1952)
88 CLR 322 at 332-335 per Dixon CJ and Fullagar J;
Harrods Limited-v-Stanton
(1923) 1KB 516 at 520-521 per Bailhache J;521 per McCardie J.
Until the title is defeased by the trustee in
bankruptcy calling for delivery up or revesting of
the property to the trustee or by instituting proceedings to establish the
trustee’s entitlement to the property, the donee
may deal with the property as owner and is not required to account for any
profit made. If the property is
sold and the proceeds of sale dissipated by the donee
prior to defeasance the donee is not personally
liable for the value of the property (Brady v Stapleton at 332-335). Upon defeasance, if the property
remains in its original form or in some derivative form in the hands of the donee, title to the property revests
in the trustee in bankruptcy and the donee thereafter
continues to hold the property as trustee for the trustee in bankruptcy and
will be ordered to do all necessary acts to revest the property in the trustee in
bankruptcy. Once the property is revested, the donee thereafter
becomes personally liable to account for the property and any profits made by
or from the use of that property since the time of revesting
of the property. Thus, if the
property comprises a money sum on deposit in a bank account earning interest
the donee would not be liable for or be required to
pay over interest earned prior to defeasance. On defeasance the beneficial interest in
the chose in action being the debt owed by the bank to the donee
equivalent to the amount of the money on deposit (Croton v The Queen at 330
-331) would vest in the trustee in bankruptcy and the donee
would be required to pay over or would be liable to the trustee for any
interest earned from the date of defeasance”.
29. We acknowledge the force of this principle. We
can understand why it should apply with full vigour when the recipient believes
himself to be the owner of the asset in question, free to do with it what he
pleases and use the profits.
However, it seems to us that the position changes once litigation is
commenced by a creditor seeking to set aside the recipient’s title. At that stage the recipient knows that
his title is under attack. It
behoves him to act cautiously before deciding to deal with the profits earned
during that period. Indeed
the passage from Alvaro cited above seems to equate defeasance with the
bringing of proceedings. We do not,
however, think it would be right to hold that the creditor is entitled to the
income during that period.
Circumstances can vary enormously, and one can envisage cases where such
a rule would cause hardship and injustice to the innocent recipient. But we think that the state of the
authorities on this point, in particular the Roman law texts and Planiol et
Ripert, enable us to hold that the Court has a
discretion to award the fruits received after the start of litigation to the
creditor if satisfied that the interests of justice so require.
30. Exercising our discretion, we see no reason why
the income earned on the Ceyla loan account for the
period after proceedings were commenced should not be paid to GT. Ceyla has been
held to belong to GT and it is in the interests of justice that GT, as the
defrauded creditor, should receive the income earned on the asset rather than
the trustee. The question then
arises of when the litigation commenced for these purposes.
31. The litigation in the 1999 action has proceeded
in three stages. Initially GT
brought a proprietary tracing claim and attacked the trusts on the basis of lifting
the veil and other grounds. Later
the claim was amended to attack certain gifts into the two trusts on the basis
of a Pauline action. However, at
that stage no claim was made in respect of the gift of the founder’s
rights in Ceyla.
Such a claim was added only at a later stage.
32. Mr Journeaux argues
that any amendment of a pleading, even by introducing a new claim, relates back
to the date of the original institution of the proceedings. He referred us to Vezier
v Bellego (1994) JLR 75, a decision given in the
context of limitation periods. He
argues that the relevant date, therefore, is not the date upon which the
pleadings were amended to introduce the claim in respect of Ceyla,
but rather the date upon which the 1999 action was commenced.
33. We do not think that the doctrine of relating
back is relevant in this case. The
reason for concluding that it is right for there to be a discretion in the
allocation of profits earned from the thing transferred after the institution
of proceedings is that the recipient is thereafter aware that he might not be
the owner of the asset. Before then he is entitled to assume that he is the
owner. It would be inconsistent
with this principle to allow a creditor to relate matters back to a time before
he made the claim in respect of the particular asset in question.
34. In our judgment, for the purpose of dealing
with the profits of an asset transferred which is then the subject of a Pauline
action, the relevant date is the date upon which the creditor first brought a
claim to set aside the gift of that asset.
In this case that is the date upon which the pleadings were amended to
introduce the specific claim to set aside the gift of the Ceyla
founder’s rights.
35. Accordingly, we order that, if the sum in
question cannot be agreed, an account should be taken before the Master of the
Royal Court to ascertain the profits earned upon or derived from the Ceyla loan account from the date, which we take it can be
agreed by counsel, upon which the pleadings were amended to include a claim to
the Ceyla founder’s rights; the sum so found
shall be paid by the trustee to GT.
36. We turn now to the question of costs which
falls for decision by me alone. GT
applies for costs on the standard basis against the defendants and for an order
that the defendants pay the trustee’s costs on a similar basis. The defendants on the other hand argue
there should be no order for costs save that the trustee should be entitled to
its costs on an indemnity basis out of the two trust funds.
37. The principles to be applied by the Court are
those set out by Nourse LJ in Re Elgindata
No 2 (1993) 1 All ER 232 which was approved by the Court of Appeal in Olcott Investments Limited v Mark Amy Limited (1998) JLR
62. These principles are to be
found at page 237 of Elgindata.
(1 ) Costs are in the discretion of
the court. (2) They should follow the event, except
when it appears to the court that in the circumstances of the case some other order
should be made. (3) The general rule does not cease to apply
simply because the successful party raises issues or makes allegations on which
he fails, but where that has caused a significant increase in the length or
cost of the proceedings he may be deprived of the whole or part of his costs. (4)
Where the successful party raises issues or makes allegations improperly
or unreasonably, the court may not only deprive him of his costs but order him
to pay the whole or a part of the unsuccessful party’s costs. Of these principles the first, second
and fourth are expressly recognised or provided for by rr
2(4), 3(3) and 10 respectively. The
third depends on well established practice. Moreover, the fourth implies that a
successful party who neither improperly nor unreasonably raises issues or makes
allegations on which he fails ought not to be ordered to pay any part of the
unsuccessful party’s costs”.
38. Mr Journeaux argues
that GT has essentially been successful.
It brought three separate causes of action. The first was a proprietary tracing
claim. It has been successful as
the Court has held that it has a proprietary interest in 97 Dulwich Village and 242 Turney Road. The second is a claim in restitution as
an alternative. The Court has held
that GT would have succeeded in that if necessary. The third is the Pauline action. GT has
succeeded in that to a substantial degree.
The Court has held that there was an intention to defraud in respect of
all the transfers except some income resettlements prior to March, 1990, and
the sum of approximately £1.5 million paid as part of the £5,000,000
in March, 1990. It has succeeded
fully in respect of the No. 52 Trust and the transfer of Ceyla. It has made a reasonable recovery in
respect of the remaining gifts. In
essence out of total assets in the two trusts approaching £11¼
million it has recovered approximately £5 million pursuant to the
judgment.
39. He referred the Court to a Calderbank
offer made by the defendants just before the trial began. This offered £2.5 million plus
payment of GT’s costs. He submitted that if the defendants considered
recovery of £2.5 million sufficient to justify GT recovering all its
costs, the Court should consider a recovery of £5 million sufficient for
that purpose. However Mr
Santos-Costa argued that the letter should not be held against the defendants. It could not be right that the
defendants should be in a worse position by making an unsuccessful Calderbank offer than if they had never made any offer at
all. The Court should consider the
question of costs without regard to the offer. We think that that must be right and
accordingly we place no weight on the letter.
40. Mr Santos-Costa argued that GT had been
unsuccessful in several respects:
Thus:
(i)
In the
proprietary claim GT had based its claim on a right to trace to the loan
account between Esteem Settlement and Esteem Limited. The Court had found against GT on that
aspect in trenchant terms. GT had
succeeded on a very different basis to that relied upon, namely tracing to the
underlying real property and improvements thereto. It had claimed £1,267,686 plus
interest but had recovered only approximately £250,000.
(ii) In the Pauline action GT had not only failed to
prove the necessary intent to defraud in some cases but it had also essentially
lost on the change of position argument in relation to the gift of £3.5
million in March, 1990, and the income resettlement gifts. This had taken up a large part of the
hearing. In essence, in respect of
the transfers to the Esteem Settlement (other than Ceyla),
GT had claimed some £7.1 million but had recovered approximately
£475,000.
41. Mr Santos-Costa submitted that the argument on
the Esteem loan account in the proprietary claim fell within category (iv) of Nourse LJ’s classification,
so that GT should pay the defendants’ costs in this respect. Category (iii) applied to the other
issues upon which GT had been unsuccessful.
42. As a separate argument, Mr Santos-Costa
referred to the fact that this was the trial of separate issues, namely the
proprietary claim, the restitutionary claim and the
Pauline action. These had been
hived off from the remainder of the 1999 action at the request of GT (see the
judgment of this Court 12th February, 2001, Jersey Unreported), largely on the
basis that, if GT were successful on these issues, the trust funds would be
exhausted and there would be no need for the trial of the remainder of the 1999
action with consequential saving of costs.
He argued that events had shown this to be wrong as there were still
assets of some £6 million left in the Esteem Settlement. I do not think that this is a relevant
consideration. The Court decided
after argument to order a separate trial of these issues. I do not think that GT should be
penalised in relation to the outcome of this hearing merely because, as events
have turned out, the trial of these issues has not necessarily put an end to
the whole of the 1999 action.
43. I return therefore to the question of the costs
of the trial of these preliminary issues.
In my judgment, this is not a case, such as a building dispute, where
there are many wholly separate small items giving rise to a large claim. If the plaintiff succeeds in a few of
these he will clearly only have succeeded to a modest extent and the costs will
reflect this. Similarly, if, as in Sim v Thomas (9th October, 2001) Jersey Unreported, the
plaintiff brings a claim based on two different causes of action and wholly
fails on one of those causes of action, this, too, should be reflected in the
costs order. But that is not the
situation here. GT has succeeded on
all three of its separate causes of action. It is true that it has not recovered as
much as it originally claimed but it has undoubtedly succeeded in each of these
causes of action. All of the
arguments were about many different matters which went to make up the
constituent elements of each cause of action. GT was not fully successful on all of
these matters but I am satisfied that, taken in the round, GT has been
successful to the extent that it should receive its costs. I do not consider, taking a broad view,
that there are matters falling within (iii) or (iv) of Nourse
LJ’s categories which should lead me to deprive
GT of any of its costs or order GT to pay any of the defendants’ costs.
44. Accordingly I award GT its costs on the
standard basis against the defendants.
45. As to the trustee’s costs, it is entitled
to an indemnity from the trust funds under an existing court order. The
question is whether the defendants should be ordered to pay the trustee’s
costs on a standard basis so that only the difference between that and the
indemnity basis will be borne by the trusts.
46. One has to bear in mind that it was the trustee
who started these proceedings and the defendants were convened to them. The trustee has been directed to take a
neutral stance on the issues leaving the defendants and GT to fight it out. In my judgment, the right course in this
case is to leave the trustee to recover all of its costs from the trust
funds. In relation to the Esteem
Settlement this means that the trustee’s fees will be borne ultimately by
whomsoever is held to be the beneficial owner of the assets. That is usually the
case where there is a dispute in relation to a fund such as this.
47. However, a specific issue arises in relation to
the No. 52 Trust. By agreement
between the parties, unless the Court orders otherwise, all the trustee’s
costs are to be apportioned between the two trusts so that the No 52 Trust
bears 13.5% of these costs. This is
on the basis of the value of the No. 52 Trust as compared with the Esteem
Settlement. So if no other order is
made, the No. 52 Trust will incur 13.5% of the trustee’s costs in
connection with the trial of these preliminary issues.
48. As the trust fund will all go to GT as a result
of the Court’s decision, this means that GT will indirectly bear all of
these costs. In my judgment the
costs of the case attributable to argument about the No 52 Trust were
minimal. The question of whether
the gift of £4 million in August, 1992, was made with intent to defraud
was wrapped up very closely with the question of Sheikh Fahad’s
intention in relation to other gifts in 1992.
49. Furthermore, there was no argument on change of
position. All parties agreed that
GT should only recover what remained in the trust. In the circumstances I
consider that it would be unreasonable for the No 52 Trust, and indirectly GT,
to bear 13.5% of the costs when I consider that the time and effort attributed
to the No. 52 Trust was very much less.
Taking a broad view I consider that all the trustee’s costs in
relation to the trial of these preliminary issues should come out of the Esteem
Settlement.
50. I make no order against the defendants in
respect of the trustee’s costs.
Authorities
Mendonca v Le Boutillier (1997) JLR 142.
Brady v Stapleton (1952) 88 CLR 322.
Re Elgindata
[1992] 1 WLR 1207.
Re Elgindata
Ltd (No 2) [1993] 1 All ER 232 CA.
AEI Rediffusion
v Phonographic Performance [1999] 1 WLR 1507.
Perry v Stopher
[1959] 1 WLR 415.
Alsop Wilkinson v Neary [1996] 1WLR 1220.
Sim v Thomas (2001) JLR 460.
Olcott Investments Limited –v- Mark Amy Limited and Viscount of the Royal Court (1998)
JLR 62 CA.
Rahman v Chase Bank Limited (CI) Trust Company Ltd and Five Others (1990)
JLR 136.
In Re Buckton
[1907] 2 Ch 406.
The Digest of Justinian,
(edited by Alan Watson) Vol IV, Book 42.
Planiol & Ripert (1938) Vol
2, Part 1, pp. 178-196.
Jacques Ghestin:
Traité de droit
civil, (3e edition) (2001), paras.844, 846 & 855.
Planiol & Ripert: Traité
pratique de droit civil français, (1931), paras.
228-279.
Aubry et Rau: Cours de droit
civil français, (1902), pp.216-243.
Henri Bailhache:
Droit Romain de l’action paulienne, [Thesis]
(1875).
Virginia Law Review:
“Fraudulent Conveyances at Roman Law” (December 1931).
Dalloz: (1860) Titre - Obligations: Chapter 6, section 3, Tome 33:
pp.229-240.
Poingdestre: (1660) Les Lois et Coûtumes de L’Ile de Jersey
pp.205-213.
Bankruptcy Act 1966: s. 121.
Oficial Trustee in Bankruptcy v Alvaro (1966) 483 FCA 1.
Vezier v Bellego (1994) JLR 75.