Trust – damages sought from the First to the Third defendants in
relation to the creation of the Ching Trust 2006.
[2015]JRC233
Royal Court
(Samedi)
17 November 2015
Before :
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David Hunt, Esq.,
Q.C., Commissioner, and Jurats Marett-Crosby and Grime
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Between
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(1) Niall Iain MacFirbhisigh
(as Curator of Barry Lionel Ching)
(2) Barbara Mary Marvell Ching
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Plaintiffs
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And
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(1) C. I. Trustees and Executors Limited
(2) Steven Gidley
(3) Gary Killmister
(4) Kevin Manning
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Defendants
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Advocate J. Garood for
the Plaintiffs.
Advocate G. A. H. Baxter for the First and
Third Defendants.
Mr Gidley appeared on his own behalf.
judgment
the commissioner:
Introduction
1.
In these
proceedings as now constituted the Plaintiffs seek equitable compensation and
damages from the First to Third Defendants on a number of different grounds
arising out of the creation of the Ching Trust 2006 (“the Trust”)
and the subsequent administration of the affairs of the Trust. On the second day of the trial the
Plaintiffs discontinued their claims against the Fourth Defendant, Mr Kevin
Manning (a Jersey qualified écrivain), who was
represented by Advocate Williams of Ogier;
accordingly we make no further reference to the claims against Mr Manning. (When we refer to the Defendants
hereafter, we mean only the First to Third Defendants unless the context
requires otherwise.) The First to
Third Defendants dispute all the claims made against them; in addition, the
Second and Third Defendants claim that the Plaintiffs’ claims against
them are barred by prescription.
2.
In this
judgment we confine ourselves to addressing those arguments made by the parties
which seem to us to be of importance in resolving the various disputes between
them. We make clear, however, that
we have had regard to all the submissions both written and oral made to us,
whether we mention them specifically in this judgment or not.
The parties
3.
The First
Plaintiff, Mr Niall MacFirbhisigh, is the present
curator of Mr Barry Ching. Mr
Ching, who is now 67 years old, was made the subject of a curatelle on 19 June
2006. His first curator was Mr
Manning. By an order dated 25
November 2008 the Court accepted Mr Manning’s resignation as Mr Ching’s
curator and by the same order the Court appointed Mr MacFirbhisigh
as curator in Mr Manning’s place.
4.
Following
a career as a stock-broker with the firms of Trevor Mathews & Carey,
Philips & Drew, and Le Masurier James &
Chinn, Mr Ching became the managing director and owner of ARC Capital
Management Limited (“ARC”), an investment management and
stock-broking firm. Sadly he is now
in the advanced stages of Alzheimer’s disease and is a patient in St
Saviour’s Hospital. The
Second Plaintiff, Mrs Barbara Ching, is his wife. They were married on 14 November
1997. We refer collectively to Mr
and Mrs Ching as “the Chings”. The Plaintiffs were represented by
Advocates Pallot and Garrood of Carey Olsen
(principally the latter), assisted by Ms Garrett-Sadler.
5.
The First
Defendant, C.I. Trustees and Executors Limited (“CITE”), is an
English company, of which the Third Defendant, Mr Gary Killmister,
is the sole director and beneficial owner.
CITE and Mr Killmister were represented by
Advocate Baxter of Viberts, assisted by Ms Zambon.
6.
The Second
Defendant, Mr Steven Gidley, was from June 2001 to January 2007 the managing
director of Compliance Solutions Limited (“Compliance”). During the ten years up to 2001 he was
involved in offshore compliance with HSBC Bank International Limited, ending as
head of offshore compliance. Mr
Gidley appeared in person. This
proved to be less of a problem for the Court than might have been expected
since Mr Gidley conducted his case with considerable ability.
7.
Mr Killmister, the Third Defendant, is a tax accountant in
practice in Hexham, Northumberland; he has practised as an accountant since
1987. He is also the sole director
and beneficial owner of C.I. Accountancy Limited, an affiliate of CITE. He initially trained and worked in
Jersey. Between 1994 and 2007 he
was a director of, and a shareholder in, the Beresford group of companies
providing trust and corporate services from Jersey.
Summary of the Plaintiffs’ claims
8.
The Chings, who were described in the Plaintiffs’ opening
skeleton argument as “two elderly,
vulnerable individuals”, claim that they each placed their absolute,
unqualified faith and trust in the Defendants, whose advice they sought and
relied upon in relation to their financial affairs. More particularly, the Chings were concerned to ensure their financial well-being
and security for their old age and they relied on both the Defendants’
advice and the Defendants’ implementation of that advice in order to
safeguard their financial future.
9.
The advice
on which the Plaintiffs relied was initially given to Mr Ching by Mr Gidley in
November 2005 and consisted in summary of statements to the effect that the Chings were in dire financial straits, that they had no
alternative but to liquidate all of their assets and that the solution to their
financial difficulties was to place their liquidated assets in trust. This advice was repeated and confirmed
on several occasions by each of the Defendants to both Mr and Mrs Ching. The Plaintiffs assert that the advice was
negligently given in that each of the Defendants knew or ought to have known
that the advice was bad advice and therefore likely to occasion financial loss
to them, or was reckless as to whether the advice was bad advice and therefore
likely to occasion financial loss to them.
Thus, for example, the Plaintiffs submit that the Chings
were not in fact in dire financial straits and that it was not necessary to
liquidate all of their assets.
10. The Plaintiffs also say that each of the
Defendants, in giving the advice that they did, in persuading the Chings to act on such advice and in assuming responsibility
for implementing the advice, assumed particular responsibilities to the Chings which were essentially fiduciary in nature, in that
each Defendant knew or ought to have known that the Chings
placed their trust in the Defendants, believing that they could and should rely
on the advice, that the Defendants could and should be trusted to implement the
advice on their behalf and that the Defendants would at all times act in their
best interests.
11. The Plaintiffs contend that but for the
Defendants’ advice the Chings would not have
liquidated their assets (in particular Granville, their jointly-owned property
in Jersey, and Berkeley Court, a flat in Eastbourne in Mrs Ching’s name),
would not have placed those assets in trust and would not have suffered the
capital losses that they did suffer as a direct result. The capital losses comprised in
particular sums which could have been raised from sales of shares in a Canadian
company, Digger Resources Inc. (“Digger”) which had been
incorporated on 31 December 1985, and losses on an investment bond (“the
AIG bond”). The Plaintiffs
also submit that the Chings would not have
surrendered the financial benefit of maintaining ownership of their assets,
particularly their real estate. Nor
would the Chings have been required to pay any of the
Defendants any fees for their services.
Accordingly the Defendants are, so the Plaintiffs say, directly
responsible for the consequences of the advice which caused the Chings’ financial loss. The Plaintiffs claim that the Chings are entitled to be and should be compensated by the
Defendants and placed in a position to enjoy the remainder of their lives in
the financial security which, were it not for the actions of the Defendants,
they would now be enjoying.
12. Against that background, the Plaintiffs’
claims as summarised in their opening skeleton argument fall under five
distinct heads, namely (together with the sums now claimed):-
(A) negligent
misstatement, which is alleged against Mr Gidley and Mr Killmister,
(originally jointly and severally, but now only severally)
Digger
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£411,898
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AIG Bond
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£162,500
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plus fees taken
by
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Mr Killmister
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£59,425.14
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Mr Gidley
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£28,245
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Mr Manning
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£81,496.97
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£743,565.11
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(Mr MacFirbhisigh’s
claim under this head is in respect only of the Digger shares);
(B) breach
of fiduciary duty, which is alleged against CITE, Mr Gidley and Mr Killmister severally:
Digger
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£411,898
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AIG Bond
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£162,500
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plus fees taken
by
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CITE
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£66,537.85
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Mr Killmister
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£59,425.14
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Mr Gidley
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£28,245
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Mr Manning
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£81,496.97
£810,102.90;
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(C) breach
of trust, which is alleged against CITE:
Digger
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£411,898
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AIG Bond
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£162,500
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(D) dishonest
assistance, which is alleged against Mr Killmister:
and
(E) fees
improperly charged, which is alleged against CITE:
Paid to Mr Killmister
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£59,425.14
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Paid to Mr Gidley
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£28,245
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As originally pleaded, the claims under
heads (A) and (B) included a figure for £250,000 in respect of the sale
of Granville and the claim at head (A) included a figure for £10,000 in
respect of a missing payment. At
the conclusion of his opening address, however, Mr Garrood
abandoned (rightly, in our view) any claim in respect of Granville and at the
conclusion of the evidence he abandoned (equally rightly, in our view) the
claim for £10,000.
Accordingly we say no more about these two claims.
The factual background
13. At this stage of our judgment we confine
ourselves so far as possible to matters which are uncontroversial. We omit, therefore, the details of the
disputed meetings between the parties in late 2005 and early 2006, and of Mr
Ching’s medical history, both of which we address later.
14. Mr Gidley first met Mr Ching in December 2002
when he was introduced to him by Mr Roger Matthews, then a director of
ARC. ARC was experiencing some
compliance difficulties following an inspection by the Jersey Financial
Services Commission (“the JFSC”) and ARC engaged Compliance to
provide advice. The problem with
the JFSC arose out of ARC’s client account with HSBC in Jersey becoming
overdrawn contrary (according to Mr Ching) to his instructions. Following an extended period of
discussions with the JFSC, the matter was finally resolved in early 2004 with
the JFSC agreeing to take no further action against ARC or its directors on
condition that ARC ceased trading.
ARC formally ceased trading the same year.
15. In July 2004 Mr Ching retained Compliance to
seek compensation from HSBC. Mr
Gidley advised Mr Ching that he might have a claim against HSBC and Mr Ching
asked Mr Gidley to act on his behalf.
Following lengthy negotiations between Carey Olsen for HSBC and Mr Gidley,
Mr Ching’s claim was settled in April 2005 with Mr Ching being awarded
the sum of £64,736.00, of which £35,000 was retained by the bank to
pay off the balance of an outstanding loan. Mr Huw
Shepheard, then a co-director with Mr Gidley of Compliance, participated in
these efforts to assist Mr Ching.
16. Following the demise of ARC, Mr Ching was
unemployed but he suggested that he would be of some value to Compliance by
effecting new business introductions to the company. Mr Gidley agreed to retain him as a
non-executive director of Compliance for this purpose. Although Mr Ching was initially very
optimistic in terms of his ability to introduce new clients, it became apparent
that most, if not all, of Mr Ching’s contacts were like him either fully
or semi-retired and that those still inclined to meet with him would do so only
on a social basis. Mr Ching did not
actually generate any new business or revenue for Compliance.
17. By mid-2005, there was an established business
relationship between Mr Gidley and Mr Killmister,
with Mr Gidley providing training and consultancy services to Mr Killmister’s businesses.
18. In October and November 2005 various
discussions took place between, amongst others, Mr Ching and Mr Gidley at which
Mr Ching’s financial difficulties were discussed. By that time Mr Ching owed over
£100,000 to various credit card companies and was overdrawn on his
account with HSBC.
19. On 26 November 2005, Mr Gidley, Mr Ching and Mr
Killmister made a three day trip to Montreal to
promote a proposed trust scheme (“the Investors in Canada scheme”)
for Canadian non-domiciled non-resident settlors. By this time Mr Killmister
had moved to Northumberland. This
was the first occasion on which Mr Killmister had met
Mr Ching; Mr Killmister had no prior knowledge of
either Mr or Mrs Ching or of their business or financial operations. The Investors in Canada scheme did not
come to fruition. After their return
further meetings took place between December 2005 and the end of March 2006
between, among others, Mr Ching and Mr Gidley.
20. In January 2006 Mr Ching received a summons
from the Securities and Exchange Commission (“the SEC”) in the
United States to attend their offices to be interviewed with regard to an
alleged market fraud involving one of Mr Ching’s business associates, Mr
Mervyn Fiessel.
Mr Gidley advised Mr Ching not to visit the United States on the basis
that he could be detained there pending the outcome of the investigation. When
questioned about his involvement with Mr Fiessel, Mr
Ching became withdrawn and claimed that he could not remember the details of
the company concerned. The SEC was
informed that Mr Ching was unable to travel to the US but would agree to be interviewed
by telephone in the presence of his legal adviser. The SEC did not respond to this offer
either in writing or by email.
21. In February 2006 Mr Gidley provided the Chings with undated stock transfer forms in respect of
their shareholdings in Bokhara Investments (Jersey) Limited
(“Bokhara”) and Scorpio Services Limited (“Scorpio”),
Scorpio being one of the companies in which the Chings’
Digger shares, and Digger shares owned by third parties, were held. Mrs Ching signed the forms in respect of
her shareholdings, as did Mr Ching and Mr Ching’s mother in respect of
theirs. These documents were
returned to Mr Gidley, who forwarded them to Mr Killmister.
22. On 30 March 2006 the JFSC served notices on
both Mr and Mrs Ching issued under Art.32(2)(b) of the Financial Services
(Jersey) Law 1998 (“the 1998 Law”) requiring them to attend a
formal interview at the offices of the JFSC on 23 May 2006. Enquiries which Mr Gidley made of the
JFSC confirmed that this was not a local investigation but was being carried
out at the request of the SEC in connection with their January summons. Whilst assisting the Chings
to comply with the Article 32 request, it became apparent to Mr Gidley that Mr
Ching had been working closely with Mr Fiessel in
respect of one or more American companies known as Greyfield
Capital (“Greyfield”), which were the
subject of the SEC investigation.
Mr Ching had failed to keep proper documentary records of these
arrangements. During his collation
of the available documents, Mr Gidley attempted to fill any gaps by referring
to Mr Ching himself. Mr Ching was
extremely reticent about his activities with Mr Fiessel
and when Mr Gidley questioned him directly about some of his correspondence
with Mr Fiessel he claimed that he could not remember
details of their dealings. It was
obvious from the documentation that the Chings had
set up brokerage accounts where Mr Fiessel was a
co-signatory with single signing powers; these arrangements allowed Mr Fiessel to deal on those accounts without prior authorisation
from either Mr or Mrs Ching. Mr
Gidley pointed out to them both that based on this material, and since Mr Fiessel was being investigated for market manipulation and
fraud offences, they could be vulnerable to investigation by the SEC as willing
co-¬conspirators.
23. Mrs Ching, who claimed complete ignorance of
the Fiessel affair, attended Mr Gidley’s
offices on 2 April 2006. She was
upset and angry that Mr Ching had involved her in this matter and she was
worried about what action the regulators might take against her directly. She informed Mr Gidley that her husband
was acting erratically at home; his behaviour included emotional outbursts
ranging from tearful episodes to aggressive tantrums when she attempted to
discuss the Greyfield situation and the JFSC
investigation with him, together with increasingly frequent episodes of very
heavy drinking. She stated that on
more than one occasion she had found Mr Ching passed out from drink at home. This was news to Mr Gidley; up to that
point Mr Ching had always given the impression that he was in control of the
situation, albeit concerned about the forthcoming JFSC interview. Mr Gidley suggested to Mrs Ching that
her husband was obviously under a huge amount of emotional strain as a result
of having to come to terms with his financial losses and that the added
pressure of the JFSC investigation was not helping. In the light of Mrs Ching’s
disclosure of her husband’s behaviour, Mr Gidley was concerned that the
prospect of his being interviewed under caution by the JFSC, combined with the
stressful period he had already been through, might be too much for Mr Ching to
deal with. Mr Gidley therefore
suggested to Mrs Ching that she should discuss the position with her family GP
and that, if Mr Ching’s doctor was of the opinion that Mr Ching was not
then fit to attend a formal interview under caution, he (the doctor) could
issue a letter to that effect to the JFSC; the JFSC would have to respect that
opinion. Mr Gidley suggested this
course of action on the basis that any postponement of the JFSC interview would
give Mr Ching time to regain his composure. Mr Gidley did not consider at this or
any earlier time that Mr Ching was in any way incapacitated as he had not prior
to that point behaved any differently from the person Mr Gidley had known for
nearly two years.
24. The next day, 3 April 2006, when Mrs Ching and
Mr Gidley put to Mr Ching the suggestion that he should undergo a medical
examination by his GP regarding his increased alcohol consumption, he was
initially very reluctant. Mr Ching
stated that there was nothing wrong with him and that he did not have a drink
problem. He did admit that he felt
he was becoming a little absent-minded and that he had been drinking more
heavily of late. Once, however, he
grasped the idea that a letter from his doctor might postpone the forthcoming
interview, he agreed that such an examination could not do any harm. Mrs Ching arranged for Dr Jackson, the
family GP, to examine Mr Ching at their home the next evening. Dr Jackson’s note of Mrs
Ching’s telephone call reads:-
“Telephone encounter re
predicament and emerging memory problems in relation to work.”
Mrs Ching asked Mr Gidley if he could be
present at the house during the appointment.
25. Dr Jackson duly examined Mr Ching on 4 April
2006 at Granville, during which he performed a Mini Mental State Examination
(“MMSE”). Mr Ching
obtained a score of 28/30, making one error in recall and one error in spelling
backwards. Following the
examination, the doctor, with Mr Ching’s permission, discussed matters
with Mrs Ching and Mr Gidley. Dr
Jackson voiced some concerns over Mr Ching’s memory losses and retentive
abilities and felt that this warranted further, more specialised
investigation. When asked, the
doctor did state that he would be prepared to issue a letter to the effect
that, pending further investigation of Mr Ching’s psychological health,
he did not think that it would be appropriate for Mr Ching to be placed under
the strain of a formal interview.
Mr Gidley informed the Chings that he would
notify the JFSC of these developments and seek to have Mr Ching’s
interview postponed pending the outcome of the further examinations. Shortly thereafter Dr Jackson wrote to
the JFSC. This letter was not in
the trial bundles but it simply said that Mr Ching was not fit to undergo a
stressful interview at that time and requested that the interview be postponed.
26. The following day, 5 April 2006, Dr Jackson
wrote a referral letter to Dr Harrison at the Psychiatric Department of the
Jersey General Hospital. The same
day Mr Ching wrote to CITE saying:-
“I shall be transferring
to your control a holding of one million shares in Digger Resources.”
Finally, one of Mr Ching’s credit
card statements referred to a payment to the Oriental Club in London of
£350.59, with a transaction date of 5 April. What Mr Ching was doing in London on
that date is unknown but Mrs Ching confirmed that her husband used the Oriental
Club when he was on business trips to London.
27. CITE executed the Trust deed on 6 April 2006 in
time for the start of the new United Kingdom tax year. The Bokhara and Scorpio transfer forms
were dated the same day.
28. On 12 April 2006 Mr Gidley sent a letter to Mr
Gary Godel at the Enforcement Division of the JFSC
and arranged at the same time to deliver up in accordance with the production
order whatever documentation had been located with respect to Greyfield and Mr Fiessel. In the course of a follow-up telephone
call, the JFSC agreed to postpone Mr Ching’s interview pending the
outcome of his medical evaluation but insisted on interviewing Mrs Ching. A date was set for the first week of
June.
29. The same day Extraordinary General Meetings
were held of Bokhara and Scorpio at which the existing directors were removed
from office and replaced by Mr Killmister.
30. Having had the immediate threat of the JFSC
interview removed, Mr Ching reverted to his normal cheerful state and seemed to
accept that he did have a number of issues that he was now coming to terms
with. During the course of several
meetings between Mr Gidley and the Chings, he
discussed the prospects of getting back into the business. He was of the opinion that once the JFSC
matter had blown over he would seek to recover his lost fortunes through
further investments. In a separate
discussion between Mr Gidley and Mrs Ching, she expressed her concerns that
given his track record to date there was a significant danger that her husband,
if left unchecked, would renege on the idea of a trust and seek to invest their
remaining capital in high risk ventures as he had done in the past. Mrs Ching asked what could be done to
prevent Mr Ching adopting this course of action, to which Mr Gidley replied
nothing, short of having him declared mentally incapable of conducting his own
affairs. Whilst Mr Gidley said this
half-jokingly, Mrs Ching pressed him on the subject and asked how this could be
achieved; at this juncture she was obviously very concerned for her future
welfare. Mr Gidley advised her to
discuss these concerns with her husband’s doctors and to seek their
opinion as to whether he should be trusted to manage his own financial affairs
in the future. He also advised her
that subject to medical confirmation Mr Ching might be placed into curatorship
by the Royal Court and that this would prevent him from entering into any
contractual arrangements on his own behalf. Mrs Ching discussed this idea with Mr
Ching who, surprisingly, was not averse to it when he attended Mr
Gidley’s offices a few days later.
Mr Gidley suggested to the Chings that if they
wanted to pursue this matter, they should seek professional legal advice; Mr
Gidley suggested that they speak to Mr Manning, who he knew had acted as a
Curator in the past under similar circumstances. At the Chings’
behest Mr Gidley arranged an introduction between the Chings
and Mr Manning and left the matter with them.
31. On 18 April 2006 Dr Harrison reviewed Mr Ching
in out-patients. As there was no
improvement in his cognitive state, Dr Harrison recommended an application for
curatorship and on 20 April he signed the Mental Health (Jersey) Law, 1969 Statement
by Responsible Medical Practitioner as to Patient’s Incapacity to Manage
and Administer His/Her property and Affairs, on the
grounds of “deterioration of his
cognitive abilities”. At
a meeting on 24 April between Mr Manning, Mr Gidley and the Chings
Mr Manning agreed to be Mr Ching’s curator.
32. On 21 April 2006 CITE began its efforts to
regularise the position with regard to the Digger shares, many of which were
held through Mitsukiku Investments Limited (“Mitsukiku”), a British Virgin lslands
(“BVI”) company which Mr Ching had allowed to be struck off and
which therefore required to be reinstated.
33. On 27 April 2006 there was a meeting between Mr
Ching, Mr Gidley and Mr Killmister at Mr
Gidley’s offices during which Mr Killmister
confirmed that the Trust was in place.
The following day there was a further meeting, attended also by Mrs
Ching. Mr Killmister’s
note of this meeting reads as follows:-
“-- Confirm re
[companies].
-- Explain operation of
reinstatement - we will pay & bill once cash in trust from flat, if sold.
-- Compliance
[Solutions] bill from trust when available.
-- Confirm Mrs [Ching]
operation & their [communications] with us.
-- Send confirmatory minute
-- Mitsukiku
on reinstatement
Mrs [Ching] via [Mr
Gidley].”
34. On 2 May 2006 there were meetings, attended by
the Chings, to progress the regularisation of the
affairs of Mitsukiku. One of these meetings was chaired by Mrs
Ching and she signed the minutes as chairman. In due course Mitsukiku
was reinstated in the BVI on 20 June 2006.
35. On Mr Gidley’s return from holiday in
late May 2006, the Chings attended his office to
update him and to prepare Mrs Ching for her JFSC interview the next week. The Chings informed
Mr Gidley that arrangements for the proposed curatorship were being advanced
and that both of Mr Ching’s consultants were prepared to submit a report
to the Royal Court that he was unfit to manage his own financial affairs. Mr Manning was also preparing a
submission to the Court for Mr Ching to be placed under curatorship.
36. On 9 June 2006 Mr Manning was appointed Mr
Ching’s curator. Due to Mr
Gidley’s familiarity with Mr Ching’s financial dealings, Mr Manning
retained Mr Gidley’s services as a consultant to help him unwind Mr
Ching’s financial arrangements.
The inventory prepared by Mr Manning as of the same day listed Mr
Ching’s liabilities as totalling some £393,000.
37. During the first week of the curatelle, it
became apparent that Mr Ching had been less than open about the true state of
his financial affairs. Following
the prescribed announcement in the local press, Mr Manning received a number of
claims against Mr Ching’s estate by previously undisclosed
creditors. For the most part, these
claims related to investments allegedly made by Mr Ching on behalf of others,
where Mr Ching was believed to be holding share certificates on their
behalf. The documentation which the
Chings had already provided did not shed any light on
these new claims but Mr Ching disclosed that he had retained records of all his
financial dealings at home. When Mr
Gidley visited Granville, Mr Ching directed him to 50 or so document boxes stored
in his garage. Mr Gidley’s
cursory examination of these boxes revealed that they did indeed contain copies
of transaction records, share certificates and correspondence but none of the
documentation was filed in any order.
On reporting back to Mr Manning on 13 June 2006, it was decided that all
of these records would need to be examined and sorted in order to make sense of
the claims that Mr Manning was receiving from alleged creditors of Mr
Ching. The task of sorting and
reviewing all of this documentation took eight working days, plus another two
days to collate the relevant findings.
At the end of the exercise, Mr Gidley reported back to Mr Manning that
all of the claims he had received to date were, to a lesser or greater extent,
based on fact.
38. From an examination of the documents retrieved
from his garage, it appeared that Mr Ching had received payments from a number
of individuals in respect of investments he had recommended to them. In the majority of cases, the
recommendations involved speculative, high risk investments which were wholly
unsuitable for the individuals concerned.
With the exception of the Digger shares, all of the investments made on
behalf of others by Mr Ching turned out to be worthless. Most of these investments involved companies
in which both Mr Ching and Mr Fiessel had
interests. Based on the documentary
evidence discovered, Mr Manning was able to settle a number of the claims
against Mr Ching.
39. Under cover of a letter dated 22 June 2006,
CITE sent a copy of the trust deed to Mr Manning.
40. On 27 June 2006 Mr Gidley accompanied Mrs Ching
to the offices of the JFSC where she was to be interviewed under caution. At the commencement of the interview, Mr
Gidley notified the JFSC for the record that it was unlikely in the extreme
that Mr Ching would be available for interview by the JFSC for the foreseeable
future. During the course of Mrs
Ching’s interview she gave the impression that she was naive in terms of
financial matters and had left all such arrangements to Mr Ching. She agreed that she had signed certain
account opening documentation but said that she had done so on the basis that
she trusted her husband and that she had not really understood what he was
asking her to enter into. As Mrs
Ching seemed unable to shed any light on the dealings between Mr Ching and Mr Fiessel, the interview was terminated early. Mrs Ching heard nothing further from the
JFSC following the interview.
41. During the course of July 2006 a number of
further claims were received by Mr Manning in respect of Digger shares. Mr Ching was a founder director of
Digger and had recommended the company as an investment to a wide circle of his
friends and business associates.
During this period Mr Ching continued to refer to his investment in
Digger as a potential windfall, stating that it was only a matter of time
before the share price doubled, or even trebled, in value. Even when Mr Gidley pointed out to Mr
Ching that, according to the financial reports submitted to the Toronto Stock
Exchange, Digger had zero assets and zero income for the previous three years,
his optimism remained unshaken.
42. In late July 2006 Mrs Ching telephoned Mr MacFirbhisigh, who was in business as an independent estate
agent, explaining that she and her husband had been advised that they needed to
sell Granville but that she felt that the valuations she had received were on
the low side. Mr MacFirbhisigh thereafter assisted the Chings
in the sale of Granville.
43. During October 2006, work continued on trying
to identify the true beneficial owners of the Digger shares registered in the
name of Mr Ching, Mrs Ching and their various companies. A provisional list of potential
shareholders was compiled from Mr Ching’s partial records and in a number
of cases by personal contact with persons claiming to own Digger shares. This list was passed to CITE which
assigned to a full time person the task of carrying out a full reconciliation
of the Digger shares held in the Trust for the purposes of transferring them to
the true beneficial owners.
44. By a Representation dated 20 October 2006, Mr
Manning sought the permission of the Royal Court to sell Granville for
£850,000 and for the settlement of the net proceeds into the Trust. On 24 October the Court consented to Mr
Manning’s application.
45. The same day Mr Killmister
wrote to Mr Manning as follows:-
“Ching Trust
I refer to our conversations on
the above matter. I believe that we
are in agreement that once the dust has settled on dealing with Mr
Ching’s creditors, we will have approximately £750,000 net proceeds
in the trust. Further, we are agreed that whilst there are also some shares to
sell and take into account, these are highly speculative securities, and
impossible to value.
Our policy towards the capital
will be to invest it conservatively to produce income but whilst preserving
capital. This will therefore be in
sterling bank instruments and money funds.
We are advised that we should reasonably expect a return of between 6.5%
and 7.5% in the current market. At
6.5% that would produce an income of £48,750.
It is also our intention to
obtain an actuarial assessment on Mr & Mrs Ching’s respective life
expectancies once we are in a position to know with more certainty the net
funds available within the trust fund.
As they are the only potential beneficiaries of the trust and there are
no children of the marriage, we believe that it is prudent to plan for the
contingency of a slow controlled diminution of capital as far as we are
reasonably able to do so.
Therefore, to summarise the
position, conservatively, we believe that gross annual income of £48,750
can be expected initially. We have
agreed to meet the rental charge of their new home of £1500 per calendar
month from that income. This leaves
a figure of approximately £30,750 as an income distribution. There will also be the option of small
capital distributions if need be. I
confirm that it is our current intention to distribute all income to them as an
absolute minimum.
In reaching these conclusions,
we have also ignored the possible future interest of Mr Ching in his
mother’s estate. I believe
that she is in her early 90’s, and that he would be the sole
beneficiary. This is possibly of
the order of £350,000 - £400,000 in value.
I trust that this more fully
places on record our deliberations and intentions in relation to this trust and
its ongoing management. If you need
any further explanation, please do not hesitate to contact me.”
46. Granville was sold on 27 October 2006 for
£850,000. The same day Mrs
Ching’s flat at Berkeley Court was sold for £175,000. On 2 November £166,180.76 was
transferred to CITE by way of the proceeds of sale of Berkeley Court (less a
small sum which Mrs Ching kept back for a rainy day). Four days later Mr Manning transferred
£400,000 to CITE by way of the proceeds of sale of Granville.
47. On 7 November 2006 Mr Manning wrote to the Chings enclosing a copy of his representation of 20 October
and of the order of the Royal Court dated 24 October. He confirmed that he had settled the
amounts due on the mortgages, together with Mr Gidley’s fees, and said
that he would be settling Mr Ching’s liabilities to HSBC (except for the
credit cards) that day. He
continued:-
“Steve will now liaise on
my behalf as Curator with the credit card companies as this will be more cost
effective and I think Steve is more than capable of dealing with that
aspect”.
Finally he informed the Chings
that he had transmitted an initial sum of £400,000 to CITE and that he
would be in discussions with Mr Killmister regarding
the investment of this sum. There
was no objection from the Chings to this letter. Three days later Mr Manning wrote to Mr
Gidley, enclosing a list of all the credit cards in Mr Ching’s name and
asking Mr Gidley to negotiate on his behalf with the various credit card
providers:-
“bearing in mind that
they may well have been grossly negligent in providing Barry with certain
further facilities and failed to assess the risk when a
“reasonable” provider should have”.
48. Despite Mr Gidley no longer having any
involvement with their affairs, the Chings continued
to attend his offices. During a
series of visits on 6, 14 and 23 November 2006, Mr and Mrs Ching expressed some
dissatisfaction with the way in which Mr Manning was managing Mr Ching’s
affairs, stating that in their view more of the proceeds from the sale of
Granville should have been settled into the Trust to fund their day to day
income requirements. At this time
the Chings were receiving a monthly payment from CITE
to cover their living expenses as well as having their rent paid directly by
the Trust; since not all of this expenditure could be funded from investment
income, a part distribution of capital was required. Mr Gidley informed the Chings that in his opinion Mr Manning was legally bound to
ensure that any claims pending against Mr Ching could be met before he could
release any funds into the Trust.
49. So far as Mr Gidley was concerned, this
appeared to be the beginning of a downward spiral in the relationship between
Mr Manning and the Chings. Having finally come to terms with their
changed circumstances, Mrs Ching in particular gave the impression that they
had been hard done by and that she resented the fact that what she perceived to
be their residual net worth was still being paid out in fees and settlements.
50. On 28 November 2006 Mr Manning wrote again to
the Chings as follows:-
“The remaining proceeds
of the sale of “Granville” have been placed on an interest bearing
call account with HSBC Bank Plc and principally relate to two outstanding
issues.
The first, of course, is in
respect of the outstanding credit card liabilities the negotiation of which I
have delegated to Steve. He will
attempt to get the best possible settlement that he can.
The second relates principally
to the “Sheehan monies”....
I am also now attending to
various other issues, e.g. finalising the revocation of the JFSC Licence and
ensuring that any other companies which were either owned or which Barry was a
Director of are properly dealt with.
I will also be speaking further
with Gary Killmister to discuss how (more precisely)
the Trust funds will be invested to obtain a maximum return for both of you.
I think however it would be a
good time to meet at my office (both yourself and Barry) to discuss further
where we go from here ....”
51. On 29 January 2007 Mr Manning wrote another
letter to the Chings:-
“I wrote to you both
before Christmas suggesting we have a meeting to discuss matters generally and
for me, in particular, to explain certain aspects of how precisely Curatorships work and where matters progress from here.
I know that it has been an
immensely difficult time for both of you but there are some outstanding issues
and I really do think that a meeting with myself, both of you, Steve Gidley and
possibly Gary Killmister as soon as possible would be
beneficial for everybody.”
He asked the Chings
to call as soon as possible to arrange a meeting.
52. Two days later, on 31 January 2007, Mr Killmister met Ms Alexandra to discuss what became the
investment in the AIG bond. On 20
February Mr Killmister wrote to Mr Manning enclosing “the information on the investments
the Trustees are undertaking” and saying:-
“It is our intention to
commence with a 70/30 bonds to equity/near equity split. The point of the ASI bond is that it
maintains the investments free of taxation, and allows a minimum annual
withdrawal of 5% of the original capital invested tax free. These amounts are permitted to be
cumulative, so in the initial period, there will be no need to draw against
these.”
Mr Killmister wrote
a letter in the same terms to the Chings. The same day Mr Killmister
emailed Ms Alexandra asking her to send him the application forms for the
proposed investment.
53. On 22 February 2007 Ms Alexandra wrote to Mr Killmister to confirm the outcome of their discussions, as
follows:-
“Objectives
During our meeting we discussed
various aspects of your requirements as Trustee.
At the present time, your prime
objective is to invest a lump sum in a diverse range of shares and asset
classes over the medium to long term, with flexibility in terms of taxation at
this stage. Your objective is to
secure some capital growth with a view to providing income to the trust
beneficiary in perhaps three years time. In three years time
you anticipate that you will take between 5% and 10% as income for the
beneficiary.
I explained how, when making
financial provision to fulfil these objectives, the degree of risk you are
prepared to accept for each one would be a major factor in considering the most
appropriate choice of product.
We established that the
attitude to risk you require could realistically be described as
cautious.”
On that basis Ms Alexandra recommended an
offshore bond offered by AIG Life.
The AIG bond comprised six constituent funds
representing fixed interest assets, property, UK equities, US equities,
European equities and Far Eastern equities.
54. On 26 February 2007 the Chings
responded to Mr Killmister’s letter of 20
February in the following terms:-
“Thank you for your
letter of 20 February enclosing the information from ASI which we have read
with interest. It would seem to
have the tax advantages that we have discussed the investments will have to be
made through expensive insurance linked products which will result in considerable
loss of capital performance(sic).
The letter from ASI is difficult to fully comprehend as it is written in
technical terms relating to the insurance industry and we would appreciate them
writing in “[layman’s]” terms.
On page 2 it states that the arrangement
fee has been reduced to £13,500 which still appears excessive. All investments are in open ended funds
with no consideration having been given by the advisors to closed end funds
which have the advantage of being very cheap to purchase, should incur no
annual [agents’] charges and often trade at discounts to their underlying
asset value.”
55. On 5 April 2007 Mr Killmister
completed the application form for the bond, the amount to be invested being
£400,000. The £400,000
was transferred from the Trust on 1 May.
Ms Alexandra sent the original policy documentation to Mr Killmister on 29 May.
56. On 30 May 2007 Mrs Ching wrote to Mr Manning
asking for an update of the assets he was holding on her husband’s
behalf. Two weeks later, on 14
June, Mr and Mrs Ching both signed a letter to Mr Manning enclosing a cheque
for £1,519.00 and expressing “our
wishes that these monies be transferred directly to the Trust”. The same day Mrs Ching alone wrote
to Mr Manning, as follows:-
“Further to the text
message you left on my phone, yes I would like to arrange a meeting but prior
to this, I would like a breakdown of all the transactions that have passed over
the account inclusive of any recent debits and credits.
I look forward to receiving
this information in the very near future.
Once this information has been received I will be in touch with you to
arrange a meeting.”
Mr Manning replied on 23 July:-
“I refer to
Barbara’s letter to me of 14th June 2007 and now enclose herewith a
breakdown of movements on the account together with a summary ... of current
balances on all accounts. If you
have any queries at all regarding the figures then please either of you do give
me a call.
In the meantime I enclose
herewith my fee note covering the somewhat lengthy period from 31st October
2006 to date which of course, subject to your confirmation, I will transfer
from the funds which I am currently holding.”
The breakdown evidenced curatorship fees of
£8,000 and £8,466 payable to Mr Manning and fees of £19,120
and £2,015 payable to Jurist Legal in respect of the fees of Compliance. There was no immediate response by the Chings to this letter.
It seems that the Chings did not take issue
with the fees payable to Mr Manning, although in an unsigned letter of 31
December 2007 to Mr Manning they asked for supporting invoices in respect of
the payments to Jurist Legal (a firm which Mr Ching said in the letter that he
knew).
57. On 20 September 2007 Mr Ching wrote a letter to
Mr Manning, which read:-
“Further to my letter of
Friday, I think it best if you and I discuss these matters at a separate
meeting with just the two of us at a later date.
I do not want to cause Barbara
any additional stress but I do have concerns regarding tax liabilities in the
UK in relation to the Trust and the lack of any accounting or valuations. I am also concerned at the charges that
were made for the underlying investments.”
The same day he wrote to Mr Manning, as
follows:-
“I should be grateful if
you would let me have the following information before our forthcoming meeting.
A schedule of the cash balances
and details of all payments and receipts relating to the assets that you hold
on my behalf with details of the current yield.
The [accountant’s] or
legal opinion regarding the liability to UK tax of the Ching 2006 Trust
together with detailed accounts for the Trust since inception and a copy of the
original investment scheme together with a current valuation and
[manager’s] report.
You will appreciate the need
for detailed up to date information prior to any meetings.”
58. Five days later, on 25 September 2007, Mr Ching
wrote again to Mr Manning in these terms:-
“Thank you for your
valuable assistance yesterday.
I do have some concerns
regarding the accounts for the trust which are as follows:
I understand the name of the
trust to be The Ching 2006 Settlement.
Administration and professional
fees totalling GBP 22,650 seem excessive for a simple basic UK trust.
Can it please be confirmed in
writing that the trust is not liable to UK tax as was explained to us all at
the outset.
Investments are valued at cost
and there is no indication of the market value as at the date of the accounts.
The holding in Digger Resources
would appear to relate to a holding of approximately 40,000 shares. I had expected to see a holding of circa
800,000 shares. I assume that circa
760,000 shares are awaiting transfer into the Trust and I feel that bearing in
mind the value of this holding this matter should be clarified at an early
date.
I would be pleased to discuss
these matters with you in greater detail prior to you making contact with the
Trustee.”
59. Mr Manning summarised the Chings’
concerns in a fax to Mr Killmister of 21 November
2007. He sent reminder faxes to Mr Killmister on 11 December 2007, and on 25 January and 14
February 2008, and a reminder email on 30 April 2008.
60. In the meanwhile, on 11 December 2007 Mr Killmister emailed Mr Manning as follows:-
“The other matters which
are now proving extremely problematic are that following Mr Wilson’s
intercessions, it now appears that there may be an investigation in Jersey as
to whether or not Barry was operating a fiduciary operation without a
[licence]. Over and above that, I
am now informed of the existence of another Ching Trust established by Barry in
Switzerland, but I believe for other persons, and now we have claims against
Digger shares which exceed the number of shares we apparently hold, and
absolutely no paperwork to back any of it up.
After I have dealt with the
matters surrounding my father’s passing, I intend to sort all of the
foregoing out to the extent that I am able given the dearth of records in our
possession. I believe that this
will involve [travelling] to Canada to be able to effect control over the
various brokerage accounts. Once
this is done, we will be resigning at the earliest opportunity. We find ourselves in the middle of a
Gordian [knot] of epic proportion which is entirely of Barry’s making,
and now we’re being made everyone else’s whipping boys because they
all entered into these transactions without recording them.”
61. On 16 February 2008 the Chings
wrote to Mr Manning:-
“Further to our letter of
1st February we attach a schedule of the share price of Digger Resources since
4th January. You will see from this
that the price has more than doubled over that period.
We are very concerned that
[CITE] has failed to deliver any share certificates that have been requested by
underlying holders. With the
prospect of the share price continuing to rise there could be a very substantial
claim from holders who in due course may wish to reduce their holdings. For this reason we feel it essential
that the certificates and supporting documentation are delivered to a competent
third party at an early date.
In addition we do not wish any
Digger shares held by the Ching 2006 Settlement to be sold without prior
approval from you and ourselves. Mr
Killmister and his fellow directors have to our
knowledge no investment qualifications nor are they experienced with the
technology used in oil exploration.
As such, they are unable to accurately assess the value of
[Digger’s] technology or its impact on the value of the Company. We would appreciate your comments on
this matter.”
62. Apart from a telephone discussion between the Chings, Mr Manning and Mr Killmister
on 28 January 2008, it was not until 1 May 2008 that Mr Killmister
responded to Mr Manning’s faxes and emails set out in para.59 above. Having dealt with Mr Manning’s
numbered questions, Mr Killmister continued in the
following robust terms:-
“Further, you quote your
duty to “administer the Interdict’s property and affairs as if they
were my own.” You would do
well to remember that this is a fully discretionary trust, settled by Barry
before he became an Interdict. The
property contained therein is not his nor is it Barbara’s, and it is
certainly not yours to deal with as if it were your own. The trustees presently make regular
distributions at their absolute discretion to meet the payment of the
Ching’s rent and provide them with a level of support.
Further, if and when you make
an application to the Royal, or indeed any other, Court, kindly ensure that
they are in possession of the full facts of this case, in particular those
surrounding Barry’s dealings in the Digger, and other, shares, and
purported investments he supposedly arranged for other people. In particular and inter alia other
matters, the courts should be appraised of the distinct possibility that Mitsukiku and Scorpio were used by Barry, being wholly and
solely controlled by him, to act as a nominee, fiduciary, trustee, an arranger
of investment placement and advice, etc., without having the necessary
regulatory licences to do so, and indeed never having bothered to apply for
them.
You are fully appraised of the
position with the Digger shares, but again, for the record, I will repeat it in
writing. Barry Ching established
broking accounts at various stockbrokers in Canada in his name, in the name of
Barbara Ching, and for Mitsukiku ..., Scorpio ...,
and Bokhara ..., all part of the unlicensed activities referred to above, and
all undeclared in Jersey. He was,
and still is the sole signatory on all those accounts.
It has proved extremely
difficult to get any of these brokers to agree how to deal with this
situation. We only now appear to be
making headway, hence the request for the certified copies of the court order
from you. As the Directors and
controllers of the companies concerned, we are still not able to operate these
accounts or get any information from them.
As a result, we cannot deal with any of the Digger shares in the names
of the companies.
We have a schedule gleaned from
the absolutely abysmal records created by Barry, of what we think the Digger
share allocations are to the actual owners of them. Until we are able to take control of the
brokers accounts, and reconcile uncertificated holdings (if any), against the
physical certificates we hold, and then reconcile this with the registrar of
Digger in relation to the capital restructuring that we believe took place
after the share certificates we currently hold were issued, we cannot move any
further. Simply, we have no idea as
to how many shares the companies actually hold.
Suffice it to say, as things
stand at present, we have claims for more shares than we either hold in
physical form or believe are in issue to the companies. Three claims relate to persons who have
provided us with correspondence signed by Barry, but about which there was
absolutely no mention or record in the company records we got from him. On the face of it therefore, he took
their money, and did not arrange any share allocation or acquisition on their
behalf. Potential theft or
fraud. Further, we cannot execute
any stock transfers in any event, because our signatures and authority are not
presently recognized by the various brokers.
We believe it would also be
apposite to appraise the court of the very real possibility that the person in
whose place you now stand allegedly ‘arranged’ investments for
third parties who gave him money for the purpose, and who now have no
investments to show for their cash.
In conclusion, as trustees, we
must declare that we hold the shares in Digger Resources for the benefit of
persons as yet unknown and undefined, and this may or may not include your
clients. As a consequence of this
review, and your threat of legal action, we are disinclined to continue making
distributions to your clients. We
believe you hold sufficient funds to support these requirements, and as you
said, you are obliged to deal with his assets as if they were your own. They are his assets, so you can pay his
rent and support payments from here on.
It is our intention to resolve
the issue around the Digger shares at the earliest opportunity, and once
achieved, determine the trust, and distribute any remaining balance to you in
Barry’s stead. This may involve considerable expense, and could result in
our having to engage lawyers. Your threat also makes that situation a very real
possibility.
Our duty in relation to the
shares is clearly to those persons who gave your Interdict money, whilst he was
of capacity, in contemplation of receiving these shares. It must be considered to be a very real
possibility that we might have to deal with claims for refunds where shares were
not acquired.”
63. On 19 May 2008 Mrs Ching wrote to Mr Killmister asking him to increase her monthly
payments. Mr Killmister
responded two days later, enclosing a copy of his letter to Mr Manning of 1 May
and saying:-
“I would summarize the
situation thus.
Mr Manning has told us that he
now represents you as well as Barry.
In that capacity, he has threatened us with court action.
We have received claims,
including Barry’s, to Digger Resources shares which potentially far
exceed the number of shares we believe we hold, but because of the absolutely abysmal
records that were kept by Barry, we quite simply do not know. Additionally, we have written evidence
bearing Barry’s signature from persons who purportedly were sold Digger
shares by Barry, but there is no record of them at all in the papers we received.
Mr Manning holds sufficient
funds to support you in the meantime.
As a result of his threat of court action, presumably at your
instruction, the Trustees have ceased all payments to you until the situation
surrounding the shares is entirely resolved. This is because we have the right to use
the trust funds to pay our legal fees, and also because this situation is
entirely caused by Barry’s past behaviour.
As soon as we have a resolution
to this mess, we will be determining (winding up) the trust, and sending the
balance of the funds to Mr Manning as Barry’s curator.”
64. On 22 May 2008 Mr Manning wrote to the Chings as follows:-
“I thought I would bring
you up-to-date with the following matters generally.
...
2. With regard to Mrs.
O’Sullivan’s claim which totals some £30,000.00 or more I
have investigated this and it does appear that the money was credited to
Barry’s HSBC account and unless either yourself or Barry can provide me
with [any other] information those funds do not appear to have been invested or
repaid. Could you tell me about
this but I believe that we will have to settle this claim.
3. As far as Mrs. Sheehan’s
claim is concerned I think now we either ... have to increase our previous
offer or the matter will go to Court unless of course Barry can provide me with
any other further information.”
Mrs Ching responded on 26 May saying that
all they now wished was “final
closure with all the Trust assets under your control.”
65. On 3 June 2008 the Chings
and Mr MacFirbhisigh attended the wedding of a
relative in Jersey. During the
reception Mrs Ching told Mr MacFirbhisigh of
difficulties which, she said, she and her husband were having with Mr Manning
and with the Trust. This led to a
meeting some ten days later, attended by the Chings,
Mr MacFirbhisigh and others. By the end of this meeting the Chings had decided that it would be best to remove Mr
Manning as curator. Mr MacFirbhisigh agreed to take his place.
66. On 4 July 2008, the Chings
sent Mr Manning a letter asking him to “ensure
that no further assets or cash are transferred out of your control”. On 22 July the Solicitor General
sent Mr Manning a letter informing him that:-
“I have received a letter
from Mr Ching expressing his concern and distress at the failure to produce
accounts and what he perceives as a lack of communication between you and
him. He, in consequence, wishes
someone else to act as his curator.”
Mr Manning responded on 24 July, stating
that the curatorship was complex and adding that if Mr Ching really wanted him
to resign he would do so. In his
reply of 29 July, the Solicitor General accepted “that this has clearly been a complex matter”. In August Mr MacFirbhisigh
applied to become Mr Ching’s curator and on 25 November he was so
appointed, with Mr Manning resigning the same day.
67. On 27 November 2008 there was a meeting between
Mr MacFirbhisigh and Mr Killmister. In the course of this meeting Mr Killmister stated that he wanted to get rid of the Digger
shares, close the Trust and transfer the Trust assets to Mr MacFirbhisigh.
68. On 20 March 2009 Cripps Harries Hall wrote to
CITE saying that they had been instructed by Mr MacFirbhisigh
“to assist him with matters relating
to the Ching Trust 2006”.
The letter posed a number of questions and included the following
paragraph (in bold):-
“We therefore require
your undertaking not to deal with or dispose of any assets of the Trust or
incur any expenditure or take any steps in relation to the affairs of the Trust
whatsoever save as expressly authorised by our client and Mrs Ching pending the
completion of our enquiries or order of the court.”
Mr Killmister
responded by email on 23 March declining to give any undertakings. The email continued as follows:-
“As your client is very
well aware, we wish to bring this lamentable situation to a conclusion at the
earliest opportunity. There appear
to us to be two ways forward.
Either we seek court directions ...
...
The second option is that we
determine the trust now and distribute all the assets to Mr MacFirbhisigh,
including Mitsukiku and Scorpio Services
Limited. Mr MacFirbhisigh
can then seek to complete the transfer of the shares held by Mitsukiku in the public company to the remaining
claimants. We are prepared to
discuss taking that second course of action, because it is obviously in the
best interest of the Chings, and it may break the log
jam surrounding the re registration of the shares to their beneficial
owners.”
69. On 17 September 2009 Sinels,
on the instructions of Mr MacFirbhisigh and Mrs
Ching, wrote to Mr Killmister in these terms:-
“The property, which
according to correspondence authored by you, is now contained within The Ching
Trust was never validly transferred to that Trust and is held by whoever now
holds it on a bare trust for the rightful owners namely Mr MacFirbhisigh
as Curator of Mr Ching and Mrs B M Ching.
...
It follows from the above that
you have no right to deal with any of the assets in question, that you have
never had any right to deal with the assets in question, and that neither you
nor anyone else have any right to charge fees in respect of any of the actions
undertaken in relation to any of these assets.
...
We further request that you
return forthwith to this firm all of the assets in question. We note that you have stated in previous
correspondence with Cripps Harries Hall that you are agreeable to winding up
the purported Trust. We do not
concede that there is a Trust however this does not prevent you from returning
the assets in question to this firm forthwith.”
70. On 14 May 2010 Mr Killmister
resigned as a director of Mitsukiku and Mr MacFirbhisigh was appointed a director in his stead. The Trust was determined with effect
from 19 December 2010.
The procedural history
71. The procedural history up to February 2014 is
set out in paras.2 to 16 of the judgment of Master Thompson delivered on 5
February 2014.
72. In brief, these proceedings were commenced by
an Order of Justice containing injunctions granted on 5 November 2009, the
Defendants then being CITE, Beresford Secretaries Limited, Corporate Nominees
Limited and Beresford Nominees Limited.
CITE was served on 9 November and filed its Answer on 18 December. By an order dated 5 May 2010, CITE was
ordered to retire as trustee and to transfer all the Trust assets to Mr MacFirbhisigh as Mr Ching’s curator and as nominee
for Mrs Ching. By a consent order
dated 30 November 2011, the Order of Justice was amended substantially; the
amended Order of Justice ran to some 399 paragraphs and some 90 pages including
schedules. At the same time Mr
Gidley and Mr Killmister were joined as the then
Fifth and Sixth Defendants. Mr
Gidley and Mr Killmister were both served with the
Amended Order of Justice on 16 December 2011.
73. On 16 May 2013 the then First to Fourth
Defendants, together with Mr Killmister, applied to
strike out the claims against Mr Killmister. The summons was initially returnable on
10 July but was adjourned to 17 September.
In the intervening period the Plaintiffs instructed Carey Olsen in place
of their former legal advisers. At
the hearing on 17 September Carey Olsen indicated that they were going to look
at all the allegations afresh with a view to re-pleading the Plaintiffs’
case in its entirety, so Master Thompson gave the Plaintiffs time to gather
information from the former lawyers and to reformulate their pleaded
claims. The summons to strike out
and the Plaintiffs’ summons to re-amend the Order of Justice were
eventually heard on 5 February 2014.
74. The effect of Master Thompson’s judgment
was to allow the Plaintiffs to start again. Towards the end of his lengthy judgment,
Master Thompson said as follows (at para.76):-
“In light of my decision I am
going to allow the plaintiffs 2 weeks from the date of the delivery of the
judgment to formulate its re-amended order of justice in accordance with this
decision. In doing so all
allegations of deceit, dishonest assistance other than dishonest assistance
against [Mr Killmister] in respect of the AIG bond
and piercing the corporate veil should be removed. There should also be no reference in the
pleading to any of the withdrawn assertions namely undue influence, conspiracy
or knowing receipt or any factual maters leading to such assertions. In particular the assertion in paragraph
4.3 that [Mr Gidley, Mr Killmister and Mr Manning]
were working in concert and the assertions at paragraph 4.44 that [Mr Gidley,
Mr Killmister and Mr Manning] were motivated by a
desire to enrich their individual various businesses and personal interests and
embarked on a dishonest purpose should also be removed, as should any other
references to bad faith or dishonesty.
The allegations that the first plaintiff relied upon the advice of the
[Mr Gidley and Mr Killmister] in relation to the
transfer [of] the matrimonial home and any interest in [Berkeley] Court should
also be removed. The amended
pleadings should be sent to the parties and to me for approval.”
Following the hearing the Plaintiffs
submitted to the Court a re-draft of their proposed amended Order of
Justice. We were informed that the
Substituted Order of Justice in our bundles dated 21 February 2014, which
describes itself as being “Served/Filed
instead of a Re-Amendment to the Original”, is the redraft as
approved by Master Thompson.
The claims in detail
75. It seems to us that, upon analysis of the
parties’ submissions, the five heads of claim set out in para.12 above
raise the following issues:-
(1) negligent
misstatement;
(2) breach
of fiduciary duty;
(3) the
validity of the Trust;
(4) the
Digger shares;
(5) the
AIG bond;
(6) improper
fees charged; and
(7) prescription.
Before turning to these issues in detail,
we address the matter of the witnesses who appeared before us.
The factual witnesses
76. The witnesses for the Plaintiffs were Mr MacFirbhisigh, Mrs Ching and Ms Kim Alexandra. Because of his present ill health Mr
Ching was unable to give evidence in person and there was no written statement
from him. We are conscious that the
Plaintiffs’ inability to call Mr Ching as a witness meant that they were
not in a position directly to challenge those parts of the Defendants’
evidence which addressed their dealings with Mr Ching to which Mrs Ching was
not party; we have sought to make the appropriate allowances for this
evidential difficulty.
77. During Mr Garrood’s
opening address the Court expressed two areas of concern regarding the witness
statements of the Plaintiffs.
78. The first arose from the fact that none of the
witness statements served by the Plaintiffs, and originally exchanged in
February 2015, was signed or dated.
By an email dated 25 June 2015 the Court directed that signed and dated
versions of the Plaintiffs’ witness statements should be served by 30
June. The Plaintiffs’
response was to supply the final pages of Mr MacFirbhisigh’s
two statements, of Mrs Ching’s three statements and of Ms
Alexandra’s statement, each signed and dated 30 June 2015. This response was clearly unsatisfactory
for two reasons. First, each of the
statements had, as we have already recorded, originally been served in
February. Second, it was clear from
their contents that the statements of Mr MacFirbhisigh
and two of Mrs Ching’s statements had originally been prepared at
different times and for the purposes of earlier stages of the proceedings. In due course the Court was informed of
the correct dates of the various statements, which we record later in this
judgment.
79. The second concern was that the statements of,
in particular, Mr MacFirbhisigh seemed to range well
beyond what was now in dispute in these proceedings. In response, Mr Garrood
helpfully supplied redacted versions of Mr MacFirbhisigh’s
statements, and of Mrs Ching’s first and second statements; the
redactions to Mr MacFirbhisigh’s statements
were significant.
80. Whatever may have been the practice of the
Court in the past, we make clear that for the future all witness statements
served for the purposes of proceedings in the Royal Court should, save in
exceptional circumstances, be signed and dated by the witness whose statement
it is, and that the contents of witness statements should be confined to
matters relevant to the case as pleaded or (if an application to amend the
pleadings is envisaged) to matters relevant to the proposed amendment.
81. The witnesses for the Defendants were, in
addition to Mr Gidley and Mr Killmister themselves,
Mr Ernest Hurley and Mr Shepheard.
82. Since our decisions in this case turn largely
on the evidence, we start by setting out our conclusions in relation to each of
the witnesses who appeared before us, in order of appearance. The statements of each of the witnesses
were ordered to stand as the witness’ evidence-in-chief.
Mr MacFirbhisigh
83. His first witness statement was, so we were
informed, originally sworn on 22 October 2009, and his second on 11 April
2011. Since he did not come on the
scene until late July 2006 (and then only in connection with the sale of
Granville and of Mr Ching’s Austin Healey), and thereafter did not
feature again until June 2008, there was little first-hand evidence of any
relevance which he was able to give.
In addition, much of what he had to say which was relevant was not
controversial. But in relation to
those parts of his evidence which were in dispute, for example relating to
prescription, we had two particular concerns about the position of Mr MacFirbhisigh, which have caused us to approach such
evidence with considerable caution.
84. First, it was clear to us from the totality of
his evidence that Mr MacFirbhisigh did not enter on
his curatorship with an open mind as to what might have happened in the
preceding two years. This is not
altogether surprising; Mr Ching is Mr MacFirbhisigh’s
mother’s cousin and he was selected by the Chings
to replace Mr Manning because of the close family relationship between them and
Mr MacFirbhisigh. As Mr MacFirbhisigh
said in his first witness statement:-
“[Mr Ching] told the
Court he was adamant he wanted me as his Curator, that he had known me all his
life and that he trusted me.”
We are not suggesting that Mr MacFirbhisigh was not a suitable person to become Mr
Ching’s curator, not least because the Court was satisfied at the hearing
on 25 November 2008 that he was suitable.
We are sure that he meant to do his best for the Chings. But equally we have no doubt that he
viewed the past history of the curatorship, and of the events leading up to the
creation of the Trust and to the curatorship, through the distorting prism of
the version of events that the Chings, and in
particular Mrs Ching, had repeatedly given to him and which he had come to
accept. Thus his second statement,
even following the redactions, contained the following assertions:-
(1) “both [Mr Killmister]
and Mr Gidley unduly influenced Barry and Barbara to transfer their assets to
Mr Killmister’s company, CITE, in order that
they could do what they liked with them” (para.19);
(2) “Mr Gidley and Mr Killmister wished to sell the Digger shares to United
Energy Corporation in order that they could orchestrate a takeover of
Digger” (para.30);
and
(3) “I have now come to believe that
Gidley and Killmister saw Barry as a ‘cash
cow’; whilst taking advantage of his extensive client contact base in
late 2005, they realised that his shareholdings in Digger were rapidly
increasing in value. They sought to
procure all of Barry’s assets into a trust, out of the reach of the JFSC
or Royal Court’s jurisdiction, in order to make a significant profit from
either selling the Digger shares or by obtaining them for United Energy
Corporation” (para.114).
In short, as he confirmed in answer to the
Court, he believed that Mr Gidley and Mr Killmister
had set out to line their pockets at the Chings’
expense. That belief was, we
suspect, reinforced in Mr MacFirbhisigh’s mind
by the delays and difficulties which he encountered in his dealings with both
Mr Killmister and Mr Manning after he had taken over
as curator from Mr Manning. It was
a belief which, in our view, coloured his approach to the curatorship and
continues to colour his approach to these proceedings, as exemplified by the
entirely opportunistic attempt in his oral evidence to besmirch Mr Killmister’s professional reputation without any
justification whatsoever. But Mr MacFirbhisigh’s belief was, we have no hesitation in
concluding, entirely without any objective foundation. And, as we have recorded, those parts of
the Plaintiffs’ Amended Order of Justice which had reflected Mr MacFirbhisigh’s views as set out above had been
struck out by Master Thompson. We
regret that, despite Master Thompson’s order, Mr MacFirbhisigh’s
mind set continued to be reflected in some of the suggestions made by Mr Garrood in cross-examination of Mr Gidley and Mr Killmister as set out below, and even in the
Plaintiffs’ final written submissions.
85. Second, it emerged in the course of his
evidence that Mr MacFirbhisigh had a personal interest
in the outcome of these proceedings.
The curatorship inventory as at 25 November 2008 prepared by Mr MacFirbhisigh (but not signed by him until April 2011)
contained a note 7 which read, under the heading of contingent liability:-
“Curatorship fees - N MacFirbhisigh
Niall [MacFirbhisigh]
agreed to undertake the duties of Curator on the basis that his fees would only
be chargeable if they could be recovered from the defendants in the ongoing
litigation, as the vast majority of the time spent is a direct result of this
litigation. The contingent fee
payable at 25th November 2008 is £36,045.”
Mr MacFirbhisigh
confirmed that the “ongoing litigation” was the present
proceedings. The next set of
curatorship accounts, for the year ended 25 November 2009 (and filed on 19
April 2011), included the figure of £11,025.00 for curatorship fees,
accompanied by a note 6 dealing with contingent liability. The first sentence of note 6 replicated
the first sentence of the previous note 7 set out above. Note 6 continued:-
“However the litigation
has taken considerably longer than expected, and on the basis of the successful
renegotiation of the claim by Sheehan, and the introduction of additional
funding by Mrs Barbara Ching that a portion of the fee would be paid on ‘an
account basis’ [sic].
The amount drawn on account is
£11,025 and is shown as a charge in the current year Income and
Expenditure Account. The additional
contingent fee payable at 25th November 2009 is £140,985. (2008: £36,045).”
In the accounts for the year ended 25
November 2010, the amount drawn on account had increased to £20,800 and
the additional contingent fee to £194,165. Mr MacFirbhisigh’s
oral evidence was that the figure for his contingent fees had now risen to
about £400,000. We take Mr Pallot’s point that Mr MacFirbhisigh
would require the consent of the Court to payment of his fees but the fact
remains that on any view Mr MacFirbhisigh has a very
substantial personal stake in the successful outcome of this action.
Mrs Ching
86. She provided three witness statements,
originally sworn or signed on 22 October 2009, 27 January 2011 and 18 February
2015. In the absence of Mr Ching,
she was the only witness on behalf of the Plaintiffs to the crucial events of
late 2005 and early 2006.
87. Given the stress that Mrs Ching must be
suffering as a result of her husband’s present condition, she gave her
evidence with great composure. It
may well be that now, some ten years on from the relevant events, she is meek
and vulnerable as Mr Pallot suggested.
But clearly she is also an educated and intelligent woman and in 2005
and 2006 she was, in our judgment, more than capable of standing up for herself
and fighting her own corner; indeed, as Mr Gidley reminded us, Dr Jackson
described her as “forceful”
in his letter to Dr Harrison dated 5 April 2006.
88. Even after making full allowance for the toll
which the past ten years must have taken on her, we did not find Mrs Ching a
convincing witness; indeed the longer that her evidence lasted, the less
credible she became. In
cross-examination Mr Baxter was able to demonstrate that there were important
inconsistencies as between her various statements, and as between her
statements and the contemporaneous documents. We do not criticise Mrs Ching for her
failure to make any notes of her meetings or discussions with Mr Gidley, Mr Killmister or Mr Manning but the fact remains that none of
her disputed assertions could be supported by any contemporaneous
documents. Last but not least, when
asked in cross-examination about matters in which she was allegedly involved,
she frequently responded that she could not remember. Whilst we entirely accept that some ten
years later Mrs Ching could not be expected to remember the precise details of
who said what to whom and when, we found the extent of her claimed lack of
recollection surprising. Indeed at
times she seemed to us simply to be evading the questions asked of her. But whether she genuinely could not
remember, or was using a claimed lack of recollection as a shield to deflect
awkward questions, the result is the same; in the absence of any positive
testimony from her, then in relation to the matters in question the Plaintiffs
are left with no evidence properly so-called to counter the evidence given by
the Defendants and their witnesses.
89. The most important part of her oral evidence
was the one point upon which Mrs Ching was adamant; she repeatedly, and
positively, denied that she had had discussions with anyone about her or her
husband’s financial situation until she spoke with Mr Gidley in March
2006 following receipt of the summons from the JFSC (which was issued on 30
March). We unhesitatingly reject
these denials as wholly untrue, for several reasons.
(i)
They are
contrary to all the other evidence which we heard, and to such contemporaneous
documents as exist.
(ii) They are contrary to the Plaintiffs’ own
opening skeleton argument which spoke of the advice being “repeated and confirmed on several occasions by each of the
Defendants to both Mr and Mrs Ching”. (Emphasis added.)
(iii) On her own admission Mrs Ching signed undated
stock transfer forms in respect of her shareholdings in Bokhara and Scorpio, as
did Mr Ching and Mr Ching’s mother in respect of their respective
shareholdings. These documents
cannot have been signed before it was decided to establish the Trust. The forms were collected by Mr Gidley
and sent by him to Mr Killmister; in due course they
were dated 6 April 2015, the date of the Trust deed, so they must have been
posted to Mr Killmister on 5 April at the
latest. We cannot, and do not,
believe that the discussions between the Chings and
Mr Gidley (even if we confine ourselves to these three individuals) about the Chings’ financial problems and about the creation of
the Trust were compressed into only a few days between the end of March and 5
April 2006, especially given the events of 3 and 4 April to which we have
already referred.
For the sake of completeness we record that
Mrs Ching’s denials were also inconsistent with the Chronology prepared
by Carey Olsen. Mr Garrood said in relation to this Chronology that he had
done his best to make it “as
uncontroversial as possible”.
But since Mrs Ching may not have seen this document, we do not think it
right to hold it against her.
Likewise we reject as untrue Mrs Ching’s evidence that she never
met anyone else with Mr Gidley and the plea at para.5.8 of the Order of Justice
that a meeting in early June 2006 was the first occasion upon which Mr Killmister had ever met with or spoken to her.
90. Finally, the Plaintiffs also submitted that Mrs
Ching was “a financial
ingénue”. In her
interview with the JFSC Mrs Ching was certainly keen to portray herself as not
financially astute (a description which, we recognise, Mr Gidley endorsed in
his remarks to the JFSC). Thus,
although she accepted that it was her signature on at least two brokerage
account forms which gave Mr Fiessel trading authority
and on a U.S. withholding tax form, she claimed that she simply signed papers
when asked to do so by her husband, without seeking any explanation, because
she trusted him. This approach had
the obvious advantage of enabling her to deflect the criticisms which, it seems
to us, the JFSC would otherwise have pursued. We are far from sure that Mrs Ching was
as much of an ingénue as she claimed. At the time when she met Mr Ching she
was working at ANZ bank checking signatures on mandates and she subsequently
assisted him in an administrative capacity at ARC. But even if she was not financially
astute when it came to her husband’s investment activities, we have no
doubt that in 2005 and 2006 she was, as an intelligent and educated woman, more
than capable of understanding, for instance, the essential elements of a trust.
91. In short, save where her evidence consisted of
admissions, or was uncontroversial, we were unable to rely on Mrs Ching’s
evidence.
Mr Gidley
92. He struck us as an honest and convincing
witness who was doing his best to assist the Court and we reject the
Plaintiffs’ criticism that his evidence was contrived. On the contrary, his evidence was
generally consistent and coherent, and was broadly supported by the limited
number of contemporaneous documents.
In addition to Mr Gidley’s statement dated 17 February 2015, Mr Killmister had on 21 July 2009 written to Cripps Harries
Hall. Attached to this letter was a
12 page document described in the letter as “a
comprehensive memorandum, the author of which, for the avoidance of doubt is
Steven Gidley”; Mr Killmister added that “We are in possession of all the records
appertaining thereto”.
Although Mr Gidley did not, he told us in evidence, have his memorandum
to hand when producing his statement for this trial, he explained that his
statement was drawn from his Affidavit of 2010, which in turn drew on the
memorandum. Although there were
some discrepancies between the memorandum and the statement, the discrepancies
were limited and, it seemed to us, inconsequential. The memorandum also had the advantage of
supplying some of the dates which were missing from Mr Gidley’s
statement; Mr Gidley accepted that the memorandum was likely to be more
accurate in terms of days, dates and sequences of events. In those circumstances we have no
hesitation in preferring his version of the disputed events of late 2005 and
early 2006 to that of Mrs Ching. In
particular we have no doubt that there were a number of discussions and
meetings between Mr Gidley, Mr Ching and Mrs Ching between October 2005 and
April 2006 with, on occasions, the additional involvement of Mr Killmister and Mr Shepheard, substantially along the lines
described by Mr Gidley (and by Mr Killmister and Mr
Shepheard).
93. There are four particular aspects of Mr
Gidley’s evidence in cross-examination by Mr Garrood
which we address at this stage.
94. The first concerns Mr Gidley’s role
vis-à-vis the credit card companies. It was Mr Gidley’s case that he
had procured the cancellation of Mr Ching’s credit card debts in
accordance with the instruction which Mr Manning had given to him in the letter
of 7 November 2006 to which we have referred in para.47 above. Mr Garrood
repeatedly challenged that claim in cross-examination, asserting that Mr Gidley
had done nothing at all in this regard.
Mr Gidley was equally emphatic that he had negotiated with the
companies. Indeed earlier in his
cross-examination Mr Garrood had suggested that Mr
Gidley’s evidence about his approach to Mr Ching’s credit card
debts was
“a fantasy cooked up
later, well after the event, as a way of justifying your conduct in creating
the Ching Trust.”
It seemed to us at the time that this
suggestion was so far-fetched as to be nonsensical and we remain of that view;
Mr Ching’s credit card problems had no direct link with the creation of
the Trust. We have no hesitation in
accepting Mr Gidley’s absolute denial of the fantasy suggestion, just as
we also accept that he did indeed procure the cancellation of Mr Ching’s
card debts. We note in this regard
that Compliance’s invoice number 226 dated 19 March 2007 in the sum of
£3,510.00 specifically allocates five hours “to review Credit creditors file and contact credit card
providers” and a further two hours to “Contacting Credit card companies”. We see no reason to doubt the accuracy
of those entries on Compliance’s invoice.
95. The second point is allied to the first. Mr Garrood
suggested that it was reasonable to infer that what had prompted the financial
institutions to forego Mr Ching’s indebtedness was letters to them from
Mr Manning dated 3 July 2006, which read as follows:-
“I write to inform you
that I was appointed as Mr Ching’s Curator (the English equivalent being
a Court of Protection Order) and enclose herewith a copy of the Acte of the Court regarding my appointment.
....
I understand that Mr Ching may
be indebted to you and would be grateful if in the first instance you could
provide me with details of such indebtedness.”
We do not accept Mr Garrood’s
suggested inference. We see no
reason why any of the card companies should have been deterred from pursuing Mr
Ching simply because he was subject to a curatorship, particularly when Mr
Manning’s letter specifically asked for details of indebtedness. Still less do we believe that every one
of the financial institutions would en masse have
been so deterred.
96. The third point arises from the fact that in
the trial bundles there was very little documentation relating to the matter of
the credit cards. Mr Garrood drew attention to a letter from Mr Manning to Mr
Gidley dated 22 November 2006 in which Mr Manning said that he was enclosing “copies of the most latest [sic]
statements I have with regard to Barry’s Credit/Debit Card
liabilities” and asked to be kept informed as to progress. Similarly on 17 May 2007 Mr Manning
wrote to Mr Gidley asking:-
“Generally, could you
provide me with an update on progress with regard to the proposed settlement of
all of Barry’s credit and debit cards.”
(We note in passing that the wording of
this request from Mr Manning seems to us to reinforce the conclusions we have
reached in the preceding two paragraphs above.) Mr Garrood put
to Mr Gidley that the absence from the trial bundles of any response to these
letters, or of any other documents that Mr Gidley said that he had brought into
existence, indicated that there had been no such documents.
97. In an ordinary case we accept that this point
might well have had considerable force.
But the documentary history of the present case was unusual. It was Mr Gidley’s evidence that
when this action began against CITE in 2010 (before he was joined as a
Defendant), he acceded to a request from Mr Killmister
and shipped all his documents to Hexham without making copies of any of
them. Mr Gidley’s evidence in
this regard was confirmed by Mr Killmister, who said
during his cross-examination by Mr Gidley:-
“Q. The first one is in
relation to documentation. Mr. Killmister, do you recall in 2010 when Sinels
commenced action [against] CITE that you contacted me, at that time I was
an employee of yours, to ask if I
had any archive material from Compliance Solutions relating to the Chings?
A. Yes, I did.
Q. Do you recall that I delivered to you
some four to five banker’s boxes of ring bound documents which purported
to be meeting notes, file notes, copies of emails, the tapes from Mrs.
Ching’s JFSC interviews?
A. Yes, I do.
Q. Can you tell me what happened to those
after I delivered them to you in Hexham?
A. Well, after they stayed at our offices
they were then sent down to Sinels when we were
ordered by the court to send them to, to run all the documents.
Q. From your examination of the documents
did you form the opinion that they
represented a considerable amount of work that had been done by Compliance
Solutions on behalf of the Chings?
A. I would have thought so, yes.”
Likewise Mr Killmister
confirmed that his/CITE’s documents too had been delivered to Sinels in accordance with an order of the Court, although
Mr Killmister had copied some of his documents,
namely those relating directly to the Trust, before doing so.
98. Nor is that the end of this document saga. In his final written submissions Mr
Gidley stated:-
“During the course of the
trial, Advocate Garrood communicated to Advocate
Baxter that Sinels had not released all of the
documents held by them to his firm on their appointment due to the fact that
the Chings had not paid Sinels’
outstanding fees.”
In his final oral submissions Mr Pallot
said as follows:-
“ADVOCATE PALLOT: You will not be surprised to hear that
when I read that it raised some queries in my mind because, certainly, I was
not aware that there had been any form of non-disclosure. My understanding is that this is a
confusion. When Carey Olsen took on
this matter from Sinels, it would be fair to describe
the handover process as difficult on
occasions in terms of obtaining the information that had been required. However, it occurred. We did obtain all of the information and
documents and records. We are not
aware of anything being [retained] by Sinels. We understand that we are in possession
of all of the documents and records.
THE COMMISSIONER: Right. Then, obviously, this was, in any event,
so far as Mr. Gidley was concerned, secondhand
because this is said to be a communication from Mr. Garrood
to Mr. Baxter. I was also,
therefore, going to ask Mr. Baxter what his version of this event was. But, anyway, your instructions, Mr.
Pallot, are that all the documents were handed over by Sinels
to Carey Olsen.
ADVOCATE PALLOT: Yes, sir. It will not surprise you to know that during
the course of the weekend I checked that point with Mr. Garrood
who confirmed that, as far as he was concerned, that understanding was correct
as well.”
Mr Baxter’s version of this episode
was as follows:-
“ADVOCATE BAXTER: Well, maybe there is some confusion on
the part of Mr. Garrood but he told me,
categorically, that they had not
had anything from Sinels apart from the affidavits.
THE COMMISSIONER: That is what he told you?
ADVOCATE BAXTER: That is exactly what he told me.
....
THE COMMISSIONER: I see. So that [seems] to be the recollection which
Mr. Gidley records. Was he
listening in on this conversation
or was it something you relayed to him afterwards?
ADVOCATE BAXTER: It was immediately afterwards, sir,
because there was a discussion about these allegations in relation to missing
documents.
THE COMMISSIONER: There had been a discussion about
documents, yes.
ADVOCATE BAXTER: That was when I said, “Actually,
it seems that Sinels still have them, so I have just
been told”, or along those lines.
THE COMMISSIONER: I see. So that is where Mr. Gidley got his information
from.
ADVOCATE BAXTER: Exactly, sir.
THE COMMISSIONER: And you got your information to that
effect, as you have told me, from Mr. Garrood?
ADVOCATE BAXTER: Yes, sir.”
We are not, of course, in any position to
resolve the apparent conflict disclosed by these exchanges; we cannot, and do
not, seek to make any findings as to where the underlying truth lies. But those exchanges simply confirm our
view that, given the documentary chain we have already described, the risk that
documents might have been lost, mislaid, withheld or destroyed is obvious. In those circumstances we decline to
draw any inferences adverse to either Mr Gidley or Mr Killmister
from the absence of their documents from the trial bundles.
99. Finally, towards the end of his
cross-examination Mr Garrood put it to Mr Gidley that:-
“What you did was put the
fear of God into Mr and Mrs Ching and told them the creditors were at the door
and that [unless] they sold their properties the bank would foreclose and they
would be in penury. That is what
you told them, is it not?”
Not surprisingly Mr Gidley answered “No, absolutely not”. More importantly, in our view Mr Garrood’s question went well beyond the
Plaintiffs’ case, even at its highest, and well beyond anything that Mrs
Ching had said in evidence.
Mr Killmister
100. As with Mr Gidley, we found Mr Killmister to be essentially an honest and convincing
witness and we accept the general accuracy of his testimony. We do not agree with the Plaintiffs that
he was very defensive in his evidence or that he sought to avoid giving
straight answers to questions.
Although Mr Killmister was, no doubt, keen to
procure for CITE the business of acting as a trustee, we reject the
Plaintiffs’ suggestion in their final written submissions that he looked
on the Ching Trust as a “gravy
train”. He did not;
indeed in our view the Trust was anything but a gravy train.
101. Much of the cross-examination of Mr Killmister by Mr Garrood
consisted of suggesting that he completely misunderstood CITE’s, and
therefore his own, role as trustee and that he simply did not know what he was
doing, a theme which Mr Garrood had foreshadowed in
his oral opening and to which Mr Pallot returned in his final written
submissions. As the Court
repeatedly indicated during Mr Garrood’s
cross-examination, this line of questioning was of doubtful relevance, at best,
to the issues which we had to decide.
As set out below, we do find that in certain respects the drafting of
the Trust deed, for which Mr Killmister must bear
responsibility, left much to be desired.
We also accept that there seem to have been occasions during the
currency of the Trust when Mr Killmister did not, for
example, respond to requests for information as promptly as Mr Manning or the Chings may have wished, even allowing for Mr Killmister’s bereavement when his father died. Furthermore the tone of his
correspondence could on occasions be somewhat brusque. And finally Mr Killmister
did make some minor mistakes in the course of his evidence. But we do not regard any such
shortcomings in the administration of the Trust or any such mistakes in his
evidence as casting any doubt on Mr Killmister’s
general competence and we entirely reject the suggestion that he misunderstood
his, or more accurately CITE’s, role as trustee. On the contrary, the Digger shares in
particular proved to be a wholly unexpected can of worms which would have
tested the skill and patience of any trustee and we conclude that Mr Killmister cannot properly be criticised for the way in
which he, through CITE, handled the affairs of the Trust.
102. More particularly, we reject the following
suggestions made by Mr Garrood in his
cross-examination of Mr Killmister, namely:-
(i)
that the
failure to make Mr Ching a director of the Investors in Canada Limited project
was “another example of [Mr Killmister] seeking to take advantage of Mr Ching”;
(ii) that Mr Killmister
favoured third parties over the interests of the Chings;
(iii) that Mr Killmister
was lying in his letter of 14 May 2009 to Cripps Harries Hall when he spoke of
having “records of appointments
with [the Chings] over an extended period of time
exceeding fifty (50) in number”; and
(iv) that the choice of 6 April 2006 for the date of
the Trust was because Mr Killmister knew about the
mental health assessment of Mr Ching and wanted to get the Trust in place
before Mr Ching was officially declared to be incapacitated. (Mr Pallot acknowledged in his final
address that he could not pursue a similar allegation made in his final written
submissions).
103. We also reject the suggestions made (and made
for the first time) in the Plaintiffs’ final written submissions:-
(i)
that Mr Killmister concocted his written notes of meetings in late
2005 years after the event; and
(ii) that the Defendants had been “panicked” into establishing
the Trust “for their own benefit in
fees, commissions and charges”.
In fairness to Mr Pallot, he acknowledged
in his final oral submissions that he could not pursue either of these
contentions.
Ms Alexandra
104. Although a witness for the Plaintiffs, Ms
Alexandra gave her evidence after Mr Gidley and Mr Killmister. She is the owner of an independent
financial services company, AYP Financial Planning Limited
(“AYP”). Her evidence
dealt solely with the circumstances in which the AIG bond came to be
established and the payment to Mr Killmister
associated with it.
105. We have no doubt that Ms Alexandra was an
entirely honest witness. She had no
personal axe to grind in her testimony and her answers indicated a genuine
desire to assist the Court. That
said, we do find (as set out under issue (5) below) that there were some
instances where her memory was not entirely accurate.
Mr Hurley
106. He is an accountant. His evidence was confined to his review
during June or July 2006, pursuant to a contract with Compliance, of the
documents stored in Mr Ching’s garage, assisted by Ms Laura Robins of Compliance.
107. As with Ms Alexandra, we found that Mr Hurley
was an entirely honest witness, who was doing his best to assist the
court. We have no hesitation in
accepting his evidence, which was, in summary, to the following effect.
(i)
When he
examined the boxes, it appeared that every single piece of paper ever received
by Mr Ching had simply been put into a box, in no particular order and not
indexed or categorised, with the result that he had to take every single piece
of paper out of every single box, look at it and assess it for relevance.
(ii) The end product of his search was various share
certificates and various notes written in pencil, he assumed by Mr Ching, “detailing ownership of shares by
various individuals or just a name with a number alongside”.
(iii) When he met Mr Ching at the latter’s
home, he did not notice any difference in Mr Ching’s behaviour or
personality; he was “his normal
amiable self”.
Mr
Shepheard
108. He is an English barrister, albeit no longer in
practice, having been called to the Bar in 1982. From mid-2004 to the end of December
2005 he was a director of Compliance, along with Mr Gidley. Thereafter he returned to England to
resume his legal career there.
109. We found that Mr Shepheard too was an entirely
honest witness, doing his best to assist the Court based on his recollection of
the events of late 2005 but without the benefit of any notes. We do not accept the Plaintiffs’
suggestion that he was in any way defensive in his evidence. He fairly acknowledged that his
recollection could be at fault in certain matters of detail. We accept the following aspects of his
evidence to us.
(i)
He did not
recall that Compliance developed any business from Mr Ching’s contacts.
(ii) Mr Ching first talked about the financial state
he was getting into in late October or early November 2005, when it became
apparent that there were reasons
for him to be concerned about whether he had enough money to live on.
(iii) At the end of November or early December Mr
Ching came into the office again, broke down and said that effectively he had
run out of credit with both his bank and his credit cards. He was in great distress because he was
not able to have access to funds.
(iv) Mr Shepheard’s recollection was that at
this stage Mrs Ching was not aware of her husband’s financial situation,
so both Mr Shepheard and Mr Gidley told him that it was best for him to take
his wife into his confidence and tell her exactly what the situation was; it
was unfair to her to let the present situation continue.
(v) Shortly thereafter Mr and Mrs Ching attended
Compliance’s offices together.
On that occasion there was a “brain-storming session”,
during which one of the ideas tossed around was that a trust might be the way
forward. During this meeting Mr
Shepheard commented that although a trust might well be the right way to go, he
had to qualify what he said because he was not a Jersey lawyer and could not
advise on Jersey law; he said that he thought that both Mr and Mrs Ching should
take separate legal advice.
(vi) In relation to the suggestion that Mrs Ching
did not learn about her husband’s debts until March or April 2006, Mr
Shepheard said:-
“I do not think that can
possibly be right. She was
certainly made aware of some of the situation at end November/early December
2005 and I did meet her when she and Mr. Ching attended our offices. I was also involved in the telephone
discussion in which she participated.
I may have met her on more occasions than that but I do not now recall
them.”
(vii) Mr Ching was adamantly against selling the
Digger shares.
(viii) Mr Shepheard met Mrs Ching on at least two
occasions, at the end of November or early December 2005, at the offices of
Compliance.
The expert witnesses
110. Although the parties were granted leave to
adduce expert evidence in relation to five potential areas of dispute, in the
event the expert evidence was limited to only three witnesses, namely (again in
the order in which they appeared), Dr Stefania Bruno who was called by the
Plaintiffs in relation to Mr Ching’s mental capacity, Dr Desmond
Fitzgerald, who was called by the Plaintiffs to deal with the valuation of the
Digger shares, and Mr Frank Torchio, who was called
by CITE and Mr Killmister likewise to deal with the
valuation of the Digger shares.
With the agreement of the parties, Mr Torchio
gave his evidence via a video link from the United States. We defer our views on the experts until
later in this judgment.
111. Although one of the areas of potential expertise
was matters of English law, the parties sensibly agreed that any disputes in
relation to English law could be dealt with by way of submission, rather than
by expert evidence.
112. We now take in turn each of the issues which we
have identified in para.12 above.
(1) Negligent
misstatement
113. Although this head of claim is pursued by both
Plaintiffs, Mr Pallot confirmed in his additional final written submissions
that it is pursued by Mr MacFirbhisigh only in
respect of the Digger shares. We
address this issue in the following three stages:-
(a) the
law;
(b) the
facts; and
(c) our
conclusions.
(a) The law
114. Although, as we have recorded in para.12(A)
above, the Plaintiffs initially submitted that Mr Gidley and Mr Killmister were both jointly and severally liable for
negligent misstatement, in his opening address Mr Garrood
conceded (rightly, in our view) that he could not pursue the contention of
joint liability and that each individual could be liable only for what he
himself had said.
115. There was no dispute between the parties that
the law of Jersey with regard to negligent misstatement was the same as English
law. As Le Quesne J.A. stated in T.A.
Picot (C.I.) Limited v. Michel Crill and Hamon [1995] JLR 33 at pp.46-47:-
“It is common ground that
excepting any point upon which a local rule has been established, on questions
of liability for negligence the law of Jersey follows the law of England. This means that on these questions the
Jersey courts apply the whole law of England. It does not mean that they are free,
following not any local rules (of which ex hypothesi
there are none) but their own preference, to accept some features of English
law and reject others.”
More particularly, in Riley v Pickersgill & Le Cornu [2001] JLR 471 Commissioner
Hamon referred (at p.479) with approval to certain principles of English law
relating to negligent misstatement.
116. The parties were, not surprisingly, also agreed
as to the relevant principles in relation to negligent misstatement, namely
(i)
the
existence of a duty of care owed by the defendant;
(ii) a breach of that duty;
(iii) reliance by the plaintiff on the negligent
misrepresentation; and
(iv) remoteness and foreseeability of loss.
We say no more at this stage about (ii),
which is essentially an issue of fact, or about (iii). But we address briefly the other two
elements.
(i) The existence of a duty of
care owed by the defendant
117. In the context of negligent misstatement, the
decision of the House of Lords in Hedley Byrne & Co. Ltd. V Heller &
Partners Ltd [1964] A.C. 465 established that for a duty of care to exist
there must be a special relationship between the plaintiff and the
defendant. The Court characterised
the special relationship in a variety of ways. Lord Reid stated (at p.486) that it
would arise where:-
“the party seeking the
information and advice was trusting the other to exercise such a degree of care
as the circumstances required, where it was reasonable for him to do that and
where the other gave the information or advice when he knew or ought to have
known that the inquirer was relying on him.”
Lord Morris explained the position in this
way (at pp.502-503):-
“My Lords, I consider it
follows and that it should now be regarded as settled that if someone possessed
of a special skill undertakes, quite irrespective of contract, to apply that
skill for the assistance of another person who relies upon such skill, a duty
of care will arise. The fact that
the service is to be given by means of or by the instrumentality of words can
make no difference. Furthermore, if
in a sphere in which a person is so placed that others could reasonably rely
upon his judgment or his skill or upon his ability to make careful inquiry, a
person takes it upon himself to give information or advice to, or allows his
information or advice to be passed on to, another person who, as he knows or
should know, will place reliance upon it, then a duty of care will
arise.”
Finally Lord Devlin said (at pp.528-529)
that:-
“the categories of special
relationships which may give rise to a duty to take care in word as in deed are
not limited to contractual relationships or to relationships of fiduciary duty,
but also include relationships which … are “equivalent to
contract,” that is, where there is an assumption of responsibility in
circumstances in which, but for the absence of consideration, there would be a
contract.”
118. In Henderson v Merrett Syndicates Ltd
[1995] 2 A.C. 145 Lord Goff identified the governing principle of the Hedley
Byrne decision as being assumption of responsibility by the defendant along
with reliance by the claimant. He
said (at p.180C-D) that from the speeches in Hedley Byrne:-
“…we can derive some
understanding of the breadth of the principle underlying the case. We can see that it rests upon a
relationship between the parties, which may be general or specific to the
particular transaction, and which may or may not be contractual in nature. All of their Lordships spoke in terms of
one party having assumed or undertaken a responsibility towards the other. On this point, Lord Devlin spoke in
particularly clear terms …
Further, Lord Morris spoke of that party being possessed of a
“special skill” which he undertakes to “apply for the
assistance of another who relies upon such skill”.”
He observed (at p.181C) that the concept of
assumption of responsibility:-
“…provides its own
explanation why there is no problem in cases of this kind about liability for
pure economic loss; for if a person assumes responsibility to another in
respect of certain services, there is no reason why he should not be liable in
damages in respect of economic loss which flows from the negligent performance
of those services.”
Lord Goff also noted (at p.181B) that:-
“…an objective test
will be applied when asking the question whether responsibility should be held
to have been assumed by the defendant to the claimant.”
119. Finally, in White v Jones [1995] 2 A.C.
207 Lord Browne-Wilkinson observed (at p.273H):-
“If the responsibility for
the task is assumed by the defendant he thereby creates a special relationship
between himself and the plaintiff in relation to which the law (not the
defendant) attaches a duty to carry out carefully the task so assumed.”
120. As is clear from the decision in Hedley
Byrne itself, a crucial element in establishing the existence of a duty of
care in the context of negligent misstatement is that the plaintiff relied on
the advice. Thus in Hunt v
Optima (Cambridge) Ltd [2015] 1 WLR 1346 Lord Justice Clarke said (at
para.54):-
“In order to recover in the
tort of negligent misstatement the claimant must show that he relied on the
statement in question … It
must operate on his mind in such a way that he suffers loss on account of his
reliance, eg by buying at too high, or selling at too
low, a price, or making an agreement or doing something which he would not
otherwise have made or done...”
Such reliance must also be reasonable.
121. In the present case the issue of a duty of care
gives rise to an additional point, namely whether, if a duty of care arose,
that duty was owed by Mr Gidley or by Mr Killmister
personally, or by their respective companies, Compliance and CITE. In this regard Mr Baxter relied on the
decision of the House of Lords in Williams v Natural Life Foods Ltd
[1998] 1 W.L.R. 830, the headnote to which reads as follows:-
“Held, allowing the appeal,
that to establish the personal liability of a director or employee there had to
have been such an assumption of personal responsibility by him as to create a
special relationship between him and the plaintiff; that in determining whether
there had in law been such an assumption an objective test was to be applied,
the primary focus being on things done or said by the defendant or on his
behalf and the question being whether the plaintiff could reasonably have
relied and had relied on an assumption of personal responsibility by him; and
that the fact that the brochure given to the plaintiffs had held the company
out as having the expertise to provide reliable advice to prospective
franchisees and had made it clear that that expertise derived from the second
defendant’s experience in the health food trade was insufficient to
render the second defendant personally liable to the plaintiffs.”
More particularly, Lord Steyn (with whom
the other members of the House of Lords agreed) said (at p.835F-G):-
“The touchstone of liability
is not the state of mind of the defendant.
An objective test means that the primary focus must be on things said or
done by the defendant or on his behalf in his dealings with the claimant. Obviously, the impact of what the
defendant says or does must be judged in the light of the relevant contextual
scene. Subject to this
qualification the primary focus must be on exchanges (in which term I include
statements and conduct) which cross the line between the defendant and the
plaintiff.”
Similarly, in Customs and Excise
Commissioners v Barclays Bank plc [2007] 1 AC 181 Lord Bingham (at para.5)
agreed that:-
“…the assumption of
responsibility test is to be applied objectively … and is not answered by
consideration of what the defendant thought or intended.”
122. Mr Baxter pointed out that in his judgment of 5
February 2014 Master Thompson had already (at paras.53 to 57) struck out any
attempt to pierce the corporate veil in respect of CITE. And as Waite L.J. said in Williams,
in a passage cited by Lord Steyn (at p.834A-C):-
“…where representations
are made negligently by a company so as to attract tortious liability under the
principle of Hedley Byrne, the primary liability is that of the corporate
representor. In the vast majority
of cases it is also the sole liability.
The law does, however, recognise a category of case in which a director
of the representor will be fixed with personal liability for the negligent misstatement. It is a rare category, and a severely
restricted one. If that were not
so, representees could set at naught the protection
which limited liability is designed to confer on those who incorporate their
business activities. The mesh is
kept fine by the stringency of the question which the law requires to be asked:
do the circumstances, when viewed as a whole, involve an assumption by the
director of personal responsibility for the impugned statement?”
The Plaintiffs did not take issue with Mr
Baxter’s reliance on Williams.
(iv) Remoteness and foreseeability of loss
123. As Charlesworth & Percy on Negligence
(13th ed.) states (at para.5-45):-
“The claimant must lead
either direct or circumstantial evidence tending to establish both the facts
necessary to establish a breach of duty and any additional facts required to
establish causation of loss …
If the claimant fails to establish that the defendant caused the harm of
which complaint is made, or some part of it, then the action will fail.”
Mr Baxter correctly submitted that the
Plaintiffs must therefore establish on the balance of probabilities that the
alleged misstatements caused them to sustain their pleaded loss. In other words, they must prove that,
but for the alleged misstatements, they would not have suffered such loss. Their claim will fail if either they
would have suffered the same loss even in the absence of the negligent
misstatement, or if the true cause of their loss was some other factor. In addition, for the loss to be recoverable
it must have been reasonably foreseeable.
(b) The facts
124. We now fill in the gaps which we left in our
summary of the factual background by stating our findings in relation to the
events of late 2005 and early 2006.
These findings are substantially based on Mr Gidley’s version of
events which, for the reasons we have already given, we regard as reliable in
all important respects, as supplemented by the evidence of, in particular, Mr Killmister. We
recognise that there are some discrepancies between Mr Gidley’s version
of events and Mr Killmister’s notes, and between
Mr Gidley’s evidence and the memorandum to which we have referred in
para.92 above, but we do not regard these discrepancies, particularly regarding
the precise dates of meetings, as material.
125. In October 2005, Mr Ching broke down in tears
in Mr Gidley’s office, admitting that he had accumulated significant
debts that he was now having trouble servicing. This came as some surprise to Mr Gidley
as up to this point Mr Ching had always asserted that he had considerable
private wealth in excess of several million pounds, claiming that for the most
part this was tied up in a large investment portfolio. The Chings’
lavish lifestyle had seemed to indicate substantial personal wealth; they
frequented top London hotels and restaurants (Mrs Ching admitted in her
evidence to occasional meals at Le Gavroche), and Mrs
Ching spent many weekends at their second home in Eastbourne. It was apparent to Mr Gidley from Mr
Ching’s distress that his wife was unaware of their true financial
situation and that Mr Ching did not want her to discover the full extent of
their combined debts.
126. One of the investments to which Mr Ching
constantly referred was his shareholding in Digger, a company which he
described as involved in “cutting
edge oil discovery technology”.
He indicated that the shares had a value in excess of £2,500,000
according to the prices quoted on the Toronto TSX Stock Exchange. Mr Gidley’s initial understanding
of Mr Ching’s financial situation was that he had a cash flow problem
that could easily be resolved by liquidating some of his substantial investment
portfolio, and Mr Gidley suggested to him that this might be the easiest and
quickest solution. Mr Ching
responded that he did not agree since, in his view, his investments stood to
appreciate considerably over the coming months. At about this time Mr Ching negotiated
with his personal banking manager at HSBC an increase in his overdraft facility
with the bank rather than liquidating any of his share portfolio. In short, so far as Mr Gidley and Mr
Shepheard were concerned, Mr Ching faced serious but surmountable financial
difficulties.
127. At a meeting in about the third week of
November 2005, Mr Ching revealed to Mr Gidley that he had reached his overdraft
limit and that he was in serious financial difficulty, being unable to meet his
ongoing commitments. Mr Gidley
asked Mr Ching if there was anything he could do to help, particularly in the
area of Mr Ching’s credit card debts, and Mr Ching accepted this offer of
assistance. During the course of
several conversations, and from an examination of Mr Ching’s credit card
statements, the scale of Mr Ching’s financial problems became
clearer. Whilst itemising his
creditors, Mr Ching revealed, amongst other things, that he was falling behind
with the mortgage repayments on his Jersey property, that he had a significant
overdraft with HSBC which had reached its limit and that he had been revolving
multiple (more than 12) credit and charge cards to fund his lifestyle over the
past three years. His credit card
debts alone were over £120,000 and were increasing monthly due to the
high interest rates being applied.
Neither he nor Mrs Ching had any form of private income or pension
scheme and their only real assets were the residual equity in their Jersey
property, the flat in Eastbourne which had been bought by Mr Ching for his wife
and was held in her name, and whatever value could be assigned to Mr
Ching’s share portfolio.
(Although it seems that the Chings’
mortgage on Granville was not technically in arrears in November 2005, we can
well understand how Mr Ching might have said that it was, given that the only
way in which he was servicing the mortgage was by incurring further debt on his
credit cards).
128. On examining this portfolio, Mr Gidley found
that the majority of the shares which Mr Ching held were worthless, either
because the companies had ceased trading or because the shares were not being
traded for any worthwhile value.
The largest amount of stock held by Mr Ching was in Digger which, on
paper at least, did appear to have some value. When Mr Gidley again suggested
to Mr Ching that he dispose of his Digger shares to pay off his debts, he was
once more extremely reluctant to do so, stating that he expected the shares to
increase significantly in value in the future and that he did not wish to lose
out on the anticipated profit.
129. During his conversations with Mr Ching, Mr
Gidley urged Mr Ching to disclose his financial difficulties to Mrs Ching; he
pointed out that because she was under the delusion that money was no object,
she was placing them in greater debt as each day went by. Mr Ching was very reluctant to put his
wife in the picture, stating that he feared she would leave him if she
discovered that their current lifestyle was unsustainable. Mr Gidley suggested to Mr Ching that she
would discover the position sooner or later in any event and that she would
respect his being honest with her.
Mr Ching agreed to discuss matters with his wife. At Mr Ching’s invitation, Mr
Gidley agreed to visit them both at their home to assist them in any way he
could.
130. When Mr Gidley arrived at the Chings’ home it was obvious to him that Mr Ching had
informed his wife of their financial difficulties and Mr Gidley got the
impression that strong words had been exchanged between them. Mrs Ching asked if there was anything Mr
Gidley could do to help them and Mr Gidley again agreed to assist them in any
way he could. He suggested that the
first priority was to establish a true picture of their debts and, to this end,
he helped them review their credit card and bank statements as well as
itemising any possible income and liquid assets. It quickly became apparent that since
the demise of ARC, Mr Ching had been living entirely on credit with virtually
no income to repay his borrowing.
Mr Gidley identified 14 separate credit cards, each of which was at, or
approaching, its maximum authorised limit; the total balance due was
approximately £120,000.
(Although Mr Garrood formally challenged this
figure during his cross-examination of Mr Gidley, we see no reason to
disbelieve it.) Mr Ching had also
exceeded his authorised overdraft limit with HSBC and, as a consequence, he was
accruing significant charges on his overdraft. He also said that they were in arrears
on their mortgage.
131. Given the Chings’
inability to pay their debts, and the likelihood that the bank or credit card
companies would commence legal action against them in the very near future, Mr
Gidley suggested to the Chings that there were a
couple of options open to them. One
was for Mr Ching to dispose of sufficient shares in Digger to clear his debts;
this was Mr Gidley’s preferred option. The other was to realise the equity held
in the two properties. A
calculation based on the liabilities disclosed by Mr Ching at the time showed
that the sale of Mrs Ching’s flat in Eastbourne would not alone raise
sufficient funds to repay all of their debts and that their main property in
Jersey would, therefore, also have to be sold. Mr Gidley estimated that, if the asking
price for both properties could be achieved, the Chings
would be left with approximately £600,000 after the discharge of all of
Mr Ching’s liabilities as disclosed to him at the time. Mr Ching refused to consider the first
option, again giving as his reason that the value of his Digger shares would
increase significantly in the near future and that this investment would be
their nest egg. The Chings said that they would discuss their options.
132. The next day the Chings
contacted Mr Gidley to say that they had considered their options, and had
decided to sell both properties and to invest the remaining proceeds to provide
them with an income. Mr Gidley
agreed to assist the Chings in negotiations with both
the bank and the credit card companies (this falling within his area of
expertise) in order to buy them time to put their plans into action. He pointed out, however, that he was not
best suited to advise them in terms of investing their remaining capital to
secure a future income and that he would need to refer them to a professional
financial adviser. At this point,
Mr Ching suggested that he would be best suited to manage any future investment
portfolio given his experience of stock markets.
133. The following day Mrs Ching attended Mr
Gidley’s office alone and voiced her concerns to Mr Gidley that once the
properties were sold the remaining balance would represent their total net
worth. She had strong misgivings
about her husband taking charge of these funds for the purpose of making
investments, bearing in mind his previous history of involvement in high risk
(and, for the most part, failed) investments in Canada. Given his knowledge of Mr Ching’s
character, Mr Gidley could relate to Mrs Ching’s concerns. Mr Ching was, despite his track record
of failed investment schemes, firmly convinced that he was the best person to
manage any future investment portfolio and would be unlikely to entrust this
role to another person. Mrs Ching
asked if there was any way that Mr Ching could be prevented from taking charge
of their remaining funds and Mr Gidley replied that, to the best of his
knowledge, the only way this could be achieved would be for them to settle a
lump sum into a trust established for the purpose of providing them with a
future income. Mrs Ching asked Mr
Gidley to explain how a trust structure would work and both Mr Gidley and Mr
Shepheard explained this to her at some length and answered any questions she
raised. Mrs Ching said that she was
in favour of setting up a trust as described, saying that it would give her
peace of mind if her husband could not control, or have access to, their
remaining assets. It was pointed
out to Mrs Ching that both she and her husband would have to agree to the
establishment of a trust and Mr Gidley expressed the view that Mr Ching might
be less receptive to the idea than herself. Mrs Ching stated that she would discuss
the idea with her husband but that in her own mind it was the only way forward
for them both.
134. The next time that Mr Gidley met the Chings together, some two days later, both were in
agreement that they wanted to progress the idea of a trust further. Whether Mrs Ching had browbeaten her
husband into submitting to the idea Mr Gidley did not know, but Mr Ching was
more resigned to the idea than committed to it. Mr Gidley stated that he was not the
best person to advise them on settling a trust, in particular in relation to
any tax implications that could arise, and he suggested putting them in touch
with one of Compliance’s clients, Mr Killmister,
whom Mr Gidley regarded as an expert in such matters. As well as being a longstanding friend
of Mr Gidley’s whom he trusted to act in the Chings’
best interests, Mr Killmister was known to Mr Ching
as they had previously been working together on the Investors in Canada scheme
(to which we have referred in para.19 above). In any event, Mr Gidley pointed out to
the Chings that there was no urgency attached to the
settlement of the trust as, until such time as either or both of the properties
had been sold and their creditors repaid, there was nothing to settle into a
trust.
135. During the three days that Mr Ching, Mr Killmister and Mr Gidley were in Canada at the end of
November, they had a number of conversations about discretionary trusts, the
way that they operated and the interaction between trustees, settlors and
beneficiaries. Mr Ching appeared
very keen to understand how the trust scheme on which they were working would
operate, and wanted to inform himself as fully as he could about trusts
generally. These discussions did
not relate to Mr Ching’s assets or personal situation.
136. On his return from Canada and during the
remainder of December 2005, Mr Gidley focussed his efforts on stabilizing the Chings’ position with their creditors in order to buy
time for them to sell their properties.
To this end he secured an agreement from HSBC that it would not take any
action against the Chings for their mortgage arrears,
and that it would freeze capital repayments and accrue interest until such time
as Granville was sold and the mortgage repaid in full. He took, however, a more aggressive
stance with the credit card companies on the basis that they had adopted a
careless approach to card issuance.
137. Mr Gidley also contacted Mr Killmister
by telephone to explain that Mr Ching and his wife intended to establish a
discretionary trust; he enquired whether C.I. Accountancy could advise on the
practical aspects of establishing such a trust and whether it might be prepared
to act as trustee. Mr Gidley also
revealed to Mr Killmister the Chings’
financial difficulties. During the
month of December 2005, the Chings attended Mr
Gidley’s office on several occasions to hold conference calls with Mr Killmister regarding the establishment of a trust; either
Mr Gidley or Mr Shepheard was usually present during these telephone
conferences.
138. The first such meeting was on 7 December 2005
at 4 West Centre, St Helier.
Present were Mr Ching, Mr Gidley and Mr Shepheard; Mr Killmister attended by telephone. Mr Killmister’s
handwritten note of the meeting reads as follows:-
“B.C. financial
difficulties credit cards.
SG/Comp Sols sorting it out.
BC owns companies with
investment shares - states high value
Can $ several m.
Hasn’t told wife - too
frightened
Scared of divorce?
Owns house Jersey & flat
South Coast.
English trust - CITE as
presented Montreal.
Probably early 2006.
Agreed trust - but must tell
wife. Will deal with them &
SG/HS to sort.”
139. Six days later, on 13 December 2005, there was
a telephone discussion between Mr Killmister, Mr and
Mrs Ching and Mr Gidley. Mr Killmister’s note of this discussion reads:-
“-- SG summary
for Barbara C to ensure she aware of prior discussion.
-- Mrs C appears controlled v.angry.
-- SG explained approach re
credit cards.
-- Propose English
discretionary trust to assist dealing [creditors]. NOT protection but
control, esp. re investment companies
-- BC does not want
shares sold any circumstances - v. Resistant. Will increase price etc.
-- Suggest trust in place,
companies settled - sort [investment] shares out - where value lies.
-- Mrs C on board re
trust & sort out debts - no option.
-- As work SG &
settle trust when debt issues clearer.”
140. Pausing there, the discrepancies to which we
have referred in para.124 above are essentially two-fold. Mr Killmister’s
note suggests first that Mrs Ching was still in the dark about her
husband’s financial problems until after 7 December, and second that a
trust had been discussed between Mr Ching and Mr Gidley prior to Mrs
Ching’s involvement. In the
ultimate analysis it seems to us that it does not matter precisely when Mrs
Ching came to know of their financial problems, or when or who first mentioned
the possibility of a trust to whom.
That said, if it were necessary to choose between the different
accounts, we would prefer that of Mr Gidley.
141. On 21 December 2005 there was a further
telephone conference between Mr Killmister, Mr Gidley
and Mr and Mrs Ching. Mr Killmister’s note of this conference read as follows:-
“Mrs C queries on Trust/Trustees
& how access, protection etc.
Explained plan to provide
income and assist dealing with creditors.
NOT protection from [creditors].
Practice P11.
Companies, 2 Jersey & 1
BVI.
(Check tax position - esp. BVI
- has disclosed?)”
(The reference to the companies is to
Scorpio, Bokhara and Mitsukiku.) During this and other telephone calls Mr
Killmister confirmed to both the Chings
that once their assets were in trust, the trustee would be compelled to deal
with any of their creditors who might demonstrate a claim to any of those
assets.
142. During February 2006 Mr Gidley had regular
meetings with both Mr and Mrs Ching to discuss their options following the
repayment of their debts. During
the course of these meetings, they discussed settling the proceeds of the Chings’ properties into the trust to provide them
with a monthly income and to cover the cost of renting a property in
Jersey. Whilst neither of the Chings was happy about the fact that they would no longer
own their own property in Jersey, they both seemed to accept the situation they
found themselves in and seemed determined to make the best of it. During this period the relationship
between Mr and Mrs Ching appeared to Mr Gidley to be one of stoic acceptance of
their situation. Mr Ching in particular
gave the impression that a great weight had been lifted from his shoulders now
that he had made a clean breast of things with his wife and that his worst
fears, namely that his wife would leave him, had not come to pass. Mr Gidley’s view at the time was
that they had come through the worst period intact and that there was now some
light at the end of the tunnel provided that they could successfully adjust to
a more modest lifestyle than they had previously enjoyed.
143. During March 2006 discussions took place
between the Chings and CITE regarding their
requirements from the trust fund and the expected settlement amount following
the sale of both properties. Mr
Gidley was present with the Chings during some of
these discussions, some of which took place by conference call from his
offices. Neither Mr Gidley nor CITE
had any reason at that time to doubt Mr Ching’s assertion that he had
disclosed all of his liabilities; thus they still believed that Mr Ching was
the beneficial owner of all of the Digger shares held by him in their various
forms.
(c) Our conclusions
144. We set out our conclusions under the following
heads:-
(i)
duty of
care;
(ii) breach of that duty;
(iii) reliance; and
(iv) remoteness and foreseeability of damage.
(i) Duty of care
145. As we have already indicated, this point raises
two separate questions, namely whether there was a special relationship between
the Chings and the Defendants, such as to give rise
to a duty of care, and, if so, whether that duty was owed by Mr Gidley and/or
Mr Killmister as individuals or by their companies,
Compliance and CITE respectively.
We consider the position of each Defendant individually by reference to
both questions.
(1) Mr Gidley/Compliance
146. It was the Plaintiffs’ case as set out in
their skeleton argument that Mr Gidley owed a duty of care to the Chings by reason of the following:-
“(a) “the things said
and done by” Mr Gidley (para.3.15);
(b) “more importantly, the fact that
the Defendants having provided the Advice then assumed responsibility for the
implementation of the Advice” (para.3.15); and
(c) the
relevant contextual scene, namely that the advice was being given to a
vulnerable elderly couple.
We are not persuaded by points (b) or (c)
in the case of Mr Gidley. As to
(b), it does not seem to us that Mr Gidley in any meaningful way assumed
responsibility for the implementation of the advice. Once the Chings
had decided in late 2005 to establish the Trust, implementation was left to
CITE and the mere facts that, for instance, Mr Gidley acted as a postbox in relation to the stock transfer forms in April
2006, and assisted in relation to Mr Ching’s credit card debts, cannot
alter the position. As to (c), we
do not accept that the Chings can properly be
described as being a vulnerable elderly couple as of late 2005. In particular, for reasons we set out
later in this judgment, Mr Ching was not, in our view, mentally incapable in
late 2005. Nor, for the reasons we
have already summarised above, was Mrs Ching a vulnerable ingénue.
147. Turning, therefore, to point (a), it was Mr
Gidley’s case as set out in his final written submissions that
he/Compliance owed no duty of care to the Chings for
a number of reasons, which we can summarise as follows:-
(a) what
he said to the Chings cannot properly be described as
advice, because all he did was to suggest possible courses of action for the Chings to consider;
(b) he
and Mr Shepheard made clear that the Chings should
take independent legal advice before doing anything;
(c) many
aspects of the so-called advice consisted simply of factual statements of the
obvious;
(d) the
purpose of the introduction of the Chings to Mr Killmister was to enable them to take advantage of his
expertise in trust matters, which Mr Gidley was not in a position to provide.
148. In the light of our factual findings in
paras.124 to 143 above, we accept that Mr Gidley did give what can properly be
described as advice to the Chings, broadly along the
lines pleaded by them. He did so
having made offers of assistance to both Mr and Mrs Ching, which they
accepted. The fact that his advice
mentioned more than one option is neither here nor there; nor does it matter
that some of what he said may have consisted of statements of the obvious. Similarly, the facts that both he and Mr
Shepheard urged the Chings to take legal advice, and
that in relation to the technicalities of establishing a trust the Chings took advice from Mr Killmister,
do not, in our view, alter the position.
Finally, in one respect at least, namely negotiating with credit card
companies in relation to compliance issues, Mr Gidley had particular knowledge
and expertise which was of relevance to the Chings’
financial predicament.
149. In short we reject Mr Gidley’s
contentions on this issue. It is clear to us from the evidence that Mr Gidley
did take it upon himself to assist the Chings, both
as a business colleague and friend of Mr Ching and as an acquaintance of Mrs
Ching, and that he thereby assumed responsibility for the advice which he gave
them. That, however, brings us to
the question of whether there was reasonable reliance by the Chings on that advice.
150. In our view Mr Ching did not rely on any aspect
of the advice. He did not need to
be told that he was in serious financial difficulties or in dire financial
straits. (As Mr Baxter pointed out,
the wording used in para.3.28(i) of the Order of
Justice is that Mr Ching was in “serious
financial trouble”; we propose to treat the expressions “dire financial straits” and
“serious financial trouble”
as synonymous for present purposes.)
He knew that himself, hence his initial approach to Mr Gidley. He did not rely on Mr Gidley’s
advice that he and Mrs Ching had to sell Granville (or that Mrs Ching would
have to sell Berkeley Court). We
have no doubt that Mr Ching appreciated himself that if he refused to
countenance a sale of any Digger shares, a sale of either or both of the
properties was the only solution to their financial difficulties.
151. Turning to the Trust, Mr Ching would, in our
view, have been experienced in the working of discretionary trusts from his
lifetime as a stockbroker.
Furthermore, at some time prior to 2004 he had acted as the settlor of a
trust known as the Ching Trust for a family of his close acquaintance; the
existence of this earlier Ching Trust no doubt explains why Mr Ching was
anxious in his letter of 25 September 2007 to Mr Manning to describe the Trust
established on 6 April 2006 as “The
Ching 2006 Settlement”. It
is the Plaintiffs’ pleaded case that during the trip to Canada in
November 2005 he discussed with Mr Gidley and Mr Killmister
“the benefits of using trust
structures to organise an individual’s finances” and “discretionary trusts”. Prior to February 2006 he had been
appointed the protector of a settlement called the Gallo Settlement. Last but not least, he agreed to the
Trust being established because of his wife’s insistence. In those circumstances the Plaintiffs
cannot, in our view, sensibly assert that Mr Ching relied on the advice of Mr
Gidley, or anyone else, to establish the Trust.
152. As for Mrs Ching, she too knew that she and her
husband were in serious financial difficulties or in dire financial straits as
soon as Mr Ching came clean with her.
Likewise, she realised that given her husband’s refusal to sell
his Digger shares there was no option but to sell both Granville and Berkeley
Court. In neither of these respects
did she rely on Mr Gidley. We do,
however, accept that she relied on Mr Gidley so far as the establishment of the
Trust was concerned. We also accept
that it was reasonable for her so to have relied on him.
153. But was it Mr Gidley or Compliance who assumed
that responsibility to Mrs Ching?
Mr Gidley contended that it was Compliance, on the basis that he was at
all times acting as a director of that company. We do not accept this contention. In Williams, the plaintiffs were sent the
brochure and projections of which they complained by the company, not by Mr Mistlin, the director whom they sought to make personally
liable. Although Mr Mistlin had played a prominent part in the preparation of
the documents in question, the plaintiffs had not dealt with him, did not know
him and had no material pre-contract dealings with him. Factually that is a very different
position from the present case. All
of the Chings’ dealings were with Mr Gidley
personally and there is no suggestion, even by Mr Gidley himself, that at any
time he spelled out to the Chings that he was giving the
advice simply as a director of Compliance.
It seems to us that in those circumstances the things said and done by
Mr Gidley meant that the assumption of responsibility to Mrs Ching which we
have found in the preceding paragraphs was by Mr Gidley himself, not by
Compliance.
(2) Mr Killmister/CITE
154. It was the primary contention of CITE and Mr Killmister that Mr Killmister did
not become involved with the Chings until after the
decision had been reached in principle to establish the Trust, and then only in
the context of discussing the technicalities of establishing the Trust, for
instance its situs. At no time, Mr
Baxter contended, did Mr Killmister advise the Chings on their financial affairs or financial
options. Thus in his witness
statement Mr Killmister said as follows:-
“29. Following the invitation to
CITE to act as trustee for Mr and Mrs Ching, CITE was invited to arrange and
attend a meeting with Mr Ching and Mr Gidley at Mr Gidley’s offices. The meeting took place on the 7 December
2005 to discuss Mr and Mrs Ching’s financial situation and their proposal
to create a trust. I attended the
meeting on behalf of the prospective trustee CITE and its advisor C.I.
Accountancy with a view to assisting in discussions regarding the practical
issues associated with taking the proposal forward, including the relevant tax
implications.
30. None of C.I. Accountancy, CITE or me were
involved in concocting a solution to Mr and Mrs Ching’s financial
problems, however serious they might have been. CITE was approached to act as trustee
after the solution had been discussed and decided upon. I was not asked for and did not offer
advice on the merits of the proposal to create a trust as a solution to Mr and
Mrs [Chings’] financial situation or
otherwise. That decision had already
been made in principle.”
We record that para.30 of Mr Killmister’s statement was not challenged by Mr Garrood but Mr Killmister did add
in cross-examination:-
“I was called in because
I was a trustee and that decision had already been taken in principle. I did not advise on whether there should
be [a trust] or not.”
Indeed Mrs Ching herself accepted in
cross-examination that Mr Killmister only became
involved when Mr Gidley suggested that he could provide a trustee. We accept that evidence of Mr Killmister and the submission of Mr Baxter based upon
it. Nor, as Mr Baxter pointed
out, did Mr Killmister or CITE hold themselves out as
having any special skills in the field of financial or investment advice. In short, by the time that Mr Killmister came on the scene in about early December 2005
the advice of which the Plaintiffs complain had already been given by Mr Gidley
and acted upon, at least in principle, by the Chings. Although we have no doubt that there
were ongoing references to the Chings’
financial circumstances after December 2005, we do not consider that Mr Killmister or CITE can properly be described as having
assumed any responsibility to the Chings for the
advice which Mr Gidley had originally given. In those circumstances we conclude that
no duty of care arose on the part of Mr Killmister or
CITE in relation to the advice.
155. We add for the sake of completeness that our
analysis of the issue of reliance as set out in paras.150 to 152 above applies
likewise in relation to Mr Killmister/CITE.
156. In those circumstances it is unnecessary for us
to decide whether any duty of care would have fallen on CITE or on Mr Killmister personally.
During his opening Mr Garrood categorised Mr
Baxter’s submission that it would have fallen on CITE and not on Mr Killmister as “not particularly
attractive”. But as Mr Baxter
rightly pointed out, that alone is not enough to establish personal
responsibility on the part of Mr Killmister. Unlike the position of Mr Gidley, Mr Killmister only came on the scene in December 2005 as the
director of the prospective trustee, CITE.
The mere facts that Mr Killmister owned and
controlled, and was a director of, CITE and C.I. Accountancy, are plainly
insufficient for the Plaintiffs’ purposes. We have seen no evidence to suggest that
in any of the exchanges between him and the Chings he
ever indicated that he was assuming personal responsibility; nor, viewed
objectively, did he do so.
Accordingly, had the point been live, we would have concluded that even
if there had been an assumption of responsibility by Mr Killmister/CITE,
responsibility was assumed by CITE not by Mr Killmister. But the Plaintiffs made no pleaded claim
against CITE for negligent misstatement.
(ii) Breach of duty of care
157. The breach relied on by the Plaintiffs was the
giving of the advice summarised in the first sentence of para.9 above. The Plaintiffs assert that that advice
was bad advice for the following reasons (quoting from para.4.1 of their
opening skeleton argument):-
“(i) [the Chings] were not in fact in ‘dire financial
straits’ as advised;
(ii) there was no necessity to sell
either their family home, Granville, or Mrs Ching’s property, Berkeley
Court, as those debts that they did have could have been addressed in a number
of less drastic ways, for example by a straight-forward and partial liquidation
of their Digger share portfolio; and
(iii) there was no need or requirement to
establish a trust, thereby surrendering control over their assets to Mr Killmister/CITE.”
(We record for the sake of completeness
that the Plaintiffs did not pursue the contention pleaded at para.3.30 of the
Order of Justice that the Chings “could have managed the credit card debts without liquidating any
of their assets”.) We
address each of those three reasons in turn.
(1) The Chings were not in fact
in ‘dire financial straits’ as advised
158. We have no doubt whatsoever that serious
financial trouble was an entirely accurate description of the Chings’ position in the autumn of 2005. Mr Ching had credit and bank card debts
of some £120,000; in her evidence Mrs Ching frankly admitted that she was
horrified when she learned this.
The Chings had no income (save possibly for
£8,000 from two directorships held by Mr Ching) with which to meet even
their living expenses, let alone the interest on their debts. Still less could they pay off their
indebtedness without recourse to their capital, as Mrs Ching accepted in
cross-examination. Indeed when
asked during her evidence whether she accepted that she and her husband were in
serious financial trouble, Mrs Ching answered with an unqualified yes.
159. It follows, in our view, that Mr Gidley’s
advice that the Chings were in serious financial
trouble or dire financial straits was neither a misstatement nor made
negligently. On the contrary, on
the basis of the information provided to Mr Gidley at the time, it was an
entirely accurate description of their financial position. The fact that the credit card companies
were subsequently persuaded to forego the Chings’
indebtedness to them is, of course, irrelevant in this context. The same conclusion would apply to Mr Killmister, had he given any such advice.
(2) There was no necessity to sell either of their properties
160. In the course of his cross-examination of Mr
Gidley, Mr Garrood at the request of the Court
clarified the Plaintiffs’ case as follows:-
“the case is that the
option [to sell the Digger shares] was never put [to the Chings]
and the advice given was that they should sell their properties rather than liquidate the
Digger shares.”
For the reasons we have already set out, we
reject that version of events. Mr
Gidley did not advise the Chings to sell their
properties rather than the Digger shares; on the contrary, a sale of the Digger
shares was Mr Gidley’s preferred option, for what seems to us obvious
reasons. It was Mr Ching who
refused to countenance a sale of the Digger shares.
161. In this regard we strongly suspect that the
reason which Mr Ching gave to Mr Gidley in October and November 2005 for his
unwillingness to sell his Digger shares, namely that the shares were likely to
increase in price, may not have been the whole story. On any view there were a number of
skeletons in Mr Ching’s cupboard regarding the Digger shares, and his
investment activities more generally.
In no particular order of importance, although there was a dispute
(which we are content to resolve in Mr Ching’s favour) about whether the
corporate affairs of Scorpio and Bokhara were in order, there is no dispute
that Mr Ching had allowed Mitsukiku, which was the
company which held some at least of the Digger shares owned by the third
parties, to be struck off in the BVI.
Mr Ching’s records of the Digger shares held by third parties via Mitsukiku left a great deal to be desired, as witness the
hand-written list entitled “DIGGER
PLACEMENTS” which he apparently handed to Mr Gidley in 2006, and the
state of the boxes of documents in his garage as described by Mr Hurley. We reject the suggestion by Mr Garrood that this list was “sufficient, accurate and complete” as a list of the
third party holdings of Digger shares; it was nothing of the sort. Mr Ching had mishandled a number of
investments by third parties, for instance those of Mrs O’Sullivan and Ms
Sheehan; the latter’s claim had to be satisfied by the payment to her, so
we were told by Mr MacFirbhisigh, of
£95,000. Finally, it seems to
us that Mr Ching’s activities in handling, via Mitsukiku
as a nominee, investments by third parties in Digger shares might well have
attracted the attention of the JFSC had it come to light. For the sake of completeness, for the
reasons which we set out later in this judgment we add that we are also not persuaded
that a partial liquidation of the Chings’
portfolio of Digger shares would have been as straightforward as the Plaintiffs
allege. But whatever Mr
Ching’s motives may have been, once he had decided that he was unwilling
to sell his Digger shares in order to pay off his and Mrs Ching’s debts,
Mr Gidley’s preferred option of such a sale fell by the wayside.
162. In those circumstances what other option, we
ask ourselves, was there except for a sale of Granville and the flat at
Berkeley Court? Mr MacFirbhisigh suggested that Granville might have been
rented out for £3,500 a month, which could have covered the cost of the Chings renting another property and provided them with an
income. Accepting for the sake of
argument that Granville could have been let at such a rent (for which there was
no other evidence), the Chings would still have been
unable even to pay the interest on their debts, let alone pay off their
underlying indebtedness. In
cross-examination of Mr Gidley Mr Garrood appeared to
suggest yet further alternative courses of action, namely a remise de biens,
an individual voluntary arrangement or an equity release, but the Plaintiffs
called no evidence to support any of these alternative approaches and we are
not persuaded that any of them would have been a practical or desirable solution. In short, in our judgment, Mr Gidley was
entirely correct that there was no feasible alternative, once Mr Ching had
refused to sell his Digger shares, but to sell Granville and the flat at
Berkeley Court. Indeed, again Mrs
Ching accepted in cross-examination that they had no option but to sell the
properties.
163. It follows, therefore, that in this regard as
well Mr Gidley neither made a misstatement nor was negligent. His advice was entirely correct. The same would, of course, apply to Mr Killmister, had he given any such advice.
(3) There was no need or requirement to establish a trust
164. Although it had its genesis in the Chings’ financial difficulties, Mr Gidley’s
suggestion of a trust addressed a separate problem, namely control of the Chings’ assets, particularly after the sale of their
properties. That was an issue which
had been raised by Mrs Ching herself, and in our opinion for good reason. On the information available to us, Mr
Ching’s track record as an investor left a great deal to be desired. To have almost 100% of his and his
wife’s share portfolio invested in Digger, a small Canadian mining
company listed only on the Toronto exchange which was worthless on any
conventional basis of valuation, had no income, had no assets, had never paid
any dividends and had been accumulating losses ever since its incorporation,
does not demonstrate a sound, diversified approach to investment. Nor does Mr Ching seem to have had any
insight into his shortcomings in this regard. It seems to us that in those
circumstances Mrs Ching had every reason to be concerned by her husband’s
suggestion that he might take charge of investing the proceeds of the sale of
their properties. Indeed when Advocate
Baxter put to Mrs Ching in cross-examination that:-
“You didn’t trust
Barry to look after your finances any more, did you?”
Mrs Ching frankly admitted “Probably not”.
165. Against that background Mr Gidley’s
suggestion of a discretionary trust seems to us to have been eminently
sensible. It addressed, and provided
a solution to, the very problem that Mrs Ching had identified. As, therefore, with the previous two
reasons, we find that Mr Gidley was not guilty of any misstatement, or of
negligence. On the contrary, his
suggestion was entirely sensible.
Again the same would apply to Mr Killmister,
had he given any such advice.
(iii) Reliance
166. We have already addressed the issue of reliance
in the context of the existence of a duty of care. There is, however, one specific aspect
of reliance to which we refer at this stage. At paras.48 to 49 of his judgment of 5
February 2014 Mr Thompson struck out any claim by Mr MacFirbhisigh
in respect of the transfer of any interest in Granville or the transfer of any
interest that Mr Ching may have had in the proceeds of sale of Berkeley Court,
on the basis that Mr MacFirbhisigh did not act in
reliance on any of the pleaded misstatements. This would leave only a claim by Mr MacFirbhisigh in respect of the Digger shares, as we have
recorded in para.113 above. But
since, as we have found, none of the Defendants owed any duty of care to Mr
Ching in respect of the Digger shares, any claim by Mr MacFirbhisigh
in respect of the Digger shares would likewise fail.
(iv) Remoteness and foreseeability of loss
167. The Defendants’ primary submission is
that the Plaintiffs have failed to explain how the alleged bad advice caused
the losses claimed and that their case consists in effect of contending that
all their losses, however remote, must have flowed from the original
advice. Subject to that overall
point, we take in turn each of the three categories of loss claimed by the
Plaintiffs, namely:-
(1) £411,898
in respect of the Digger shares;
(2) £162,500
in respect of the AIG bond; and
(3) £169,167.11
paid in respect of fees.
We confine ourselves at this stage of our
judgment to considering the recoverability of these sums in principle.
(1) The Digger shares
168. As we explain in more detail later in this
judgment, the £411,898 claimed under this head represents the amount
which, based on the report of Dr Fitzgerald, the Plaintiffs say could have been
realised from the sale of 460,945 Digger shares at an average price of C$1.78
per share between 2006 and 2010. In
order to recover that loss the Plaintiffs must, of course, establish not just that
that sum could have been realised but that, on a balance of probabilities, it
would have been realised if the Defendants had not given the alleged bad
advice. In other words the
Plaintiffs must make good the contention that had it not been for the alleged
bad advice leading to the establishment of the Trust, Mr Ching (or following
the curatorship, Mr Manning) would have sold 460,945 Digger shares as envisaged
by Dr Fitzgerald.
169. We see no factual basis for any such
contention. As we have already
pointed out, in late 2005 Mr Ching himself was adamantly opposed, on more than
one occasion, to the sale of any Digger shares. He remained of that view in the summer
of 2006. Some three years later the
Chings expressed the same view again in their letter
to Mr Manning of 16 February 2008 (as set out in para.61 above). Mrs Ching confirmed in her oral evidence
that they did not want the Digger shares sold at that point, notwithstanding
that the price per share was then C$3.50 (or, according to the
Plaintiffs’ Chronology, Can$4).
In those circumstances we have no doubt that left to his own devices Mr
Ching would not have sold any of his Digger shares.
170. We accept that from 9 June 2006 onwards the
decision would not have been for Mr Ching to take, but for Mr Manning as his
curator. So we ask ourselves what
evidence there is that Mr Manning would have ordered a sale of Digger
shares. The simple answer is that
there is none. Following the
discontinuance of the claims against him, Mr Manning took no further part in
the proceedings; in particular he was not called by any of the remaining
parties as a witness, so we have heard nothing from him. Although Mr Manning would have had every
right to sell the Digger shares in defiance of Mr Ching’s wishes, we do
not think that Mr Manning would have been sufficiently bold to take that
course. So far as we are aware, Mr
Manning never suggested to CITE at any time during the period of his
curatorship that any Digger shares should be sold and we have no reason to
suppose that he would have adopted any different approach had the Trust not
been established.
171. Finally, there is the issue of ownership of the
Digger shares. Although it was
common ground at the trial that Mr Ching owned some 900,000 of the Digger
shares himself, the claims by third parties to Digger shares which emerged in
2006 after the curatorship was announced complicated the position for months,
if not years; even if the Trust had not been established, Mr Manning would have
faced precisely the same problems in this regard as Mr Killmister. This factor would have been an
additional constraint on any sale by Mr Manning of Digger shares, even if he
had been minded to sell any.
172. Accordingly we have no hesitation in concluding
that the Plaintiffs’ claim in respect of the Digger shares under this
head must fail on the simple basis that they have not established that but for
the advice any Digger shares would have been sold at all. Mr Ching (and Mr Manning) would not have
sold the Digger shares in any event.
(2) The AIG bond
173. The AIG bond was purchased in early 2007 using
£400,000 of the proceeds of the sale of Granville. By the time that the AIG bond was
liquidated in stages from late 2010 to early 2015, there had been a substantial
drop in the value of the bond following the credit crunch in 2009, the total
loss to the Plaintiffs being £162,500. At para.49 of his final written
submissions, Mr Pallot summarised the Plaintiffs’ case as follows:-
“At all material times
the Defendants knew that the proceeds of the sale of the Chings’
assets would be invested and that the value of investments [goes] up as well as
down. It follows that the loss
suffered on the AIG bond was foreseeable (Rubenstein v. HSBC Bank Plc
[2013] 1 All E.R. (Comm) 915) and the Defendants are
liable to compensate the Plaintiffs for the loss in value on the AIG
bond.”
174. The headnote to the Rubenstein case
reads:-
“(2) What connected the
erroneous advice given to the claimant and his loss was the combination of
putting the claimant into a fund which was subject to market losses while at
the same time misleading him by telling him that his investment was the same as
a cash deposit, when it was not.
The correct selection of the cause of the claimant’s loss was the
loss in the assets in which the [enhanced variable rate fund] was
invested. It had been the
bank’s duty to protect the claimant from exposure to market forces when
he made clear that he wanted an investment which was without any risk. It was wrong in such circumstances to
say that when the risk from exposure to market forces arose, the bank was free
of responsibility because the incidence of market loss was unexpected.”
175. In the course of his judgment in Rubenstein,
Rix L.J. said as follows:-
“102 Much reference was made ... to Lord Hoffmann’s
example of the mountaineer in his speech in SAAMCO (at 213). The importance of that example is that
it illustrates the significance of the scope of a defendant’s duty for
the purpose of questions of causation and remoteness. A mountaineer is told by his doctor that
his knee is fit for a mountain climb, but the doctor is negligent, ie the knee is not fit. If the mountaineer had been told that
his knee was not fit, he would not have gone climbing. On the climb the mountaineer suffers an
accident which, however, had nothing to do with the knee. Is the doctor liable for the
consequences of the mountaineer's injury?
No, suggested Lord Hofmann, even though the injury would not have
happened but for what Lord Hoffmann called both “information” and
“advice”. The reason
is: “The injury has not been caused by the doctor’s bad advice
because it would have occurred even if the advice had been correct” (at
213F). The importance of the
example, as it seems to me, is that it illustrates the manner in which we think
naturally of causation and responsibility.
Ex hypothesi, the injury was caused by
something else entirely, for which the doctor had no responsibility. Although the mountaineer would not have
gone on the mountain unless he had been given the all clear from the doctor, we
would not select the doctor’s negligent advice as the cause of the
mountaineer’s injury unless the injury had been contributed to in some
material way by the unfitness of the knee.
This is despite the fact that an accident on the mountains - whether it
is due to something entirely fortuitous such as an avalanche, or is the result
of some faulty piece of equipment, or of the weather, always unpredictable but
inherently so - is always, more or less but readily, foreseeable. However, the
doctor is responsible for the mountaineer’s knee, but not for the
weather, the equipment, or sheer bad luck.
103 But what does the mountaineer’s example
teach us in the present case? An
investment adviser, with his statutory duties of various kinds, owed to a consumer
as a result of the latter’s statutory status as a private person, who as
adviser recommends a particular investment, which he must take care to be
suitable for his client and, if a packaged investment, to be the “most
suitable” on the adviser’s menu, may well be responsible if some
flaw in the investment turns out materially to contribute to some investment
loss. The doctor did not advise,
let alone recommend, his patient to go mountaineering: he merely told him that
his knee was in good shape. Mr Marsden,
however, not only advised Mr Rubenstein on the investment of his capital, he
recommended a particular investment.
He, so to speak, put him in it.
If such an investment goes wrong, there will nearly always be other
causes (bad management, bad markets, fraud, political change etc): but it will be an exercise in legal judgment to
decide whether some change in markets is so extraneous to the validity of the
investment advice as to absolve the adviser for failing to carry out his duty
or duties on the basis that the result was not within the scope of those
duties.”
176. Advocate Baxter also relied on the following
passage from the judgment of His Honour Judge Gosnell in Bateson v Savills
Private Finance Limited [2013] EWHC 719 (QB):-
“26 In South Australia Asset Management Corp v York
Montague Ltd [1997] AC 191 the House of Lords held that someone under a
duty to advise on what is the appropriate course of action will be liable for
all the foreseeable consequences of action taken in reliance on that advice, but
a person under a duty to take reasonable care to provide information on which
someone relies will generally be regarded as responsible for the consequences
of the information being wrong, and not all the consequences from the reliance
on it.”
177. It is clear to us that the alleged bad advice
relied on under this head of the Plaintiffs’ claim fell into the second
category in Bateson. The bad
advice relied on by the Plaintiffs under this head was given in late 2005; the
Plaintiffs do not rely under this head on any bad advice given specifically in
relation to the correctness or otherwise of investing in the AIG bond in early
2007. All that Mr Gidley did in
2005 and 2006 was to advise the Chings on the options
open to them to resolve their financial problems. Even if, which we doubt, Mr Gidley could
be said to owe the Chings any duty at all in respect
of the investment in the AIG bond, his only responsibility would be for the
consequences of the advice which he gave in 2005 and 2006. His responsibility in the tort of
negligent misstatement would not extend to the consequences of the credit
crunch. The facts that, as the
Plaintiffs assert, Mr Gidley should have foreseen that the proceeds of the sale
of Granville might be invested, and would have known that the value of
investments can go up as well as down, are not sufficient to make him liable
for such consequences.
178. The Plaintiffs made no attempt to distinguish
between the losses which, they alleged, resulted from the AIG bond being an
unsuitable investment for the Chings and the losses
on the bond which were attributable to the credit crunch, notwithstanding that
they had been given leave to adduce expert evidence in respect of the AIG
bond. The result is that the
Plaintiffs have not even identified, let alone called any evidence to support,
the amounts attributable respectively to the bond being unsuitable (which
might, arguably, be recoverable) and to the effect of the credit crunch (which
is plainly irrecoverable). It is
not for the Court to try to fill that lacuna
in the Plaintiffs’ case by substituting our own assessment, even if we
were in any position to do so (which we are not). In those circumstances we conclude that
the Plaintiffs have simply failed to prove any foreseeable loss in respect of
the AIG bond.
(3) Fees
179. The £169,167.11 claimed in respect of
fees comprises, as pleaded:-
(a) £81,496.97 paid to Mr Manning;
(b) £28,245 paid to Mr Gidley; and
(c) £59,425.14 paid to Mr Killmister.
There is no claim under this head in
respect of CITE’s fees. In
answer to questions from the Court about this apparent omission, we were told
by Advocate Garrood that the fees incurred by CITE
did not flow directly from the negligent misstatement because they provided the
service which they were required to provide under the Trust deed. We confess that we find this concession
puzzling. It seems to us that the
one aspect of the Plaintiffs’ damages claim for negligent misstatement
which both flowed directly from the advice to establish the Trust and was
foreseeable by Mr Gidley (and/or by Mr Killmister)
was the fees which would be charged by CITE. Turning therefore to the point that CITE
provided a service in return for their fees, the same would apply to Mr
Manning, Mr Gidley and Mr Killmister, but the
Plaintiffs do claim their fees as damages.
That said, the decision not to claim the fees of CITE under this head
was, of course, a matter for the Plaintiffs.
180. We record that the Plaintiffs’ claims in
respect of these fees were on an all or nothing basis. The Plaintiffs made no attempt to
analyse the figures claimed by Mr Manning, Mr Gidley or Mr Killmister. Likewise the Plaintiffs did not suggest
that any of the fees charged were unreasonable. On the other hand the Defendants
submitted, rightly in our view, that the Plaintiffs could not recover under
this head in respect of fees that the Chings would
have had to pay in any event, i.e. even if the Trust had not been
established. Into this category
would fall fees incurred in what Advocate Baxter described as sorting out “the mess of the Digger share
ownership”.
181. Again we take each of the three claimed heads
in turn.
(a) £81,496.97 paid to Mr Manning
182. These are the fees charged by Mr Manning for
his services as Mr Ching’s curator, which the Plaintiffs continued to
claim even after discontinuing their proceedings against him. The Plaintiffs did not explain, in
either their written or their oral submissions, the basis upon which they were
entitled to recover these fees as damages for negligent misstatement. It seems to us that this part of the
Plaintiffs’ damages claim must fail for at least three reasons. First, the loss to the Plaintiffs in
terms of these fees was not caused by the alleged bad advice or by the
establishment of the Trust in reliance on that advice; the liability to pay Mr
Manning’s fees arose from the Chings’
decision in the summer of 2006 to appoint him as Mr Ching’s curator. Second, we fail to see how the incidence
of such fees could possibly have been foreseeable by Mr Gidley (or by Mr Killmister) in late 2005 or early 2006, long before a
curatorship for Mr Ching had ever been suggested. Third, Mr Manning’s fees would
have been incurred irrespective of the alleged bad advice or of the creation of
the Trust and they would have had to have been paid by the Chings,
directly or indirectly, in any event.
In our judgment this head of damages is, therefore, entirely
misconceived.
(b) £28,245 paid to Mr Gidley
183. This sum comprises £21,135 paid to Compliance
by Mr Manning out of the curatorship account, and £7,110 paid to
Compliance by CITE. So far as the
£21,135 is concerned, it seems to us that, absent any additional factor,
the same points apply as we have just discussed in relation to the fees of Mr
Manning himself; fees paid by Mr Manning are for this purpose indistinguishable
from fees paid to him. Accordingly
we see no basis upon which the Plaintiffs could recover the £21,135 as
damages for the Defendants’ negligent misstatement.
184. Turning to the £7,110 paid by CITE, it
seems to us that the starting point must be Advocate Garrood’s
concession recorded in para.179. If
the Plaintiffs accept that they cannot recover as damages for negligent
misstatement the fees paid to CITE, we fail to see upon what basis they can
claim the fees paid by CITE to Mr Gidley.
That point aside, the balance of £7,110, is made up of
£3,600 paid by CITE on 6 November 2005 and £3,510 paid on 20
February 2006. Compliance’s
invoice in respect of the £3,510 listed attending meetings with Mr Ching
and Mr Manning, reviewing the credit card file and contacting the credit card
companies, research in relation to the Digger shares and reviewing Ms
Sheehan’s claim. So far as we
can tell (and we did not have the benefit of any submissions from the
Plaintiffs in this regard), each of these activities would have been required
even if the allegedly bad advice had not been given, so that the “but
for” test is not satisfied in respect of them. Each of the services was also for the benefit
of the Chings.
We were not directed by the Plaintiffs to any document evidencing the
services performed by Mr Gidley for which he charged the £3,600; in the
absence of any such document, we infer that these services were similar to
those for which Mr Gidley charged the £3,510 so that again the “but
for” test is not satisfied.
Accordingly the Plaintiffs have not persuaded us that the balance of
£7,110 is recoverable either.
(c) £59,425.14 paid to Mr Killmister
185. In fact, as the Order of Justice makes clear,
the sum of £59,425.14 represents the total sum said by the Plaintiffs to
have been received by companies wholly owned by Mr Killmister. Leaving aside CITE itself, the breakdown
is as follows:-
CI Accountancy: £3,119 invoiced and
£1,996.19 paid
Beresford Trust Corporate Services:
£14,207.50 invoiced and £14,620.73 paid
Beresford Secretaries Limited: £5,061
invoiced and £5,385.09 paid.
(Why CI Accountancy should have been paid
less than it claimed, and the two Beresford companies more than they claimed,
was unexplained.) This breakdown
shows that the total paid to the three companies was £22,002.01. That leaves a balance of
£37,423.13. The Plaintiffs
did not provide any explanation for this balance and did not question Mr Killmister about it.
In those circumstances we decline to treat the £37,423.13 as part
of the fees paid to Mr Killmister and we reject the
Plaintiffs’ claim to recover that sum as fees.
186. As for the balance of £22,002.01, we see
no reason why Advocate Garrood’s concession in
relation to the fees charged by CITE as recorded at para.179 above should not
extend also to companies owned by Mr Killmister. It seems to us that these three other
companies supplied services to the Trust, and to the Chings,
just as much as CITE did. Again, so
far as we can tell from the invoices in our bundles (as to which again we had
no detailed submissions from the Plaintiffs), the services rendered by these
three companies would have been required even if the allegedly bad advice had
not been given. The “but
for” test is not, therefore, satisfied in respect of them.
187. It follows that none of the fees claimed by the
Plaintiffs would be recoverable in negligent misstatement.
Conclusion on issue (1)
188. For the reasons we have set out above, the
Plaintiffs’ claims in negligent misstatement fail in their entirety
against all the Defendants.
(2) Breach of fiduciary duty
189. This aspect of the Plaintiffs’ claim was
finally clarified by Mr Pallot in his additional written closing submissions
when he confirmed (at para.D.1) that the Plaintiffs’ position was as
follows:-
“(ii) Breach of Fiduciary
Duty - claim made by both Plaintiffs against CITE, Gidley and Killmister arising from the initial bad advice
provided.”
The significance of this head of claim was
said to be two-fold. First, the
Plaintiffs relied on the existence of a fiduciary duty as a ground for alleging
an assumption of responsibility on the part of Mr Gidley and Mr Killmister for the purposes of their negligent misstatement
claim. Second, they relied on
breach of fiduciary duty on the part of Mr Gidley, Mr Killmister
and CITE as a ground of recovery in its own right; in this context the damages
claimed under this head included the fees paid to CITE which did not form part
of the negligent misstatement claim.
190. As with issue (1), we address this issue in
three stages:-
(a) the law;
(b) the facts; and
(c) our conclusions.
(a) The law
191. Again it was common ground between the parties
that the law of Jersey is the same as the law of England in this area.
192. In In the matter of the E, L, O and R Trusts
[2008] JRC 150, the Deputy Bailiff said as follows (at para.26):-
“A convenient summary of
certain key aspects of [a fiduciary] duty is to be found in the judgment of
Millett LJ in Bristol & West Building Society v Mothew
[1996] 4 All ER 698. The passage at
710 – 715 repays reading in full.
The following summary is drawn from Millett LJ’s observations
which, in our judgment, are equally applicable under the law of Jersey.
(i) The
expression ‘fiduciary duty’ is properly confined to those duties
which are peculiar to fiduciaries and the breach of which attracts legal
consequences differing from those consequent upon the breach of other
duties. For example, the obligation
of a trustee (who is undoubtedly a fiduciary) to use proper skill and care in
the discharge of his duties is not a fiduciary duty nor is the duty of a
director (who undoubtedly owes fiduciary obligations to his company) to
exercise skill and care in the performance of his duties.
(ii) A fiduciary duty is one which is
special to fiduciaries which attracts those remedies which are peculiar to the
equitable jurisdiction and are primarily restitutionary or restorative rather
than compensatory. A fiduciary is
someone who has undertaken to act for or on behalf of another in a particular
matter in circumstances which give rise to a relationship of trust and
confidence.
(iii) The distinguishing obligation of a fiduciary
is the obligation of loyalty. The
principal is entitled to the single-minded loyalty of his fiduciary.”
193. As Ribeiro PJ said in Libertarian Investments
Limited v Hall 17 ITELR 1 (at para.53):-
“Certain relationships have
traditionally been accepted as fiduciary in nature, namely the relationships
between trustee and beneficiary, agent and principal, solicitor and client,
employee and employer, director and company, and between partners.”
But, as Underhill and Hayton’s Law
of Trusts and Trustees (18th ed.) explains (at para.1.50), apart from the
archetypal fiduciary relationship of trustee and beneficiaries:-
“a fiduciary relationship
exists as Ford and Lee have indicated where:
(a) one person, the fiduciary, has
undertaken to act in the interests of another person, the principal, or in the
interests of the fiduciary and another person;
(b) as part of the arrangement between the
fiduciary and the principal the fiduciary has a power or discretion capable of
being used to affect the interests of the principal in a legal or practical
sense;
(c) the principal is vulnerable to abuse
by the fiduciary of his or her position; and
(d) the principal has not agreed as a
person of full capacity who is fully informed, to allow the fiduciary to use
the power or discretion solely in his or her own interests.”
(b) The facts
194. The facts relevant to this claim are the same
as those under head (1), as set out in paras.124 to 143 above.
(c) Our conclusions
195. As spelt out by the Plaintiffs in their final
written submissions, the grounds upon which they alleged that the Defendants
were subject to a fiduciary duty towards the Chings
were as follows:-
(i)
(para.52)
“the things [Mr Gidley
and Mr Killmister] said, the assurances they gave and
the actions they took”;
(ii) (para.53)
“Mr Gidley takes the role
of an advisor and becomes part of the decision-making process, either by
volunteering original advice, or by refining and supporting prospective future
conduct of the Chings in respect of their
property”;
(iii) (para.54) Mr Killmister
“was or was the
representative of an intending Trustee and owed duties of a fiduciary nature by
the very act of becoming involved in the creation of the Trust and the taking on of
responsibilities in respect of dealing with the Chings’
property”;
(iv) (para.58)
“Given the level of
‘trust and confidence’ placed in the Defendants by the Chings and given the extent of their reliance on the
Defendants, such reliance being unconditional, it is plain that the Defendants
each ‘undertook to act for and on behalf’ of the Plaintiffs”;
(v) (para.59)
“It is clear that the Chings did not countenance that they would enjoy anything
but the ‘single-minded loyalty’ of the Defendants”;
and
(vi) (para.61)
“Clearly the Defendants
were in a position to affect the financial interests of the Plaintiffs, which
they did with such a devastating effect.
It is also abundantly clear that the Plaintiffs were vulnerable to the
Defendants abusing their positions as fiduciaries”.
Clearly, however, those assertions must be
read in the light of the clarification to which we have referred in para.189
above.
196. We are not persuaded by any of the points
summarised in the preceding paragraph.
As for Mr Gidley, applying the tests propounded in Underhill to the
facts as we have found them:-
(i)
all he did
in 2005 and early 2006 was to offer the Chings
advice. He did not undertake to act
in the best interests of the Chings;
(ii) likewise he had no power or discretion capable
of being used to affect the interests of the Chings
in a legal or practical sense; and
(iii) neither Mr nor Mrs Ching was vulnerable to
abuse by Mr Gidley of his position.
Accordingly he did not owe the Chings any fiduciary duty in relation to the alleged bad
advice. By the same token, but for
the additional reason that he did not come on the scene until after the Chings had decided in principle to establish the Trust, Mr Killmister likewise owed the Chings
no fiduciary duty in relation to the alleged bad advice.
197. That leaves only CITE. As Mr Baxter rightly conceded, CITE
became subject to a fiduciary duty in favour of the Chings
as soon as the Trust was established but, as Mr Garrood
accepted, not before. It follows
that CITE also owed the Chings no fiduciary duty in
relation to the alleged bad advice.
198. Accordingly we conclude that the
Plaintiffs’ claim based on breach of fiduciary duty, like their negligent
misstatement claim, fails in its entirety.
There was no fiduciary duty on Mr Gidley or Mr Killmister
such as to give rise to an assumption of responsibility for the purposes of the
negligent misstatement claim, or on Mr Gidley, Mr Killmister
or CITE such as to give rise to a claim for breach of fiduciary duty in its own
right against any of the Defendants.
199. In the light of that conclusion the issue of
damages is academic. Nonetheless we
express our views in relation to it.
Neither party suggested that the principles relating to the
recoverability of damages for breach of fiduciary duty were different from
those which we have discussed in the context of negligent misstatement. Accordingly we simply repeat our
conclusions in paras.167 to 187 above that the alleged losses on the Digger
shares and on the AIG bond, and the fees paid to Mr Manning, Mr Gidley and to
Mr Killmister are irrecoverable.
200. That leaves only the matter of the fees paid by
CITE, claimed in the sum of £66,535.14. In his additional written closing
submissions, Mr Pallot explained that this figure was the total of the
£59,425.14 paid by CITE to Mr Killmister’s
other companies and the £7,110 paid by CITE to Mr Gidley. We have already dealt with these sums in
paras.185 to 186, and 184, respectively.
For the same reasons as set out in those paragraphs, we conclude that
just as these fees cannot be recovered as fees paid to Mr Gidley and Mr Killmister, so also they cannot be recovered as fees paid
by CITE.
Mr Gidley
201. Since our findings thus far mean that all the
Plaintiffs’ claims against Mr Gidley must fail, this is an appropriate
point at which to make a general comment on his position. We do so more in the hope than in the
expectation that anything we say will cause the Plaintiffs to change their
minds about him. Mr Gidley made no
secret during the hearing that he felt aggrieved by the fact that the Chings had chosen to issue proceedings against him and to
blame him for being the author of their misfortunes. In our view that feeling of grievance on
Mr Gidley’s part was both understandable and entirely justified. He had given the Chings
advice on their financial position which, as we have found, was entirely sound
in the light of the information they had provided to him. He had been instrumental in enabling Mr
Ching to avoid questioning by the JFSC about Mr Fiessel
and the Greyfield affair in circumstances where, on
the basis of the matters raised by the JFSC with Mrs Ching at her interview in
June 2006, we think that Mr Ching would have been hard pressed to escape
serious criticism. Mr Gidley had,
as we have found, managed to persuade the credit card companies to forego the
entirety of the £120,000 or so of indebtedness that Mr Ching had
accumulated. Finally, he had
assisted in extracting Mr Ching from a £250,000 guarantee which Mr Ching
had given to Mr Lazarou, a former client of ARC, and
of the associated lien on Granville.
In short, had it not been for Mr Gidley, the Chings
would have found themselves in an even worse financial position than they are
now. In those circumstances it
seems to us that the Chings, far from having any
legitimate complaint against Mr Gidley, owe him a considerable debt of
gratitude for his efforts on their behalf.
(3) The validity of the Trust
202. The Plaintiffs assert that the Trust was
invalid, and therefore failed, on four separate grounds, namely:-
(a) the mental incapacity of Mr Ching;
(b) the mistakes of fact and law under which Mrs
Ching was operating;
(c) uncertainty arising out of the provisions of
the trust Instrument; and
(d) failure for certainty of subject matter.
The parties were agreed that the validity
of the Trust was to be determined in accordance with English law as the proper
law of the intended trust.
203. We first address in turn each of the four
grounds on which the Plaintiffs assert that the Trust was invalid. We then turn to the consequences of our
conclusions in this regard.
(a) The mental incapacity of Mr Ching
204. We start by addressing two preliminary points,
namely:-
(i)
the true
issue under this head; and
(ii) the correct legal test to be applied,
before turning to the evidence.
(i) The true issue under this
head
205. The Plaintiffs stated at para.6.2.1 of their
opening skeleton argument that:-
“As to mental capacity
the essence of the Plaintiffs’ case is simple. On 6 April 2006, when the Trust was
executed, Mr Ching did not have the capacity to effect that transaction.”
The Defendants, however, contended that
since the Trust deed was executed by CITE, and since neither Mr nor Mrs Ching
was a party to the Trust deed, the initial validity of the Trust did not depend
upon the capacity or understanding of Mr Ching; accordingly the issue of Mr
Ching’s capacity was relevant only to the transfers made by Mr Ching into
the Trust. Since the transfer into
the Trust of Mr Ching’s share of the proceeds of the sale of Granville
was effected by Mr Manning as his curator, clearly that transfer was not open
to challenge and the Plaintiffs did not suggest otherwise. Similarly the transfer into the Trust by
Mrs Ching of the bulk of the proceeds of the sale of Berkeley Court could not
be challenged on this ground. The
only transfers made by Mr Ching himself were of his shareholdings in Scorpio,
Bokhara and Mitsukiku.
206. We agree with the Defendants’
analysis. It was not the Chings who established the Trust; it was CITE. Neither of the Chings
signed any document bringing the Trust into existence. In those circumstances we do not see
how, even if Mr Ching had been mentally incapable on 6 April 2006, that could
affect the validity of the Trust itself.
The nearest that the Plaintiffs can come to involving Mr Ching in the
establishment of the Trust is to suggest that it was he, or he and his wife,
who gave Mr Killmister the instructions to establish
the Trust. One of the many curious
features of this case is that there was no evidence as to precisely when, and
from whom, CITE received such instructions. But assuming that it was Mr Ching who
gave the instructions, unless and until the Chings
actually transferred any property into the Trust, the mere existence of the
Trust did not affect them in any way.
In those circumstances we conclude that the Defendants are correct. What would, in principle at least, be
susceptible to challenge on the grounds of Mr Ching’s incapacity would be
the transfers into the Trust of his Digger shares in April 2006.
(ii) The correct legal test to be applied
207. In their opening skeleton argument the
Plaintiffs submitted that, allowing for the absence of any Jersey statute
comparable to the English Mental Capacity Act 2005 (“the MCA”), the
law of Jersey in this area was materially identical to English law. The Defendants did not dispute that
submission. We are content to
proceed on that basis.
208. Mr Pallot used as his starting point the
following passage from Lewin on Trusts (19th ed.) (at para.2-008):-
“A voluntary settlement inter
vivos made by a person who at the time it was made
was not a patient with a receiver appointed, or subject to a subsisting order,
under the provisions of the 1983 Act or the [MCA], but who is of unsound mind,
is void or voidable unless made during a lucid interval. For these purposes a
person is of unsound mind in relation to a particular transaction if he does
not have the capacity to understand the transaction when explained to him, and
the extent of understanding required is relative to the particular transaction
which it is to effect and varies with the circumstances of the
transaction.”
We refer to this approach as the common law
test. Despite the Plaintiffs
espousing this approach, Dr Bruno (as we explain in more detail below) adopted
a test of incapacity based upon the MCA.
209. In In re Smith [2014] EWHC 3926 (Ch), the High Court was concerned with the validity of an inter vivos
gift. The judge, Mr Stephen Morris
Q.C., analysed the legal position both at common law and under the MCA. His analysis of the position at common
law was as follows:-
“27. At common law, the principles to be applied in
relation to mental capacity to make an inter vivos
gift are set out in the judgment of Martin Nourse QC
(as he then was) in Re Beaney. The learned judge first stated (at
773A-B) the test in general terms as follows:
“the question is whether the
person making it was capable of understanding the effect of the deed when its
general purport has been fully explained to him”.
Thus the overall test is one of
ability to understand, rather than actual understanding. If the maker of the gift does not in
fact understand the transaction, in circumstances, where its general purport
has not been fully explained, that does not establish lack of capacity. The test is whether he or she would have
understood it, if the consequences had been fully explained.
28. As
to the degree of understanding required, Martin Nourse
QC cited and approved the following statement from the Australian case of
Gibbons v Wright that the principle is
“that the mental capacity
required by the law in respect of any instrument is relative to the particular
transaction which is being effected by means of the instrument and may be
described as the capacity to understand the nature of that transaction when it
is explained”
and he then continued (at 774D-F):-
“In the circumstances, it
seems to me that the law is this.
The degree or extent of understanding required in respect of any
instrument is relative to the particular transaction which it is to effect. In the case of a will the degree
required is always high. In the
case of a contract, a deed made for consideration or a gift inter vivos, whether by deed or otherwise, the degree required
varies with the circumstances of the transaction....”
29. On the facts, in Re Beaney,
there was expert evidence from a professor of clinical neurology and from a
consultant psychiatrist. The
deceased suffered from senile dementia in a very advanced stage and it was
getting worse. It was not possible
for her to have a lucid interval.
The deceased was not capable of understanding that she was even making
an absolute gift.
30. The common law test for mental capacity to
make a will (testamentary capacity) is to be found in Banks v Goodfellow (1870) LR 5 QB 549. The key passage is in the judgment of
Cockburn CJ at 565:-
“It is essential to the
exercise of a power that a testator shall understand the nature of the act and
its effects; shall understand the extent of the property of which he is
disposing; shall be able to comprehend and appreciate the claims to which he
ought to give effect; and, with a view to the latter object, that no disorder
of the mind shall poison his affections, pervert his [sense] of right, or
prevent the exercise of his natural facilities - that no insane delusion shall
influence his will in disposing of his property and bring about a disposal of
it which, if the mind had been sound, would not have been made.”
210. The judge went on to consider the question of
the burden of proof at common law, concluding (at para.67) that:-
“the authorities all seem to
support the proposition that whilst the legal burden is on the party asserting
the incapacity, if that party adduces evidence to raise a sufficient doubt from
which incapacity can be inferred, then the evidential burden shifts to the
opposing party ...”
Since this burden of proof issue has not
affected our conclusions, we say no more about it.
211. We have also found the decision of the Court of
Appeal in Masterman-Lister v Brutton & Co [2003] 1 WLR 1511 to be of assistance.
In that case Chadwick L.J. explained the position in this way:-
“58 The authorities are unanimous in support of
two broad propositions. First, that
the mental capacity required by the law is capacity in relation to the
transaction which is to be effected.
Second, that what is required is the capacity to understand the nature
of that transaction when it is explained...
....
60 The
broad propositions are not in doubt.
The question of difficulty in any particular case is likely to be
whether the party does have the mental capacity, with the assistance of such
explanation as he may be given, to understand the nature and effect of the
particular transaction. In In re C [1994] 1 WLR 290, 295 Thorpe J rejected what
had been described as “the minimal competence test” – the
capacity to understand in broad terms the nature and effect of the proposed
treatment – in favour of a more specific test. As he put it:-
“the question to be decided
is whether it has been established that C’s capacity is so reduced by his
chronic mental illness that he does not sufficiently understand the nature,
purpose and effects of the proffered amputation.”
....
62 The
authorities to which I have referred provide ample support for the proposition
that, at common law at least, the test of mental capacity is issue-specific:
that, as Kennedy LJ has pointed out, the test has to be applied in relation to
the particular transaction (its nature and complexity) in respect of which the
question whether a party has capacity falls to be decided.”
As Kennedy L.J. also commented (at para.29):-
“29 The conclusion that in law capacity depends
on time and context means that inevitably a decision as to capacity in one
context does not bind a court which has to consider the same issue in a
different context. A person may be
a patient for purposes of Ord 80, r 1 or CPR r 21.1, but not for the purposes
of section 94(2) [of the Mental Health Act 1983], and any medical witness
asked to assist in relation to capacity therefore needs to know the area of the
alleged patient’s activities in relation to which his advice is
sought. The final decision as to
capacity, it is agreed, rests with the court but, in almost every case, the
court will need medical evidence to guide it.” (Emphasis added.)
212. In the light of those authorities we conclude
that the Re Beaney test is the correct test to
apply in the present case. It
follows that in applying a test based on the MCA, Dr Bruno erred in law.
213. Notwithstanding our conclusions on these two
preliminary points, we start by addressing the Plaintiffs’ preferred approach
to the issue of Mr Ching’s mental incapacity. In this respect the Plaintiffs relied on
two matters, namely Dr Jackson’s diagnosis on 4 April 2006 and the expert
opinion of Dr Bruno. Both these
matters involve an examination of Mr Ching’s medical history, which was
as follows.
(i)
In May
2003 Mr Ching presented to Dr Jackson complaining of problems with
procrastination, poor concentration and poor memory (forgetting a meeting in
Switzerland the week before) but, as Dr Jackson recorded in his referral letter
to Dr Harrison of 5 April 2006:
“It was clear that the
major [precipitating] factor at that time was a legal confrontation with the
[JFSC]. Over the following 6 months
he improved, partly because events were going his way and partly I guess
because of the [citalopram]. Memory
was not mentioned again as a problem and never appeared to be one during
follow-up consultations.”
(ii) An entry in Mr Ching’s medical notes
dated 8 April 2004 recorded that work pressure was resolving and that Mr Ching
was feeling “much happier” but
he was advised to continue on antidepressant medication until full resolution
of his symptoms.
(iii) At a follow-up consultation on 21 December 2004
Mr Ching is recorded in his notes as being well, with the stress having been
taken off him.
(iv) Some 11 months later, an entry in Mr
Ching’s notes dated 24 November 2005 recorded:-
“Patient’s
condition improved - is tailing off cipralex as per
written instructions.”
(v) On 10 January 2006 Mr Ching’s notes
recorded him as being better, that he had virtually completed the tail off of
his medication and that he felt very well.
(vi) On 7 March 2006 Mr Ching went to Dr Jackson
again, complaining of stress which he attributed to marital difficulties. The following day he completed a Beck
Depression Inventory, which he took to Dr Jackson on 9 March. Mr Ching’s score was 21,
indicating moderate depression and he was advised by Dr Jackson to reduce his
alcohol intake. At the same time Dr
Jackson talked with Mr Ching about a business trip to India, which Mr Ching
subsequently completed without apparent difficulty.
(vii) Dr Jackson’s referral letter of 5 April
2006 (written following his visit to Granville on 4 April, to which we have
referred in para.25 above) began as follows:-
“PROBLEM: Stress
related emotional instability in assoc chronic
depression
Hx short term memory loss
Alcohol overuse - but normal lfts &
MCV
Acute professional regulatory body (Financial Services commission)
major stresser
REASON FOR REFERRAL: Assessment
-
a) Memory
Loss ? mood dependent or early manifestation of dementia
b) ?
Optimal management of current emotional state
c) ?
Formal statement to say currently mentally incapable of giving evidence to
Financial Services Commission.”
Under the heading “H.P.C.”
Doctor Jackson wrote as recited in subpara.(i) above and continued:-
“Despite apparently doing
very well we maintained ongoing citalopram Rx until about 6 months ago when the
legal proceedings were finally resolved and he weaned off without problem.
In the last 6 months I have
seen him for follow up in respect of BP and cholesterol monitoring, his mood
was reasonable and again there was no suggestion of memory problems, either
from his complaints or his observed behaviour. He did report problems at home in
relation to his [wife’s] emotional volatility; this was something he
wasn’t used to having married for the first time (10 yrs
ago) late in life.”
Dr Jackson went on to describe the events
of 3 and 4 April as follows:-
“On Monday this week I
received a tearful call from his wife who was with [Barry’s] business
partner/friend, saying that the [JFSC] had just launched (7 [days] prior) a
major new investigation, with potentially [very] serious consequences. Barry had been unable to help get matters
in order because in order to counter allegations he needed to produce or do
reconciliations on accounts going back 10 years, but couldn’t remember
enough in the absence of notes made at the time to do this. Clearly acutely distressed he is once
again weepy and exhibiting sleep disturbance, and has poor concentration and a
tendency to repeat questions answered only a few minutes earlier. Earlier in the week there had been
episodes of over drinking, but on the day I saw him he had had no alcohol for
24 hrs. After some time at
interview he became much calmer and I performed a [MMSE]. He scored 28 out of 30 on this making errors in
the recall and word spelling section.
I had arrived at his house
wondering if this was going to be an Ernest Saunders type defence but in fact
talking to his wife and business partner they both say that in fact he has had
consistent memory problems which this episode has now brought into sharp focus
and they regard the fact that he cannot recall facts of great importance to his
own defence as a seminal indication that he has a major genuine underlying
problem. Clearly on going stress is
going to be a major confounding factor.
He doesn’t necessarily drink alcohol every day and has never had
withdrawal problems, I’ve asked him not to drink at all now. He has been started on thiamine and
folic acid but I haven’t started any psychotropic medication pending your
evaluation. He has a good
[background] diet and has had several courses of thiamine over the past 3 years
(assuming he has taken them).”
(Emphasis is as in the original.) The score achieved by Mr Ching in his
MMSE met the cut-off score of 28 for a man of his age.
(viii) On 6 April 2006 Mr Ching visited Dr Harrison at
his private consulting rooms in Little Grove. Dr Harrison wrote to Dr Jackson on 10
April 2006, in these terms:-
“Barry stated his main
concern was that his memory was a big problem. He is devising strategies to overcome
this; writing things down in lists and making associations to remember
people’s names. He stated
that he has noticed his memory becoming a problem over the last four years and
now finds difficulty orientating himself around town, is forgetting names of
long term colleagues and forgetting why he enters a room. His wife stated that she too has been
concerned about this problem for quite a while now, saying that he has become
much more disorganised, spending a lot of time sifting through papers at home
and in effect, just rearranging them and not dealing with any issues. She reported that although he is going
out to work each day, nothing productive is being done. Barry himself said that he makes a few
phone calls and gives a hand. There
seems to have been a significant deterioration in his work capacity
A second problem that was
identified was Barry’s mood.
I understand that it was felt that he was depressed three years ago and
you prescribed him Citalopram which he reports being of some help, however his
wife said it made no difference.
More recently, his wife reported that she had spoken to you three or
four months ago concerning Barry’s mood. He admitted to getting very easily upset
and tearful, indeed crying two or three time each day over this period. This is reflected in the Beck's
Inventory score of 21 that you obtained six weeks ago, scoring as moderately
depressed.
The situation has deteriorated
markedly in the last ten days in reaction to increased stress. Barry and his wife reported that this
has arisen as the local regulator from [JFSC] is requesting to interview him. He reported that he was investigated by
the [JFSC] for a three year period and exonerated one year ago and now
perceives that similar problems have arisen.
He feels that he is unable to
cope with the process again and worries that he does not have the ability to
gain the information required and answer the questions that might be put to him
at the interview with the [JFSC] which they say is due at the end of May.
He reported that he has been
sent a list of people that he supposedly has dealt with but he cannot remember
this. He is confused about his role
in the affair. His wife reported
that he has been trying to obtain this information from his papers at home but
is not making any headway with this.
He reported “I can’t get a grip on it”.
Barry has a long term history
of heavy alcohol intake. He
reported that in the seventies and eighties he used to drink a lot but did not
perceive it to be a problem. He
realised that it has become more of a problem over the last four years. He said that in response to a feeling
that he [was] losing his grip and the stresses of the investigations, he began
drinking more. His wife reported
regularly finding him in the early hours of the morning continuing to
drink. His daily consumption was in
excess of two bottles of wine and several spirits. He reported that he stopped drinking completely
three days ago as he realised that his drinking had got out of control. He denied suffering any withdrawal
symptoms and at interview did not appear to be having withdrawal symptoms. I also note that [liver function tests]
and [mean cell volume] were normal.
He denied any previous
psychiatric history other than the episode when he was treated with
antidepressants three years ago. He
also reports no family history of depression. He denied any past medical history of
hypertension or strokes. He stated
he smokes about twenty cigarettes per day.
On assessment of his mental
state, at the interview he appeared anxious. His mood was very labile and he was at
times tearful during the interview.
He described his mood as down and anxious. His sleep pattern has deteriorated
recently with a degree of initial insomnia; previously he used to drink to help
him sleep. His sleep is also broken
and he has early morning wakening.
His appetite is poor, and states that he has lost one and a half stone
in weight in the last ten days. His
concentration has deteriorated and he reports difficulties in focusing. He is not enjoying anything in his life
and his usual interests are diminished.
His self-esteem is low and he noted that his self-confidence is
poor. At the moment he has no ideas
of self-harm or suicidal intent and has some hope that things will improve in
the future. His thought content
however at present is very negative.
There is no evidence of any psychotic symptoms for example; delusional
beliefs or hallucinatory experiences.
I note the result of the recent
mini mental state at 28 out of 30 and a brief assessment of his cognitive state
at interview revealed that he is fully orientated in time, person and
place. There were some deficits in
attention and concentration on the Serial Sevens assessment. He also showed a poor level of knowledge
in current events. His remote
memory was reasonably intact however there were some deficits in his recent
memory. He stated that he looks at
the Teletext to remind him of the date and makes a note by his bedside to tell
himself where he is when he is travelling.
My initial impression is that
he is exhibiting symptoms of a depression although this is complicated by his
recent heavy alcohol intake. I did
think that it would be worthwhile giving him a trial of an antidepressant and
suggested Fluoxetine 20mg [morning].
In addition to the depression,
I do feel that there is evidence of cognitive decline and do not think that
this [is] pseudo dementia. To
achieve a more formal assessment of this I will refer him for a MRI head scan
and also to the Memory Clinic. I
discussed this with Barry and also the possibility of medication in the future
for his memory problems.
His wife in particular was
concerned about Barry’s competence to manage his affairs and face the
oncoming interview with the Jersey FSC.
I have indicated to her that the above assessments will give us a more
strong and definite decision as regards this issue and have arranged to see
them at the Little Grove Clinic in two weeks time. I will keep you informed of his
progress.”
Unfortunately the referral to the Memory
Clinic was not accepted due to Mr Ching’s age; at the time the service
accepted only patients over the age of 65.
(ix) On 18 April 2006 Mr Ching, along with Mrs
Ching, saw Dr Harrison again. In a
letter to Dr Jackson dated 20 April, Dr Harrison wrote as follows:-
“Barbara seemed very
stressed by the present situation and Barry’s behaviour and mental
state. She reports that he
continues to spend the majority of each day sifting through papers and not
making headway towards resolving his issues or the information he needs for the
[JFSC].
It is clear that there has been
no improvement in his cognitive state as yet and that he has impaired
concentration and recent memory.
Concerns were expressed about him continuing to work and after
consideration, I am recommending an application of curatorship.”
(x) Mr Ching’s medical notes include two
entries for 19 April 2006:-
“19/04/2006 Counselling
wife yesterday; no better if
anything worse - confirms off alcohol completely - she is concerned that he may
try to continue to advise clients - he does sound [very] normal on the phone -
she [won’t] leave him alone in the house therefore
19/04/2006 Telephone
encounter
Dr Harrison - seen him last
night he agrees that there are now grounds for curatorship application at least
on a temporary basis both to protect [Barry] and possibly others - whilst
awaiting completion of formal investigations - this shaped by the increasing impression
that this is less likely to be ‘functional memory loss and more likely to
be a [permanent] problem’ Dr H will [communicate] with [Advocate Sharpe]
and send in the mental incapacity form.”
(xi) On 20 April 2006 Dr Harrison signed the
Statement described in para.31 above.
(xii) On 5 May 2006 a CT head scan of Mr Ching was
performed. The report of the scan
was:-
“There is evidence of an
old left deep parietal white matter lacunar infarct but no other significant
abnormality to account for his increasing memory loss”.
(xiii) On 4 July 2006 a formal neuropsychometric
test was carried out. Ms Moignard, an assistant clinical psychologist, wrote to Dr
Jackson a week later, as follows:-
“Memory functioning
A WMS -
III Wechsler Memory Scale was administered and the scores overleaf show quite a
wide range of recall ability. Mr.
Ching’s verbal recall is extremely low both immediately after
presentation and following delay.
However, visual recall is in the average range following delay
suggesting that there is a significant interval in Mr. Ching’s ability to
process information.
His attention is not, however,
an issue at this stage as working memory is in the average range. These scores are patchy and it is
surprising that he [has] been able to function as well as he has if this is a
true indication of his memory capacity.
However, it must be taken into account that this may well have been
affected by his current stresses and mood as well as his alcohol intake over
the years, which is likely to have had a detrimental affect
on his functioning.”
The scores recorded were extremely low for
immediate memory, borderline for general memory and average for working
memory. The letter continued:-
“Further recommendations
It is not possible to say with
only one assessment what degree of his memory functioning is due to dementia,
depression, alcohol or other. If
these results are in part due to alcohol and his recent abstinence we may see
improvement in his next assessment, it may also be worth considering Thiamine
if you felt this appropriate as it may further improve his cognition over
time. We also have a copy of his
recent MRI which showed an old infarct but no other significant abnormality.
We would therefore recommend a
three month repeat memory assessment to ascertain any further change in Mr.
Ching’s functioning and will also make the Memory Clinic aware of these
scores should a decline indicate that dementia may be present.”
(xiv) Although there was no copy of any repeat
assessment in the bundles before the Court, Dr Bruno confirmed that such a
repeat assessment had taken place and that it showed a very mild improvement
although overall the memory deficits were confirmed.
(xv) An entry in Mr Ching’s medical notes
dated 29 August 2006 read:-
“presents v well no
stress off him”.
(xvi) A further entry in Mr Ching’s medical
notes dated 12 December 2006 read:-
“Patient’s
condition the same”.
(xvii) Thereafter Mr Ching underwent no medical
intervention for over six years.
214. Taking first Dr Jackson’s diagnosis, the
Plaintiffs pleaded that Dr Jackson had diagnosed Mr Ching as “having a formal mental incapacity
on” 4 April 2006. This,
they contended in their final written submissions, was:-
“an ample basis upon
which to conclude that Mr Ching did not have capacity effectively to set up a
structure under which he purportedly gave away his property 2 days
later”.
This assertion of a formal diagnosis was
based on correspondence in January 2009 between Mr MacFirbhisigh
and Dr Jackson.
215. On 14 January 2009 Mr MacFirbhisigh
wrote to Dr Jackson asking a number of questions, to which Dr Jackson responded
a week later by a letter dated 21 January.
Mr MacFirbhisigh’s questions were as
follows:-
“1. Could you please
state the date that Mr Ching first visited you with regard to his mental
capacity.
2. Could you please confirm the
date, if it differs, that you referred him (I am assuming this was you) to Dr
Harrison.
3. Were you aware, either because
of conversations with Mrs Ching or any other person, of Mr Ching’s
deterioration prior to this date.
If so, could you please state or estimate how long prior to the first
visit.
4. Are you able to say whether or
not it is likely or indeed a fact, that Mr [Ching’s] condition had been
deteriorating for a period of time prior to his first visit.
5. Can you provide any other information
that may be helpful in establishing ... how long Mr Ching was incapacitated
prior to this visit.”
Dr Jackson’s answers were these:-
“1) Barry was
declared by me to have a formal mental incapacity problem on a home visit 4th
April 2006 and this was later verified by Dr Dale Harrison in a clinic on the
6th April and confirmed by Psychometric testing in the Psychology Department
11th July 2006.
He had however exhibited poor
concentration and variable attention span from the first point at which I met
him 6/5/03 secondary in my opinion, to excess alcohol consumption and
depressive illness, but without reaching the point where incapacity might be a
consideration. These aspects of his
functioning varied with stress
reduction and his lifestyle, but seemed to improve with moderation of alcohol
consumption and antidepressant medication up until January 2006.
2) He was referred to Dr Harrison
5/4/06.
3) Mrs Ching alerted me to a
serious deterioration by mobile telephone on Monday 3/4/06.
4) It is likely deterioration was
taking place between his last visit to me on 9/3/06 and the assessment on
4/4/06. On Brain MRI scanning
arranged by Dr Harrison a small stroke was evident (lacunar infarct). With his heavy smoking and high blood
cholesterol (on treatment), though young he was at risk from blood vessel
occlusive events ie stroke and I think the mechanism
by which a slower process of declining function engendered by excess alcohol
consumption working directly on the brain and mood secondarily reducing functionality
(but in a manner where capacity was retained) was converted into an acute
problem where capacity was lost, was through the small stroke.
5) He did not in my opinion
manifest formal signs of mental incapacity as defined above before 9/3/06. He had however self-reported variable
concentration and attention problems since 6/5/03 but falling short of formal
incapacity.”
216. Notwithstanding the assertion in para.(1) of Dr
Jackson’s letter of 21 January 2009, we reject the Plaintiffs’
contention for the simple reason that we have seen nothing to suggest that Dr
Jackson (who, as Dr Bruno pointed out, is in any event a general practitioner
and not a psychiatrist) ever did make any diagnosis of formal incapacity on 4
April 2006. Dr Bruno accepted in
cross-examination that Dr Jackson’s referral letter of 5 April 2006 contained
no such diagnosis. Dr
Jackson’s letter to the JFSC later the same month (see para.25 above)
likewise contained no suggestion of such a formal diagnosis. Nor, for the sake of completeness, did
Dr Harrison verify on 6 April that Mr Ching had a formal incapacity
problem. In those circumstances we
are driven to conclude that Dr Jackson’s memory was at fault in the first
sentence of his letter of 21 January 2009.
217. We add that Advocate Garrood
accepted during his oral opening that it would not automatically follow that
just because Mr Ching was unfit to be interviewed by the JFSC in relation to
the Greyfield matter (which is what Dr Jackson did
say in his letter to the JFSC), he was therefore incapable of establishing the
Trust. Mr Garrood,
rightly in the light of the observations of Kennedy L.J. in the Masterman case to which we have referred in para.211 above,
accepted that these were separate issues.
218. Turning to Dr Bruno, she is a consultant
psychiatrist at the Overdale hospital in Jersey. Her conclusions as set out in her
medical report of 15 April 2015 began as follows:-
“Mr Ching has a current
diagnosis of Probable Alzheimer’s Disease with early onset (onset before
the age of 65). The diagnosis of
Probable Alzheimer’s Disease was formulated in June 2013 based on his
history, examination and review of the brain CT scan carried out in May
2013.”
Having set out a chronology of the relevant
medical history by reference to the contemporaneous documents, her report
concluded:-
“OPINION
I have been asked to comment on
the matter of Mr Ching’s mental capacity at the material time 6th April
2006, primarily in relation to his ability to establish a Trust.
Before addressing individually
the points raised in my instructions I think it is worth defining the issue of
Mental Capacity, in the absence of a Jersey equivalent of the Mental Capacity
Act 2005, as in my opinion I will refer to its principles, in accordance to
current guidelines for medical practice in Jersey.
According to the Mental
Capacity Act 2005, a person lacks capacity in relation to a matter if at the
material time he is unable to make a decision for himself in relation to the
matter because of an impairment of, or a disturbance in the functioning of, the
mind or brain. It does not matter
whether the impairment or disturbance is permanent or temporary. A person is unable to make a decision
for himself if he is unable
“(a) to understand the
information relevant to the decision,
(b) to retain that information,
(c) to use or weigh that information as
part of the process of making the decision, or
(d) to communicate his decision (whether
by talking, using sign language or any other means).
a) Was Mr Ching capable at the material
time? On the balance of probabilities I feel that at the material time Mr
Ching was unlikely to have the capacity to take important financial
[decisions], as he had severe memory deficits and therefore would have been
unable to retain information, and use it as part of the process of making the
decision.
b) If
Mr Ching was incapable at the material time, the point at which he became
incapable. I do not feel I am
able to give an accurate estimate of this as the cognitive decline in
Alzheimer’s disease is slowly progressive over years. It is likely that Mr Ching’s
cognitive functions would have been significantly impaired for several months
prior to his neuropsychometric assessment in July
2006, which placed him in the extremely low range for memory functions. Therefore, it is likely that he would
have been incapable of making complex financial decisions for a period at least
in the order of months prior to the formal statement of incapacity.
c) The
likely cause of Mr [Ching’s] incapacity. I believe that the likely cause of Mr
Ching’s incapacity was Alzheimer’s Disease. The cognitive dysfunction was probably
exacerbated by stress, depression and excessive alcohol intake.
....
f) I
do not feel able to comment on the positions advanced by the defendants in terms
of being an accurate reflection of Mr Ching’s health at the material
time, or if a decline in Mr Ching’s mental welfare immediately preceding
the material time would have been noticeable to persons other than medical
professionals, as this would have depended on the perceptiveness of others, and
the extent/modality of their contact with Mr Ching. As to the point raised by the First and
Third Defendants, that Mr Ching was fully orientated in time, person and place,
that would not in itself represent an indication that Mr Ching possessed legal
capacity on the 4th April or on the 6th April 2006.”
(Emphasis is as in the report itself).
219. We record that before he even called Dr Bruno
to the witness box Advocate Garrood applied to limit Advocate
Baxter’s cross-examination in the light of the fact that the Defendants
had not themselves served any expert evidence. Advocate Garrood
submitted that Advocate Baxter was limited to pointing out any inconsistencies
in Dr Bruno’s report, or any flaws in the factual premises of her report,
but that he was not entitled to challenge her conclusions other than by
reference to any such inconsistencies.
This contention, to which Advocate Garrood
returned on a number of occasions during Advocate Baxter’s questioning,
was plainly misconceived. As
Kennedy L.J. said in the Masterman case, it is
for the Court to determine the issue of incapacity. The fact that the Defendants had not
themselves served medical evidence meant, as Advocate Baxter accepted, that
they were not entitled to assert their own, positive expert case. But Advocate Baxter was clearly entitled
to challenge the conclusions in Dr Bruno’s report by reference either to
the materials upon which she had herself relied, or by reference to any other
relevant materials, including Mr Ching’s medical history and the
contemporaneous documents.
220. We do not in any way doubt Dr Bruno’s
competence or experience in the field of cognitive disorders, especially
dementia and Alzheimer’s disease; nor do we doubt that she was doing her
best to assist the Court. We have
no hesitation in accepting her diagnosis that Mr Ching is now in the late
stages of early onset Alzheimer’s disease. But Mr Ching did not become her patient
until June 2013, something over two years ago and more than seven years after
the events in question. (He ceased
to be her patient in March 2015.)
Indeed Dr Bruno repeatedly confirmed that the main element in her
conclusion that Mr Ching lacked capacity in April 2006 was her diagnosis of
Alzheimer’s disease in June 2013, based in particular on a CT head scan
which had been performed on Mr Ching on 13 May 2013.
221. We also accept Dr Bruno’s evidence that
by the spring of 2006 Mr Ching may, as Dr Harrison suspected, have been showing
early signs of the cognitive decline which is such a distressing feature of
Alzheimer’s disease. That
decline is, as medical science presently stands, progressive and
irreversible. But, as Dr Bruno was
at pains to stress, the degree to which the changes in the brain which cause
Alzheimer’s disease manifest themselves was “very variable from individual to individual”. In those circumstances it seems to
us to be of particular importance to examine Mr Ching’s contemporaneous
medical history to see whether, and if so to what extent, it supports her view
of Mr Ching’s mental incapacity in April 2006.
222. Dr Bruno relied in particular on two matters
arising out of the history that we have just recited. First, she referred to the third page of
the MMSE which Mr Ching had completed in early April 2006. As part of this test Mr Ching had been
asked to reproduce a drawing of two pentagons; she described him as not doing
well on that test. She accepted,
however, that the MMSE, although designed as a screening tool to identify
individuals at risk of Alzheimer’s disease, was not in itself a test for
mental incapacity. More importantly
she referred to the formal neuropsychometric test of
July 2006 and to Mr Ching’s memory scores. She confirmed that the statement in her
report that Mr Ching had “severe”
memory deficits in April 2006 was based on the July 2006 test but she accepted
that there that there was no medical record in April 2006 which used the word
severe. She also said, however,
that she did not personally use this kind of neuropsychometric
test and that the way in which the scores worked was not her area of
expertise. We also remind ourselves
that in his letter to Dr Jackson of 20 April 2006 Dr Harrison described Mr
Ching’s concentration and recent memory simply as “impaired”.
223. Towards the end of his cross-examination Advocate
Baxter put to Dr Bruno a number of documents, as follows:
(i)
an email
dated 7 March 2006 from Mr Ching to Ms Elizabeth Bennett, which read:-
“I have now had the reply
from North Star. You hold 691.747
shares in the Bond and Mortgage Fund which is priced in Danish Kroner. The price of the fund is at present DKK
107, which gives a value of DKK 69,100 and converted to sterling at a rate of
10.85 gives a value of £6,816”;
(ii) an exchange of emails between a gentleman
called Malcolm, Mr Ching and Mr Gidley, in which Malcolm emailed Mr Ching on 25
May 2006 as follows:-
“I have received no
communication from you; which is regrettable and likely to make life
unnecessarily difficult.
1. Les
Arbres Link Limited: In December 2005 you were
instructed to realise £25K out of the holding of Digger Resources holding
for the account of Les Arbres Link Limited for whom
you originally purchased these shares.
You indicated at that time sales could not be made pending a
[Directors’] announcement to shareholders and the Toronto Exchange. This came in January and we discussed it
when again you were instructed to act and you stated you would wish to sell
into the expected rising market.
The stock traded higher but the administrators of Les Arbres Link Limited, Alex Picot and Sons in Jersey,
confirmed to me in April that they have received no proceeds of sale or details
of the transaction and this remains the situation. What is the current status?
2. Arc
Capital Management Limited: If S Gidley’s statement to me has any
validity ‘that you and/or ARC ceased to act for clients in 2003 following
upon receipt of the JFSA directive’ (a copy of which I have never
seen). Then please confirm to me the
status of the portfolio of ARC clients transferred to ‘other’
brokers - was this client portfolio potential income stream sold for
value? If so for [whose]
benefit? If not why not? When were these decisions placed before
the ARC Directors and when did they reach their decisions?
3. I await your reply to my email of the 17
May 2006”,
and which Mr Ching forwarded to Mr Gidley
the following day, adding:-
“Welcome back!! I hope you had a great time in the Med.
Malcolm has been very quiet
over the last two weeks. This
arrived yesterday almost as if he knew you were about to return. His statement is not accurate all he did
was ask how things were going and I said that there were a number of
developments pending which will result in announcements in due course. I have not responded to this and clearly
you have much to catch up on so we can have a chat sometime next week”;
(iii) Mr Ching’s two letters dated 20 September
2007 to Mr Manning (as set out in para.57 above);
and
(iv) Mr Ching’s letter dated 25 September 2007
to Mr Manning (as set out in para.58 above).
There was no suggestion, and no evidence,
that these documents were written other than by Mr Ching himself. When Mr Baxter put it to Dr Bruno that
these communications did not appear to be the product of a confused mind, she
replied that it was very difficult for her retrospectively to make that
judgment but added that:-
“Taking them at face
value now, they appear entirely reasonable”.
Finally, there was this exchange with the
Court:-
“THE COMMISSIONER: Would you regard these letters and
e-mails that we have been looking at as involving important financial
decisions, Dr. Bruno?
A. Yes, well, if somebody showed me these
letters and said to me, “... [I]s there any sign of mental illness
through these letters”, I would not be able to say there is an indication
of mental illness.”
Indeed Advocate Garrood
in his oral opening described Mr Ching’s letter of 25 September as “clearly ... cogent”; we
endorse that description.
224. We add that in the same vein Advocate Baxter
could also have put to Dr Bruno the exchange of emails between Mr Ching and a
Mr Robert Sharp of Herald Trust Company Limited (“Herald”) in
February 2006 regarding the appointment of Herald as trustees of the Gallo
settlement and the establishment of pension schemes generally in Jersey and Guernsey,
his letter of 5 April 2006 to CITE (as set out in para.26 above) and his visit
of the same day to London. Advocate
Baxter did put to Dr Bruno Mr Ching’s successful completion of his trip
to India in March 2006 but she dismissed that as irrelevant; we disagree.
225. In addition we bear in mind the evidence of Mr
Gidley, Mr Hurley and Mr Shepheard that they observed nothing to suggest that
Mr Ching’s decision-making was in any way impaired in the period from
late 2005 to the summer of 2006.
Although we recognise the caveat registered by Dr Bruno in this regard
at para.(f) of her report, we do not consider that these personal observations
can be discounted altogether.
Likewise, although Dr Jackson is not a psychiatrist, we have regard to
the comment in his letter of 21 January 2009 that Mr Ching did not manifest any
formal signs of mental incapacity before 9 March 2006.
226. With those points in mind, we return to Dr
Bruno’s report and to the statement at para.(a) of her opinion that Mr
Ching was “unlikely to have [had] the
capacity to take important financial [decisions], as he had severe memory
deficits”. We note,
however, that at para.(b) she used the different expression “incapable of making complex financial
decisions”. Whilst we
accept that establishing the Ching Trust was an important decision in
principle, it did not have any financial implications for the Chings unless and until they took the further decision to
transfer their assets into the Trust.
Accordingly we have difficulty with the concept that establishing the
Ching Trust was in itself an important financial decision. In addition, we do not think that the
establishment of the Ching Trust, which Mr Ching himself described in his
letter of 25 September 2007 as “a
simple basic UK trust”, can properly be described as involving a complex
financial decision. In this regard
the subject matter of the JFSC investigation, which raised its head again at
the end of March 2006, provides an illuminating contrast. That investigation, which was causing Mr
Ching so much concern and which was the trigger for the medical interventions
in early April 2006, would no doubt have involved detailed analysis of a number
of different transactions in the shares of Greyfield,
and of the handling of the proceeds, all of which might well have taxed Mr
Ching’s memory. But the
decision whether or not to establish a trust involved no such detailed recall
of past events and we have already recorded our view that the decision to
establish the Ching Trust had been taken in principle by the end of 2005.
227. In those circumstances, whilst giving anxious
consideration and due credit to the views expressed by Dr Bruno, we are not
persuaded that her views are supported by the events of 2005 and 2006 or by Mr
Ching’s medical history during that period. The mere fact that Mr Ching may have
been demonstrating in April the early symptoms of cognitive decline, in
particular an impairment of his memory, is not of itself sufficient for the
purposes of the test under the MCA adopted by Dr Bruno. The Plaintiffs have not satisfied us
that, even adopting their approach to this issue, Mr Ching lacked the capacity
to establish the Ching Trust in April 2006.
228. Thus far we have addressed Dr Bruno’s
report on its own terms. But there
are further difficulties with her report.
229. First, as Kennedy L.J. said at para.29 of the Masterman case:-
“any medical witness asked to
assist in relation to capacity therefore needs to know the area of the alleged
patient’s activities in relation to which his advice is sought”.
Dr Bruno records in her report that she was
asked to comment on Mr Ching’s mental capacity “primarily in relation to his ability to establish a
Trust”. But it became
clear in cross-examination that Dr Bruno did not understand what was involved
in establishing a trust. That is no
fault of hers; it was for those instructing her to explain the essential
ingredients of a trust which, on the Plaintiffs’ case, Mr Ching would
have needed to, but could not, understand.
In those circumstances it is perhaps not surprising that nowhere in her
report did she comment on Mr Ching’s ability to establish a trust. For this additional reason we conclude
that the Plaintiffs have not established the requisite mental incapacity on the
part of Mr Ching even by reference to their formulation of this issue.
230. Second, we have already commented that Dr Bruno
adopted a test of mental capacity based upon the English MCA. But for reasons we have set out earlier
in this judgment, that is not the correct test in Jersey law; the correct test
is that set out in Re Beaney as approved in In
re Smith. (Again that is no
criticism of Dr Bruno herself; it was for those instructing her to explain the
test that she should apply.) As Mr
Nicholas Strauss Q.C., sitting as a deputy High Court judge, commented in Walker
v Badmin [2014] EWHC 71 (Ch),
applying the MCA test and the common law test will not necessarily produce the
same result. That said, we are
satisfied that in the present case both tests would produce the same result.
231. Third, as Advocate Baxter pointed out during
his cross-examination of Dr Bruno, she had not in her report referred to the
qualification in s.3(3) of the MCA, which reads:-
“The fact that a person
is able to retain the information relevant to a decision for a short period
only does not prevent him from being regarded as able to make the
decision.”
Given her approach based on the MCA, and
given her emphasis in that context on Mr Ching’s memory deficits, in
particular deficits in his short-term memory, it seems to us that Dr Bruno
ought to have factored this qualification into her expert opinion and explained
how it impacted on her views. We
therefore find it surprising that Dr Bruno’s response to Mr
Baxter’s question was that this qualification was irrelevant to her
opinion.
232. More generally, when asked to identify in this
respect what, on the Plaintiffs’ case, Mr Ching needed to understand but
was incapable of understanding, Mr Pallot’s
only response was that Mr Ching:-
“was being asked to make
the single most fundamental decision of his life: he was being asked to
surrender control of all of his assets to another. This is not just some discrete gift, but
the entirety of his assets, accrued over his entire working life.”
We doubt that the decision to establish the
Trust can properly be described in such exaggerated terms. But, even taking Mr Pallot’s
response at face value in eliding the establishment of the Trust with the
transfer of Mr Ching’s assets into the Trust, we have no doubt that in
late 2005, when it was decided in principle to establish the Trust, Mr Ching
was both capable of understanding, and did in fact understand, what the
establishment of the Trust involved for the reasons which we have already set
out in para.151 above. In
particular, he was both capable of understanding, and did understand, that he
was surrendering to CITE’s control such of his assets as he transferred
into the Trust. And even allowing
for some deterioration in Mr Ching’s memory between late 2005 and April
2006, we conclude that Mr Ching remained capable of understanding, and
continued to understand, what the establishment of the Trust involved as at 6
April 2006.
233. Finally, therefore, we turn to what we have
already held, in agreement with Advocate Baxter, is the correct issue, namely
Mr Ching’s capacity to sign the transfer forms in respect of his holdings
in Scorpio, Bokhara and Mitsukiku in late March or
early April 2006. For the same
reasons as we have already given, we conclude that Mr Ching was capable of
understanding, and did understand, the implications of his transferring these
holdings into the Trust. In
particular, he was capable of understanding, and did understand, that he was
thereby transferring ownership and control of these holdings to the Trust, with
the result that thereafter it would be for the trustees, not for him, to decide
how the holdings were to be dealt with.
That, of course, was what Mrs Ching had required of him and he had taken
the conscious decision to accede to her wishes.
234. Accordingly we conclude that this ground for
alleging that the Trust was invalid fails.
(b) The mistakes of fact and law under which Mrs Ching was
operating
235. In their opening skeleton argument the
Plaintiffs identified these mistakes in the following terms:-
“6.3.2 The relevant mistake of fact affecting the
validity of the Trust was the Advice.
Mrs Ching believed, mistakenly, that she and Mr Ching were in dire
financial straits, had no option but to liquidate all of their assets and then
place them into a discretionary trust.
The Advice was not correct and Mrs Ching therefore, in relying on the
advice had no understanding as to the true state of affairs. Had she known that in fact she and Mr
Ching were not in dire financial straits and that other options were open to
her and Mr Ching she would not have settled her assets into trust;
6.3.3 The relevant mistake of law was that Mrs Ching did not
understand that by settling her assets into the Trust, she would effectively be
surrendering control of her assets to CITE. Mrs Ching did not appreciate that she
would no longer hold legal title to her assets, that access to her assets would
be at the discretion of CITE and that one consequence of this could be that she
could lose access to her assets.
Mrs Ching did not want to be subject to such a situation and had she
fully (or at all) understood the real implications of settling her assets into
the Trust she would not have done so.”
We record that there was, rightly, no
suggestion by the Plaintiffs that Mr Ching was under any mistake of fact or of
law regarding the advisability of creating the Trust.
236. All parties were agreed that the relevant legal
principles were to be found in the decision of the Royal Court in In the
matter of the Strathmullen Trust [2014] (1) JLR
309, and in the decision of the Supreme Court in Pitt v Holt [2013] 2
A.C. 108 which was to the same effect.
The headnote to the Strathmullen case
reads that a trust may be set aside for mistake:-
“if (i)
there were a mistake on the part of the donor or settlor (whether of fact or law); (ii) the donor or settlor
would not have entered into the transaction “but for” the mistake;
and (iii) the mistake was of so serious a character as to render it unjust on
the part of the donee to retain the property.”
237. We first address the mistakes of fact alleged
in para.6.3.2 of the Plaintiffs’ opening skeleton argument. For the reasons we have already
explained under head (1):-
(i)
Mrs
Ching’s belief that she and Mr Ching were in dire financial straits was
not mistaken;
(ii) in the light of Mr Ching’s refusal to
contemplate a sale of the Digger shares, the Chings
did indeed have no option but to liquidate their remaining assets; and
(iii) the decision to place their assets into a
discretionary trust was a response to Mrs Ching’s stated, and justifiable
concern, that Mr Ching might resume his unsuccessful investment activities and
was a decision that met with her unqualified endorsement.
In short, Mrs Ching fully understood the
true state of her and her husband’s affairs and specifically approved the
settlement of her, and of Mr Ching’s, assets into the Trust. Mrs Ching was not under any mistake of
fact as alleged by the Plaintiffs.
238. As for the alleged mistake of law, we have no
doubt that Mrs Ching had the implications of a trust fully explained to her, in
particular by both Mr Shepheard and Mr Killmister. We note that on 20 March 2009 Cripps
Harries Hall wrote to CITE referring to the Trust deed and asking:-
“Please confirm who
drafted this document, the circumstances in which it was drafted, whether its
content was explained to Mr and Mrs Ching and in what circumstances.”
Mr Killmister
replied on 14 May 2009 as follows:-
“The document was drafted
by us. The circumstances in which
it was drafted was under instruction from Barbara and Barry Ching. Its content was explained ad nauseam to
Mr & Mrs Ching.”
In fact, as Mr Killmister
explained in his oral evidence, the Trust deed had originally been drafted by
Charles Russell for the purposes of the Investors in Canada scheme. The reason why CITE used it for the
Ching Trust was that it was a deed with which Mr Ching was familiar, having
seen it and been through it with Mr Killmister in the
course of their visit to Canada in November 2005. Subject to that clarification, we accept
the accuracy of Mr Killmister’s reply of 14 May
2009, and in particular of the final sentence which we have quoted as confirmed
by him in cross-examination.
239. In those circumstances we have no hesitation in
concluding that, contrary to the suggestions in para.6.3.3 of the
Plaintiffs’ opening skeleton argument, Mrs Ching fully understood:-
(i)
that by
settling her assets into the Trust she would effectively be surrendering
control of her assets to CITE;
(ii) that she would no longer hold legal title to
her assets;
(iii) that access to her assets would be at the
discretion of CITE; and
(iv) that one consequence of this state of affairs
could be that she could lose access to her assets.
Far from not wanting to be subject to such
a situation, Mrs Ching positively espoused the creation of the Trust in order
to shield her, and her husband’s, assets from any continuation of his
investment activities. She fully
understood the real implications of settling her assets into the Trust and she
settled them in such full understanding.
Mrs Ching was not suffering from any mistake of law.
240. We therefore conclude that the Plaintiffs fail
at hurdle (i) in the headnote to the Strathmullen case. This makes it unnecessary for us to
consider hurdles (ii) or (ii). The
Trust was not invalid by reason of any mistake of fact or law on the part of
Mrs Ching.
(c) Uncertainty arising out of the provisions of the trust
Instrument
241. The Plaintiffs’ case on this point at
para.6.4.1 of their opening skeleton argument was as follows:-
“It is submitted that
Trust also must fail for uncertainty as the term ‘Grantor’,
although purportedly being a defined term, is not in fact defined in the Trust
Instrument. In In the Matter of
the Double Happiness Trust [2002] JLR Note 48 (9) the Royal Court ruled as
follows:-
“Although the court will
endeavour to uphold the validity of a trust by interpreting it, as far as
possible, to give effect to the intention of the settlor, it will reluctantly
be compelled to allow the trust to fail if the subject-matter, beneficial
interests or beneficiaries are uncertain, or the trust deed is
incoherent.”
The Plaintiffs contended that this made the
Trust deed “plainly incoherent and
unworkable on its face”, because it created uncertainty with
reference, in particular, to:-
(i)
the date
upon which the Trust would come to an end in accordance with clause 1(a);
(ii) the granting of consent to distributions of
income and capital under clause 4(a); and
(iii) clause 9(b), which precludes the Grantor from
being an excluded person.
242. The Defendants, on the other hand, argued that
a grantor is one who grants or has granted, more commonly described as a
settlor. The Trust deed itself
recites:-
“A. Barry Lionel Ching and
Barbara Mary Marvell Ching own beneficially the property specified in the First
Schedule and described therein as the initial settled property and has [sic]
transferred the same to the Original Trustee with the intention of establishing
the Trust.”
This, said the Defendants, made clear that
the word “Grantor” in the Trust deed means the Chings. In support of this submission, the
Defendants relied on the following passages from The Law of Trusts (2nd
ed.) by Thomas and Hudson, which reads:-
“4.15 However, the search for ‘conceptual
certainty’ has not generally been regarded as an abstract, philosophical
exercise. The court usually seeks
to find an acceptable workable meaning or sense for a particular word or
description, one based on a sufficient degree of probability as to what or whom
the settlor had in mind, and bearing in mind that what is sufficient may well
vary according to the nature of the
disposition, the context in which it appears, and the circumstances of the
case. Wherever possible, resolving
a question of certainty will be guided by pragmatism. As Lord Wilberforce stated in Blathwayt v. Baron Cawley [1976]
A.C.397, 425 (in relation to a condition subsequent) a judge should
‘judge the degree of certainty with some measure of common sense and
knowledge and without excessive astuteness to discover ambiguities’. ...
Pragmatism will generally not be sacrificed to theory....
....
4.16 The Court will generally adopt a benevolent construction
of any provision, if it can, in order to save it from invalidity. The approach outlined by Megarry J. In Re Lloyd’s Trust Instruments
[unreported but cited in Brown v. Gould [1972] Ch. 53, 56-57] applies to trusts
and powers as much as anything else.
What is required is that some ‘fair meaning’ be put on the
phrase used. The difficulty must
simply not be so great as to make it impossible to give meaning to the expression.”
243. We have no hesitation in preferring the
Defendants’ submissions on this point. The omission from the Trust deed of any
definition of the word “Grantor”
was, on any view, sloppy administration on the part of Mr Killmister
when he decided to adopt the Charles Russell draft for the purposes of the
Ching Trust. But we agree that the “Grantor” is, and can only
be, a reference to Mr and Mrs Ching; indeed in his final submissions Mr Pallot
said in terms that:-
“what we have here in
fact is that [Mr and Mrs Ching] are the settlors”.
We also note that no objection to the
validity of the Trust on this ground was taken by anyone at the time. This plea of uncertainty appears to be
an afterthought on the part of the Plaintiffs’ legal advisers and we
reject it.
(d) Failure for certainty of subject matter
244. For this ground, which again was never raised
at the time, the Plaintiffs relied on Recital A of the Trust Deed which we have
already set out in para.242 above and on the First Schedule, which reads:-
“The Initial Property
£100.”
As they explained in para.6.5.3 of their
opening skeleton argument:-
“The essential factual
issue is whether or not the ‘Initial Property’ of the Trust
(£100) was ever actually transferred by the Plaintiffs to CITE. It is common ground on the face of the
pleadings that it was not. The
First and Third Defendants specifically aver (see paragraph 23 of their Answer)
that the ‘Initial Property’ was “funded” by “a
loan to Mr and Mrs Ching from CITE” and that they “settled the
initial settled fund by acknowledging a debt due by them to CITE of
£100”. This is expanded somewhat in Part 3, paragraph 4.16:
“It is denied that no
transfer of £100 took place between Mr and Mrs Ching and CITE. A book entry was made recording the
existence of a debt of £100 due by Mr and Mrs Ching to CITE as trustee of
the Ching Trust. Further or in the
alternative in March 2006, in anticipation of the execution of the Deed, stock
transfers were approved or executed by Mr and Mrs Ching in respect of Scorpio,
Bokhara and Mitsukiku. In the premises it is denied that the
Ching Trust was void from its beginning for failure of certainty of subject
matter. Accordingly the initial
property was settled and it is denied that the Ching Trust was
void...””
In short, the Chings
never did transfer £100 to CITE as asserted in Recital A.
245. In para. 41 of his statement Mr Killmister explained the position as follows:-
“The initial settled fund
was £100 funded by a loan to Mr and Mrs Ching from CITE. They settled the initial settled fund by
acknowledging a debt due by them to CITE of £100. A book entry was made recording the
existence of a debt of £100 due by Mr and Mrs Ching to CITE as trustee of
the Ching Trust.”
In his oral evidence Mr Killmister
accepted that the £100 was “a
notional figure”. As Advocate
Baxter conceded in his final written submissions, and in his final address,
CITE could not create a debt due from the Chings
simply by generating a book entry to that effect. In this respect too, therefore, the
drafting of the Trust deed left much to be desired.
246. Advocate Baxter rightly accepted that for a
trust to be valid in English law there must be certainty of subject matter (see
Knight v Knight (1840) 3 Beav. 148 and Hunter
v Moss [1994] 1 W.L.R. 452).
His primary submission was that this requirement of certainty of subject
matter was satisfied by the transfer of the Chings’
shares in Scorpio, Bokhara and Mitsukiku on the same
day as the Trust was established.
Alternatively he submitted that the requirement of certainty was met in
either of two ways, namely because the first £100 worth of shares
transferred into the Trust could be treated as the £100, or simply by
virtue of the First Schedule to the Trust deed itself. We take those three submissions in
reverse order.
247. The Plaintiffs asserted that CITE were bound by
the terms of the Trust deed which it executed and that it was estopped from
denying its terms (see King v King [1931] Ch. 294). Those terms include both Recital A and
the First Schedule. It follows, it
seems to us, that CITE were bound by those provisions, whether they were
factually correct or not. We have,
therefore, a position in which CITE acknowledged that £100 was the
property of the Trust, irrespective of whether it was entitled to claim that
£100 from the Chings as a so-called debt. As the only beneficiaries of the Trust,
it was the Chings who, one way or another, were going
to enjoy the benefit of that £100.
In those circumstances it seems to us that the Trust was validly created
by CITE for the benefit of the Chings, as indeed CITE
intended. The result of the poor
drafting of the Trust deed would simply be that CITE would be unable to recover
the initial £100 from the Chings; it would not
invalidate the Trust itself.
248. We are not persuaded by Advocate Baxter’s
alternative submission that the £100 specified in the First Schedule can
in some way be equated with the first £100 worth of the shares
transferred by the Chings on the same day. The First Schedule refers simply to
£100, not to shares with a value of £100. This alternative submission would not,
therefore, have saved the Trust.
249. That leaves Advocate Baxter’s primary
submission based upon the transfer into the Trust on 6 April 2015 of the Chings’ shares in Scorpio, Bokhara and Mitsukiku. This
submission has obvious attractions, not least because it reflects the intention
of all concerned at the time. As Advocate
Baxter rightly observed, when the Chings signed the
transfer forms, they did so with the intention of transferring the shares in
question to CITE to hold on the terms of the Trust deed, not as bare trustees,
and CITE completed the transfers on the same basis. The only problem with this submission is
a purely technical one; as the Plaintiffs contended, if the Trust was not
validly constituted in the first place, the power to accept further assets
never came into existence and there was no Trust into which the shares could be
transferred, even the same day. We
see the force of this argument. In
the light of our conclusion in para.247 above, we do not need to address
it. If, however, the validity of
the trust had turned on this primary submission, we would not have allowed that
technical difficulty to stand in the way of our upholding the validity of the
Trust which, we repeat, all concerned at the time intended to establish.
250. It follows that we reject all four grounds on
which the Plaintiffs challenged the validity of the Trust.
The consequences of the Trust being valid
251. Advocate Baxter accepted that CITE was subject
to the duty of care summarised in s.1 of the Trustee Act 2000 (“the 2000
Act”), which provides that a trustee:-
“must exercise such care
and skill as is reasonable in the circumstances, having regard in particular -
(a) to any special knowledge or experience
that he has or holds himself out as having,
and
(b) if he acts as trustee in the course of
a business or profession, to any special knowledge or experience that it is
reasonable to expect of a person acting in the course of that kind of business
or profession.”
The Plaintiffs did not suggest that CITE
had, or held itself out as having, or was to be expected to have, any special
knowledge or experience within the meaning of either of those subsections.
252. More importantly, the Plaintiffs accepted that
if the Ching Trust was valid, CITE and Mr Killmister
would be entitled to rely on the provisions of the Trust Deed, in particular
the following provisions:-
(i)
clause 14,
which sets out CITE’s general powers of investment;
(ii) clause 15, which is entitled “Additional Powers of
Investment” and which provides:-
“Without hereby limiting
the power contained in the previous clause or any general power herein
contained the Trustees shall have power to invest or lay out moneys comprised
in the Trust Fund in the purchase of ... stocks funds shares securities or
other investments or property of whatever nature and wheresoever
situate ... as the Trustees shall in their absolute discretion think fit ... to the extent that the Trustees
shall have the same full and unrestricted powers of investing and transposing
investments and laying out moneys in all respects as if they were absolutely
entitled thereto beneficially and without regard to the requirements of the
Proper Law (save to the extent that these are obligatory) and in the professed
exercise of this power the Trustees shall not be liable for any loss to the
Trust Fund arising from any investment or purchase made in good faith
...”;
(iii) the following specific additional powers in
clause 15:-
“(a) To leave any assets
subject to any of the trusts of this Trust in the state of investment in which
they may be from time to time.
(b) At any time or times to sell or call
in any investment or property for the time being comprised in the Trust Fund or
transpose or convert the same into any other investments or property the
acquisition of which is hereby authorised”;
(iv) clause 29, which is entitled “Trustees’ Indemnity”
and which reads:-
“In the professed
execution of the trusts and powers hereof no Trustee shall be liable for any
loss to the Trust Fund arising in consequence of the failure depreciation or
loss of any investments made in good faith or by reason of any mistake or
omission made in good faith or of any other matter or thing except wilful and
individual fraud and wrongdoing on the part of the Trustee who is sought to be
made liable”;
and
(v) clause 30, which is entitled “Power of Trustees to Charge”
and which reads:-
“(b) Any Trustee hereof
which is a company shall be entitled in addition to reimbursement of its proper
expenses to remuneration for acting as a Trustee hereof in accordance with its
scale of charges as published from time to time if any or in the absence of
such published scale as aforesaid shall be entitled to reasonable remuneration
for so acting and such remuneration may be payable to the corporate Trustee or to
any individual or individuals associated or beneficially interested in or in
any way connected with such Trustee ...
(c) No Trustee hereof or a director or
other officer of any company which is a Trustee hereof shall be liable to
account for any remuneration or other profit received by him in consequence of
his acting as or being appointed to be a director or other officer or servant
of any company ...”
The Plaintiffs did not allege that CITE had
been guilty of a want of good faith for the purposes of clause 15, or of fraud
or wrongdoing within the meaning of clause 29.
The consequences of the Trust being invalid
253. In the light of our conclusions thus far, this
point does not arise. But since it
was argued before us, we think it right to express our views on it, albeit more
shortly than if the point had been live.
254. The Defendants conceded that if the Trust had
been invalid on ground (c) (the Grantor point) or ground (d) (the £100
point), the consequence would have been that the Trust was void ab initio. Conversely
the Plaintiffs accepted that if the Trust had been invalid on ground (b)
(mistake), the Trust would have been only voidable, not void. The parties were not agreed, however, as
to the consequences of Mr Ching’s mental incapacity (ground (a)).
255. It was the Plaintiffs’ submission that
the consequence of the Trust being invalid on ground (a) was, again, that the
Trust would be void. They relied
for this proposition on the four English cases of Re Beaney
[1978] 1 W.L.R. 770, Re Morris [2001] WTLR 1137, Williams v Williams
[2003] WTLR 1371 and Quth v Hussain
[2005] EWHC 157 (Ch). The Plaintiffs contended that the
decision of the Royal Court in Deacon v Bower [1978] J.J. 39 showed that
the law of Jersey was the same in this regard.
256. The Defendants contended, mainly in reliance on
what they described as “the
discussion” in the English case of Sutton v Sutton [2010] WTLR
115, that mental incapacity only rendered the relevant transaction
voidable. In that case both parties
sought a declaration that the challenged transfer (which they conditionally
agreed should be set aside) was void ab
initio. As the headnote
records:-
“6. There were four English decisions
which proceeded on the basis that lack of capacity makes a gift void rather
than voidable, but in none of those decisions was the point fully argued, nor
would it have made a material difference to the result. These cases were Re Beaney,
Re Morris ..., Williams v Williams ... and Quth v
Hussain .... There were, however,
two Australian decisions, in which the point was considered in more detail and
which suggested that the correct answer was that the transaction would be
voidable: Gibbons v Wright (1954) 91 CLR 423 and Craig v McIntyre (1976) 1
NSWLR 729.
7. The
debate in this area was somewhat reminiscent of the debate about whether a
decision of trustees impugned by the principle in Re Hastings-Bass [1975] Ch 25 was to be regarded as void or merely voidable. No conclusion was reached on this
question in the leading authority of Sieff & ors v Fox & ors [2005] WTLR
891 as it made no difference but that was not the case in Abacus Trust Co (Isle
of Man) v Barr [2003] Ch 409. There Lightman
J preferred the view that the decision would be voidable, as this would enable
equitable defences such as delay and acquiescence to be taken into
account. It had been suggested that
such defences would be available in any event if the transaction was void, as
the granting of a declaration was discretionary, but this was doubtful: Sieff & ors v Fox & ors and Fisher v Brooker [2009] 1 WLR 1764 were
considered.”
The judge, Mr Christopher Nugee Q.C., then continued:-
“[46] Where does this survey
of the cases leave the position? In
my judgment, despite the recent English cases, there is real doubt whether as a
matter of law incapacity makes a voluntary transaction such as a gift void
rather than voidable....
[47] If it were necessary to
resolve the rights of the parties before me, I would of course have to form a
view one way or the other. But I
have already said that it does not seem to me to make any difference to the
position of the parties as between themselves. The only suggested consequence is that
it might make a difference for tax purposes....
...
[49] In the present case I do not
think that justice to the claimant or the defendants requires me to do more
than resolve the position between them, which is adequately done by declaring
that the 1997 transfer is invalid for lack of capacity and should be set
aside....
[50] But the overriding
consideration in my judgment is that the true position in law is quite obscure,
and one on which I have not heard true adversarial argument.... If I had reached a clear view of the
law, I would have said so and then made a declaration accordingly, but in
circumstances where I am left in real doubt as to what the law is or ought to
be, I do not think it either necessary or appropriate to resolve those doubts
and make a declaration for the purpose of strengthening the arguments of the
parties against HMRC.”
257. Given that we do not need to decide this point,
we do not think that it would be right for this Court to determine on the basis
of the discussion in Sutton v Sutton that the four cases upon which the
Plaintiffs relied no longer represent English law, especially where the true
position is, as Mr Nugee acknowledged, quite
obscure. Accordingly we proceed on
the basis that the position in English law remains that mental incapacity
renders the relevant transaction void, not voidable. But on the basis of our analysis of the
true issue in relation to ground (a), had Mr Ching been mentally incapable on 6
April 2005, the only result would have been that his transfer (via Scorpio,
Bokhara and Mitsukiku) of his Digger shares to the
Trust would have been void. The
validity of the Trust itself would not have been affected.
258. Finally, therefore, we turn to the legal
implications of the Trust being voidable or void. The parties were agreed that whether
this issue was to be determined by English or by Jersey law did not matter
because the relevant principles were the same.
The Trust being voidable
259. This applies only to ground (b). Advocate Garrood
effectively accepted that if the Trust was only voidable, the Chings and Mr Manning had taken no steps to avoid the Trust
until late 2009. Indeed it is clear
to us that, far from seeking to avoid the Trust, the Chings
and Mr Manning did not just acquiesce in the continuation of the Trust but
positively affirmed its existence in the form of the transfer by the Chings of £1,519 into the Trust in June 2007.
260. Advocate Baxter submitted that in those
circumstances the administration of the Trust by CITE continued to be subject
to the terms of the Trust Deed, including in particular the clauses set out in
para.252 above. The Plaintiffs,
rightly in our view, did not contend to the contrary. It follows that even if Mrs Ching had
been under a mistake of fact or of law as alleged by the Plaintiffs, the Trust
would have remained valid and the Defendants would have been entitled to the
protection afforded by the express terms of the Trust deed.
261. Accordingly when hereafter in this judgment we
refer to the Trust being valid, we include in that description the situation in
which the Trust was voidable.
The Trust being void
262. It was the Plaintiffs’ case that if the
Trust was void ab initio (as would have been the case on grounds (a), (c) or
(d)), all the assets of the Trust were held by CITE on a resulting trust in
favour of the Chings. More particularly the Plaintiffs
contended that in those circumstances CITE was under an overriding duty to
return the assets of the Trust to the Chings as soon
as practicable and in the meanwhile was under duties (a) to follow the wishes
of the Chings in relation to the assets of the Trust;
and (b) to take care that the assets of the Trust were not devalued by any act
or omission.
263. Advocate Baxter accepted that if the Trust was
void, CITE could not rely on the protective provisions of the Trust deed. He also accepted that where a resulting
trust arises, the trustee holds the property on bare or simple trusts for the
donor, so that the donor has an absolute right to call for the property and,
when he does so, the trustee has a duty to return it. He further contended, however, as
follows:-
(a) that any resulting trust could not arise until
such time as CITE was informed that the Trust was void and the Chings (and/or Mr Manning) required CITE to return the
Trust assets to them;
(b) that in the meanwhile CITE, with the
acquiescence of the Chings and Mr Manning, continued
to hold the Trust property on the terms of the Trust; and
(c) that in the meanwhile CITE remained entitled to
its remuneration and to be indemnified for expenses properly incurred in the
administration of the Trust.
Unfortunately the Court did not have the
benefit of any detailed submissions to the contrary from the Plaintiffs.
264. As to (a), we accept the basic proposition that
CITE could not become liable as a resulting trustee unless and until it was
aware that it had become a resulting trustee. As Lord Browne-Wilkinson said in Westdeutsche Landesbank
Girozentrale v Islington London Borough Council
[1996] A.C. 669 (at p.705D):-
“Since the equitable
jurisdiction to enforce trusts depends upon the conscience of the holder of the
legal interest being affected, he cannot be a trustee of the property if and so
long as he is ignorant of the facts alleged to affect his conscience, i.e.
until he is aware that he is intended to hold the property for the benefit of
others in the case of an express or implied trust, or, in the case of a
constructive trust, of the factors which are alleged to affect his
conscience.”
It is clear from the summary in paras.60
and following above that CITE repeatedly indicated a willingness to return the
assets of the Trust to Mr Manning and Mrs Ching from at least May 2008 onwards,
but it was not until 17 September 2009 that Sinels
wrote to CITE that it held the Trust property on a bare trust for the Chings, and requesting CITE to return the Trust
property. It follows, in our view,
that no resulting trust could have come into effect until CITE received that
letter.
265. Turning to Advocate Baxter’s points (b)
and (c), he referred us to the interesting discussion in Lewin on Trusts
(at para.1-040), where it is suggested that a trustee holding property for a
beneficiary absolutely (such as a resulting trustee) has, in effect, some at
least of the powers and duties conferred by the 2000 Act. Again, without reaching a definitive
conclusion on this point, we would be minded to accede to Advocate
Baxter’s submission that CITE could rely upon ss.3(1), 28 and 32 of that
Act (or equivalent powers as a matter of Jersey law). We also accept that in principle CITE
could rely on the defence of acquiescence on the part of the Chings and Mr Manning; we leave until later in this
judgment the application of acquiescence to the Plaintiffs’ individual
claims. Finally, we accept that
CITE remained entitled to its remuneration and to be indemnified for expenses
properly incurred in the administration of the Trust until such time as the
resulting trust came into existence.
266. In relation to ground (a), the only consequence
of Mr Ching’s mental incapacity (if he had been mentally incapable)
would, for the reasons we have already explained, have been that the transfer
of Mr Ching’s Digger shares into the Trust was void. Any resulting trust would, therefore,
have applied only to those shares (or more accurately to the transfers of his
shareholdings in Scorpio, Bokhara and Mitsukiku). The transfer into the Trust of the
proceeds of the sale of Granville, which in turn funded the purchase of the AIG
bond, would have been unaffected.
Conclusion on issue (3)
267. For the reasons we have already given, we
dismiss the Plaintiffs’ contention that the Trust was invalid on any of
the grounds which they suggested.
(4) The Digger shares
268. We approach this issue on the alternative bases:-
(a) that, as we have decided, the Trust was valid;
and
(b) that, as the Plaintiffs contended, the Trust
was invalid.
(a) The Trust was valid
269. The Plaintiffs’ case based upon this
hypothesis was pleaded as follows at para.8 of the Order of Justice:-
“Alternatively, if, which
is denied, the Ching Trust was not void CITE remains liable to the Plaintiffs
for losses incurred by reason of its breach [of] duties as trustee to preserve
and enhance the value of the fund by reason of the losses caused by its failure
to deal [with] the Digger shares properly.
The particulars of breach include:
i. failure
to deal with the claims relating to nominee holdings expeditiously, efficiently and professionally thereby
contributing to the losses. CITE
failed to act expeditiously in resolving the claims. This contributed irretrievably to the
loss in share value as it served to discourage investors from purchasing the
shares thereby exacerbating any loss in share value in a small alternative
investment opportunity; and
ii. failure to sell some or all of
the shareholding to diversify the investments of the fund in order to preserve
income and capital for the beneficiaries.
Failing to sell a proportion of the Digger shares to realise profits,
moderate and diversify the risk profile of the investments held by the fund for
the benefit of the Plaintiff beneficiaries.”
270. In the course of his opening address Advocate Garrood conceded, rightly in our view, that there was no
evidence to support the plea in the third sentence of para.8(i) and that we could treat that allegation as
abandoned. In addition we conclude
that the allegations in the first two sentences of para.8(i)
are factually misconceived.
Accordingly we reject the claim formulated in para.8(i)
in its entirety.
271. As to para.8(ii), the Plaintiffs have not, in
our view, established that there was any failure by CITE to exercise reasonable
skill and care as required by the 2000 Act in failing to sell any of the Digger
shares. The Plaintiffs called no
expert evidence to that effect. Mr Killmister’s witness statement contained the
following passages:-
“67. ... No attempt was made by the trustee to
sell the Digger shares. I believe
that this was reasonable in all the circumstances ... and in accordance with
the instructions of Mr and Mrs Ching.
68. Pursuant to the terms of the trust deed,
CITE was entitled to hold rather than sell some or all of the Digger [shares],
even once ownership was resolved.
It was also entitled to take account of Mr Ching’s wishes not
under any circumstances to sell the Digger [shares].”
Advocate Garrood
did not challenge that evidence in his cross-examination of Mr Killmister. We
have already referred to the problems faced by CITE in the months, if not
years, following the establishment of the Trust caused by claims by third
parties to Digger shares held by Mitsukiku and
Scorpio. The claim formulated in
para.8(ii) is likewise misconceived.
272. Last but not least, CITE contended that it was
in any event entitled to rely on the protection afforded by clauses 15(a) and
29 of the Trust deed. Mr Pallot
frankly conceded that these clauses presented the Plaintiffs with a difficulty. That difficulty is, in our view, clearly
insuperable. Accordingly if, as we
have found, the Trust was valid, the Plaintiffs can have no claim in respect of
the Digger shares.
(b) The Trust was invalid
273. On this basis, the Plaintiffs alleged at
para.7.2 of the Order of Justice that CITE was in breach of its duty as a
resulting trustee in failing to return the Digger shares to the Chings, in failing to take reasonable care to ensure that
the shares were not devalued and in failing to follow the wishes of Mr and Mrs
Ching. In reality, as Advocate Garrood confirmed during his opening, the thrust of the
Plaintiffs’ case was that by failing to return the Digger shares CITE
deprived the Chings of the sums which they would have
made on sales of such shares. At
para.7.5 of the Order of Justice the Plaintiffs quantified their loss as
£1,233,000, on the basis that the Chings would
have sold their entire shareholding between April and June 2006 at an average
price of C$2.80 per share. In their
opening skeleton argument the Plaintiffs reduced their claim to £411,898,
that being the figure in Dr Fitzgerald’s report. The arithmetic of this revised claim is
that £411,898 is the sterling equivalent of C$824,249 and that C$824,249
would be the proceeds of selling 460,945 Digger shares in the years 2005 to
2008 at an average price of C$1.78 a share. Accordingly, as Advocate Garrood accepted in his opening, the Plaintiffs’ case
as now formulated involves their establishing two propositions, namely:-
(i)
that if
CITE had returned the Digger shares, 460,945 of those shares could and would in
fact have been sold; and
(ii) that those 460,945 shares would in fact have
been sold at an average price of C$1.78 per share.
274. There are, in our view, two immediate problems
faced by the Plaintiffs in this recalculation of their claim.
275. First, the Trust was not established until 6
April 2006, so we fail to see how potential sales of Digger shares during 2005
and the first three months of 2006 (a period during which Mr Ching could have
sold his Digger shares anyway if he had chosen to do so) can be of any relevance. Furthermore any resulting trust did not,
as we have found in para.264 above, come into being until September 2009. Accordingly potential sales of Digger
shares prior to that date are likewise irrelevant. In short, during the period when the 460,945
shares in Digger could have been sold, either the Trust had not come into
existence, or the resulting trust had not come into existence, so the
Plaintiffs’ claim under this head must fail in limine. Second, in the light of our conclusions
in paras.169 and 170 above, neither Mr Ching nor Mr Manning would, we find,
have sold any Digger shares even if they had been returned to them by CITE; for
this reason too, the Plaintiffs’ claim under this head must fail.
276. That renders academic the evidence of the experts
as to what sales could have been achieved but we nevertheless proceed to
examine that issue.
277. The joint Memorandum of Dr Fitzgerald and Mr Torchio dated 28 April 2015 listed the following areas of
agreement between the experts:-
“1.1 The experts agreed that it
was not possible to determine, with a reasonable degree of certainty, the price
the [Plaintiffs] could have obtained from a sale of approximately 900,000
shares of Digger from the Trust in June 2006.
1.2 The experts agreed that the market for
Digger shares was very illiquid, and observed that the total traded volume in
June 2006 was only 27,330 shares.
Hence the experts agreed that it would be impossible for the market to
have absorbed a sale of 900,000 shares without a major reduction from the
average prices traded in June 2006.
1.3 The experts agreed that there was no
reasonable basis for assessing what the price impact of attempting to sell
900,000 shares in June 2006 would have been, save that it would have been very
substantial.
1.4 The experts agreed that it was not
reasonable for the [Plaintiffs] to estimate purported losses of
£1,333,334, as stated in the Order of Justice, being the difference
between the value of 900,000 plus shares at a price of C$2.80 and a final price
of only C$0.25 in 2010/2011. The
experts agreed that this calculation would substantially overestimate the true
potential loss.
1.5 The experts agreed that the best, and only,
consistent approach to liquidating a holding of up to 900,000 shares of Digger
from April 2006 onwards was what has been termed by Mr Torchio
“patient trading”, namely the selling of relatively small amounts
of stock over time to reduce the price impact of high levels of sales. The experts agreed that the potential
risk from subsequent price movements would be less than the price impact of
attempting to sell 900,000 shares over a short period of time.
1.6 The experts noted that Dr Fitzgerald had
been asked in his Expert Report to consider how many shares of Digger could
reasonably have been sold in the period April 2006 to September 2006, and over
the period April 2006 to mid-2010.
As a reference, the experts agreed that a total volume of 547,987 shares
of Digger were traded between April and September 2006, and that a total volume
of approximately 3.16 million [Digger] shares had traded between April 2006 to
June 2010.
1.7 The experts agreed that establishing a
“fundamental” value for the Digger shares during the relevant
period of April 2006 to April 2011 would be very difficult given the financial
performance of the company, and the auditors’ warnings about Digger as a
“going concern”. The
experts agreed it was not possible to analyse the relationship between the
observed trading prices for Digger shares and the “fundamental”
value of the company, on the information available.”
278. The joint Memorandum then listed the areas of
disagreement, as follows:-
“2.1 The experts disagreed
about the number of Digger shares that could reasonably have been sold on the
basis of “patient trading”.
Dr Fitzgerald took the view that it is reasonable, even in an illiquid
market such as Digger, to assume that the equivalent of 10-15% of the actual
shares traded could have been sold on behalf of the [Plaintiffs]. It was on that basis that Dr Fitzgerald
concluded that £62,750 to £75,000 of Digger shares could have been
sold in the April 2006 to September 2006 period (paragraph 2.12 of Fitzgerald),
and around £411,898 of Digger shares in the April 2006 to June 2010
period (paragraph 2.14 of Fitzgerald).
Mr Torchio took the view that there is no
empirical basis or authoritative citation to support an assumption that 10% to
15% of actual volume could have been sold in the April 2006 to June 2006
period. Mr Torchio’s
view is that even if 10%-15% is a rule of thumb assumption used by some
practitioners, it is likely to be an overestimate for Digger because of the
significant illiquid market in Digger Shares. It is also Mr Torchio’s
view that a hypothetical analysis of patient trading should be based on each
day’s bid price and not the closing transaction price because it is more
likely that Digger’s illiquid market would result in some market impact
and thus using the generally lower bid prices is more appropriate.
2.2 The experts did agree that any
estimate made as a percentage of total market trading volume would need to
assume that all the recorded trades in Digger were legitimate and authentic
trades made between actual market counterparties.
2.3 The experts disagreed as to whether it was
likely to be the case that the market in Digger shares was susceptible to
market manipulation. Mr Torchio took the view that the relative illiquidity of
Digger common stock combined with its relatively small capitalisation was
consistent with a security that could have been manipulated. Dr Fitzgerald took the view that any
evidence of market manipulation would require identification of the individuals
who were trading the Digger shares, and no information was available on this. Mr Torchio
agrees that there is no evidence of market manipulation, but that the
characteristics of Digger allow it to be susceptible to market
manipulation.”
Dr Fitzgerald clarified in his oral
evidence that his conclusion recorded in the third sentence of para.2.1 was
based on a figure of 12.5%.
279. We found both Dr Fitzgerald and Mr Torchio to be impressive witnesses, doing their best to
assist the Court. Accordingly we
choose between them simply by reference to what we perceive to be the relative
strengths of their views, point by point.
280. At para.2.1 of his report, Dr Fitzgerald stated
as follows:-
“In my view, it is clear
that from 2005 onwards, it was not possible to carry out a conventional
valuation process for Digger Resources.
By the year ending January 31, 2007 the company had lost -C$303,802, following
a modest profit of C$26,934 in the previous year. During the same year the deficit on
shareholder equity had increased from -C$4,429,548 to -C$5,895,861. The revenue in that year was only
C$31,800 whereas expenses amounted to C$334,602. By July 2010 the deficit on the
shareholders equity has increased further to -C$6,598,612.”
Para.24 of Mr Torchio’s
report was to the same effect:-
“During fiscal year
ending July 31, 2006, Digger reported a net loss of C$1.14 million, on sales of
C$78,400. Digger continued to
report net losses for each of the next four years until 2011, when it reported
net income of C$34,174 on revenues of C$124,800.”
In addition, for each of the years from
2002 onwards, Digger included a going concern qualification in its financial
statements. In its 2006 accounts
the qualification was in the following terms:-
“These financial
statements have been prepared using generally accepted accounting principles
that are applicable to a going concern.
However, the use of such principles may not be appropriate because there
is doubt surrounding the ability of Digger ... to continue as a going concern
as the company has a working capital deficiency, a loss from operations,
deficit and negative cash flow from operations at July 31, 2006.”
In short, what Mr Ching had in October 2005
described as Digger’s “cutting
edge oil discovery technology” (which by then was already ten years
old) had plainly left the oil industry unimpressed. Finally, when asked by the Court whether
Digger was of any value at all, Dr Fitzgerald responded:-
“I would have said from a
pure economic and accounting point of view, no.”
That is the premise from which we start.
281. On the assumption set out in para.2.2 of the
joint Memorandum (to which we return below), the principal difference between
the experts was that recorded in para.2.1 of the Joint Memorandum. Dr Fitzgerald accepted that the
illiquidity of Digger shares was “at
the extreme end”. He also
accepted that there was no empirical evidence or authority to support his 10%
to 15% estimate. Mr Torchio’s rival figure was 5%. Mr Torchio
explained in examination-in-chief how he had reached that figure, as follows:-
“A. ... I testified in probably three court
cases here in the United States on trusts where one of the issues in those
cases had to do with the orderly liquidation, the hypothetical orderly
liquidation of stock in all three of these cases. I did not have any empirical evidence
either.
My kind of rule of thumb was 5%
but again there is no real basis for that other than that I was on the
plaintiff side of those matters and I wanted to add an opinion that would
survive cross-examination. I felt
that 5% was a very reasonable amount of shares to assume to be traded on a
given trade date.
Q. Would that be in an illiquid market or
a liquid market?
A. Yes. All three cases that I testified in were
cases involving a Kodak stock where the hypothetical liquidation would have
taken place some time during the 1970s, at which time
Kodak was a highly liquid market, one to two million shares traded a
day.”
282. Having listened with care to the testimony of
both experts, we conclude that in such an illiquid market as that for Digger,
Dr Fitzgerald’s figures of 10% to 15% (or 12.5 %) were unrealistically
optimistic. We accept that Mr Torchio’s 5% may be on the low side but we decline to
try to reach our own happy medium.
Faced with a choice between the rival figures, therefore, we accept Mr Torchio’s 5%.
That conclusion alone would reduce the Plaintiffs’ claim from
£411,898 to £164,759.
283. Turning to the question of price, Dr
Fitzgerald’s approach was to assume that the additional 12.5% of shares
could be sold for the same as the market price. Two points arise in this regard. First, until July 2006 Mr Ching was a
director of Digger. Dr Fitzgerald
assumed that that directorship was something that would that have had to have
been disclosed in any Digger trades; he also accepted in cross-examination that
the impact on the price of sales by a director who held 10% of the stock would
be substantial. Later he added:-
“I am sure that if a
connected party was seen to be selling a very large number of shares this would
clearly have an impact on people’s willingness to take delivery of
them.”
More particularly, he accepted that if Mitsukiku, which held approximately one third of the entire
issued share capital of Digger, was seen to be continuously offloading its
holdings, that might have had a significant effect on the price. We appreciate that the hypothetical
sales relied on by the Plaintiffs would, at any rate after 9 June 2006, have
been ordered by Mr Manning rather than by Mr Ching. In our view, however, that is a
distinction without a difference.
Potential buyers would not, in our view, have adopted a different
approach to the price that they were prepared to pay because the sales were
being ordered by a curator. Second,
Dr Fitzgerald conceded that it would be:-
“perfectly fair if
somebody said, “No, the extra 10% in and of itself as an extra sell will
force the price down”.”
For these reasons we are unable to accept
Dr Fitzgerald’s assumption that the 12.5% of Digger shares could have
been sold for the same as the market price; in our view the price would have
been depressed. On this ground too,
the Plaintiffs’ claim would be reduced.
284. In our view, however, there is a more
fundamental problem with the Plaintiffs’ claim, which arises out of
para.2.2 of the joint Memorandum.
As both the experts accepted, there is no evidence either way that “all of the recorded trades in Digger
were legitimate and authentic trades made between actual market
counterparties”. As
summarised in para.2.3 of the joint Memorandum, Mr Torchio,
while agreeing that there was no evidence of market manipulation, took the view
that the relative illiquidity of the Digger shares combined with its relatively
small capitalisation meant that it was susceptible to market manipulation. Dr Fitzgerald’s response in
cross-examination to this point was:-
“Q. Mr. Torchio
opines that Digger was susceptible to manipulation but you do not agree, do you?
A. Well, I do not disagree. I think, you know, obviously you could
argue, if you are going manipulate a market it is good to choose a stock that
is illiquid, does not trade much because it is a lot easier to manipulate that
kind of market. All I was saying in
the joint statement was that I had seen no evidence that that was
happening.”
There was also the following exchange
between Dr Fitzgerald and the Court:-
“Q. Let us assume, for the
[sake] of argument, that not all of the recorded trades in Digger were
legitimate and authentic trades made between actual market counterparties,
would that mean that the entirety of the views which you have expressed would
fall or what would the consequence be?
A. No, I think, well the volumes which I
have seen would suggest that there
are, you know, simple legitimate trading going on, even if 50% of it was not,
because the volumes were quite large, in certain cases well over 100,000 but I
would not like to say, you know, whether ... Was there a degree of manipulation
of non-legitimate trades which made all the trading information useless to
analyse? I have no idea.”
Last but not least, we return to the
premise set out in para.280 above that Digger as a company had no value.
285. The burden of establishing that there was a
genuine market in Digger shares such as to provide the foundation for the view
expressed by Dr Fitzgerald lies on the Plaintiffs. In the light of all the evidence that we
have read and heard, we are not persuaded that the Plaintiffs have discharged
that burden. For this additional
reason their claim under this head fails.
286. Finally, on any view the Plaintiffs would have
to give credit for the value of the unsold Digger shares, as Advocate Baxter
pointed out in his opening. The
Plaintiffs called no evidence to address this issue, Mr Pallot’s
explanation being that he had been proceeding on the assumption that it was
agreed that the Digger shares were now worthless. There was, however, no formal admission
to that effect. Accordingly Mr
Pallot was forced to rely in his final oral address on a screen print-out of
Bloomberg giving a value of ten Canadian cents (or five pence) per Digger
share. Whilst this was plainly an
unsatisfactory approach, in the particular circumstances of the present case we
would have been prepared to accede to it.
On this basis £23,047.25 would fall to be deducted from the
Plaintiffs’ claim.
287. As it is, the Plaintiffs’ claim in
respect of the Digger shares based upon the Trust being invalid fails in its
entirety in any event.
(5) The AIG bond
288. The Plaintiffs’ claim under this head as
pleaded had two limbs, namely:-
(a) a claim against CITE for breach of trust in
purchasing the bond; and
(b) a claim against Mr Killmister
personally for dishonestly assisting that breach of trust by CITE.
We take each limb in turn.
(a) Claim against CITE for breach of trust in purchasing
the bond
289. As with the Digger shares, we consider this
claim on the alternative bases:-
(i)
that the
Trust was valid; and
(ii) that the Trust was invalid.
We then address separately the issue of
damages.
(i) The Trust was valid
290. The Plaintiffs’ case was, as they
asserted at para.177 of their final written submissions, that the AIG bond was “a wholly unsuitable investment
product”. But although
they complained (unjustifiably, as we find below) about the information that,
on their version of events, Mr Killmister gave to Ms
Alexandra, they called no evidence, in particular no expert evidence, to
support their fundamental proposition that the AIG bond was in fact wholly unsuitable for the Chings. Nor,
looking at Ms Alexandra’s summary of the objectives of the investment as
set out in her letter of 22 February 2007 (see para.53 above), can we see
anything to suggest that the AIG bond as recommended by her to Mr Killmister was in fact unsuitable in early 2007. Indeed in her witness statement Ms
Alexandra asserted that based on the information provided to her by Mr Killmister, the AIG bond would have been “an entirely
suitable policy” for the Chings to have
invested in. The only specific
alternative to the bond suggested by anyone was Ms Alexandra’s comment in
cross-examination that had the Chings been less
wealthy than she had been led to believe she would have advised them to keep their
money in cash. We are not at first
blush attracted by that suggestion; it seems to us that an investment portfolio
which consisted only of the Digger shares and cash would not achieve the
objective of providing the Chings with a secure
future in retirement. In those
circumstances we see no basis upon which it can be said that CITE, having taken
and acted on the advice of AYP in the purchase of the AIG bond, was in breach
of its duties under s.1 of the 2000 Act.
291. In addition, CITE again contended that it was
in any event entitled to rely on the protection afforded by clauses 15(b) and
29 of the Trust deed. In this
regard we repeat our comments in para.272 above. Accordingly if, as we have found, the
Trust was valid, the Plaintiffs can have no claim in respect of the AIG bond.
(ii) The Trust was invalid
292. At the time when CITE invested in the AIG bond,
no resulting trust had, we repeat, yet arisen; on the contrary, all parties
were acting on the basis that the Trust was valid. In those circumstances, although CITE
would not be entitled to the protection of clauses 15(b) and 29 of the Trust
deed, the position would remain that CITE were not in breach of their duties as
trustee under s.1 of the 2000 Act.
Furthermore, in his letters of 20 February 2007 to Mr Manning and the Chings as set out in para.52 above, Mr Killmister
had informed them of the proposed investment in the AIG bond, and although in
their letter of 26 February 2007 (see para.54 above) the Chings
complained about certain aspects of the AIG bond, at no time did they, or Mr
Manning, object in principle to CITE investing part of the Trust’s monies
in such a product. In those
circumstances it seems to us that the Chings and Mr
Manning in any event acquiesced in the investment in the AIG bond.
293. It follows that even if the Trust had been
invalid, the Plaintiffs’ claim against CITE for purchasing the AIG bond
would still have failed.
Damages
294. The calculation of the Plaintiffs’ loss
under this head was agreed, as follows:-
Amount
invested
|
£400,000
|
Less proceeds of sales
|
|
9
September 2010
|
£84,192.74
|
2
November 2010
|
£100,214.25
|
19
February 2015
|
£53,092.70
|
|
£162,500.31
|
295. In his opening skeleton argument, Advocate
Baxter made two submissions with regard to this aspect of the Plaintiffs’
claim, namely:-
(i)
that they
were the authors of their own misfortune in choosing to surrender the bond when
they did; and
(ii) that the proper measure of their loss would be
the difference between what was realised from the AIG bond and what would have
been realised had the monies been otherwise invested, which the Plaintiffs had
not sought to quantify.
We take each submission in turn
(i) The Plaintiffs were the
authors of their own misfortune
296. On 13 August 2010 Mr MacFirbhisigh
sought authorisation from the Court to liquidate the AIG bond; the Court
acceded to his application. He confirmed
in cross-examination that he was advised by Advocate Sinel to liquidate the
bond but that he did not take independent financial advice in this regard. He explained that he needed to liquidate
the bond in order to raise cash to pay the Chings’
living expenses and legal fees at a time when the funds in the curatorship were
being ring-fenced to meet the claims of third parties, in particular Ms
Sheehan.
297. Since the AIG bond was intended as a five year
investment, early surrender charges applied to Mr MacFirbhisigh’s
liquidation of the bond. In
addition there was the impact of the credit crunch to which we have referred in
para.173 above. We do not, however,
consider that in the circumstances described in the preceding paragraph Mr MacFirbhisigh can validly be criticised for liquidating the
AIG bond as he did. Accordingly we
reject this first submission of Advocate Baxter.
(ii) The proper measure of the Plaintiffs’ loss
298. It was the Plaintiffs’ submission that
since, on their case, the investment in the AIG bond was an unauthorised,
rather than a negligent, investment, CITE was liable for the entirety of the
loss suffered by them in respect of the AIG bond. This was not a point on which the Court
had the benefit of detailed argument, so we prefer not to express a decided
view on it. Our provisional view
is, however, that the Plaintiffs’ submission is correct in the context of
a breach of trust, as opposed to the position in negligent misstatement which
we have addressed earlier in this judgment.
(b) Claim against Mr Killmister
for dishonest assistance
299. The law of dishonest assistance is as set out
in Nolan v Minerva Trust Company Limited [2014] JRC 078A at
para.142. Accordingly the
Plaintiffs must establish the following:-
(i)
the
existence of a trust in their favour;
(ii) a breach of that trust;
(iii) that Mr Killmister
assisted in that breach of trust; and
(iv) that in rendering that assistance Mr Killmister acted dishonestly.
300. Whether the Trust itself was valid or not, it
is clear that in early 2007 there was a trust of some kind in favour of the Chings, of which CITE was the trustee. But for the reasons we have set out
above, there was no breach of any such trust in respect of the AIG bond. That, of course, is sufficient to decide
this issue in Mr Killmister’s favour. But given the allegation of dishonesty
which the Plaintiffs have made against him, it is obviously right in fairness
to Mr Killmister that we should examine and reach a
conclusion on that issue.
301. The assistance relied on by the Plaintiffs is
what they said were Mr Killmister’s
misstatements to Ms Alexandra during their discussions which led to CITE
entering into the AIG bond. In the
course of Advocate Garrood’s opening we
indicated our view that this aspect of the Plaintiffs’ claim was
inadequately pleaded against Mr Killmister, in that
the substitute Order of Justice did not identify which of the statements
pleaded in para.9.3 of the Order of Justice were alleged to be misstatements,
and did not particularise the dishonesty alleged in respect of each alleged
misstatement. The Plaintiffs
responded by producing an amended version of para.9.3 which the Court granted
leave to substitute for the previous version.
302. The relevant parts of the substitute pleading
read as follows:-
“9.3 At the 31 January 2007
meeting, Killmister made the following statements to Ms [Alexandra]:
...
(iii) Mr and Mrs Ching were extremely wealthy with
substantial assets in Jersey and Canada and that Killmister
held at that time an amount of approximately £560,000 in cash on behalf
of the Ching Trust; it is averred that this was incorrect and as a matter of
fact the Chings were not extremely wealthy nor did
they have substantial assets in Jersey or Canada, and that at all material
times the said incorrectness was known to Mr Killmister;
(iv) that Mr and Mrs [Chings’]
assets included a share portfolio valued between £750,000 to
£1,000,000; it is averred that Mr Killmister
did not have a genuine belief that this was true although it was in fact
correct to say that the share portfolio had a significant value; further it
tended to give a misleading impression insofar as by that statement Mr Killmister suggested that the share portfolio was an
alternative source of income;
(v) that the relevant cash for the
proposed investment, being an amount of £450,000 at Mr Killmister’s suggestion, was already held in the UK
and was the proceeds of the sale of a Jersey property owned by Mr and Mrs
Ching; it is averred that this is accurate but misleading by being an
unqualified statement in that Mr Killmister did not
disclose that this sum comprised the entire sale proceeds of the former
matrimonial home, a matter of fact which Mr Killmister
knew was relevant to the investment decision making process;
(vi) Mr Ching was subject to curatorship and that
CITE had been appointed by the Court in
Jersey to oversee all of Mr and Mrs Ching’s financial needs, to
make all financial decisions on behalf of Mr and Mrs Ching, and to ensure that
Mr and Mrs Ching’s assets were looked after such that an income from
those assets could be provided in the future to Mr and Mrs Ching from CITE as
their trustee; save as to Mr Ching’s curatorship, it is averred that
this is inaccurate and was misleading;
(vii) that, at that time, Mr and Mrs Ching had
sufficient liquid assets from which they could derive an income for, at least,
the next two to three years; it is averred that this is inaccurate and
misleading;
...
(ix) that CITE had otherwise been given
permission by the Court in Jersey to take whatever action it deemed appropriate
in relation to Mr and Mrs Ching’s affairs; it is averred that this was
inaccurate.
9.3A Mr Killmister knew that
his representations at 9.3(iii), (vi) and (ix) were incorrect, that he did not
genuinely believe his representations at 9.3(iv) and that his representations
at 9.3(iv), (v) and (vii) were misleading.
9.3B Mr Killmister had no
legitimate reason for making the said incorrect, negligent and/or misleading representations and those
representations are only consistent with the intention of Mr Killmister to purchase an investment product for the Ching
Trust which carried with it the payment of an introducer’s commission, in
order to procure the payment of that introducer’s commission for himself
or for CITE, and that he did so procure the payment of an introducer’s
commission by purchasing the AIG Bond.
9.3C Mr Killmister’s
knowledge was such as to render the purchase of the AIG Bond contrary to
acceptable standards of honest conduct and Mr & Mrs Ching have thereby
suffered loss and damage.”
The Plaintiffs claimed as damages for this
dishonest assistance the whole of their loss on the AIG bond.
303. By way of background, Mr Killmister
told us, and we accept, that the reason he approached AYP was that he had known
Ms Alexandra for some 18 months previously. He had met her on a number of occasions
at local business networking groups and in the summer of 2005 AYP had handled a
similar investment for his youngest daughter in relation to her inheritance
from her deceased mother’s estate.
So he already had a favourable experience of working with AYP.
304. Ms Alexandra’s note of the meeting on 31
January 2007 reads as follows:-
“Nil exposure to equities
Need p[er]month £3,500
£560,000 IN CASH IN HSBC
(UK)
Income will be rolled up
initially (possibly 2 years)
Share portfolio £750/1m
(sell and return to UK)
Max commission – bond.
-- Do a split on illustration
Gary will tell us about
allocation.”
Mr Killmister
made no equivalent note but he did not dispute the accuracy of Ms
Alexandra’s note. As he said
in his statement:-
“70. ... I explained to Ms
[Alexandra] that CITE would wish to invest the cash available to it as part of
the trust fund. At the time of this
meeting, I was labouring under the impression (not least because of the quoted
share price and Mr Ching’s representations concerning the value of the
Digger Shares) that the Digger Shares had significant value and were
substantially owned by Mr Ching. I
would have attempted to explain the financial position of the trust as accurately
as possible to Ms [Alexandra] based on the information available to me at the
time.
71. CITE was contemplating an investment with a
cautious to moderate risk profile and I told Ms [Alexandra] that CITE was aware
of the respective tax positions of the beneficiaries and the trustee.”
He added in cross-examination that he had
to explain the whole situation right the way through for Ms Alexandra, most
particularly with respect to the source of the Trust’s funds and the
anti-money laundering compliance that needed to be done.
305. We now take each of the alleged misstatements
in turn.
Para.9.3(iii): Mr and Mrs Ching were extremely wealthy
with substantial assets in Jersey and Canada
306. Mr Killmister himself
described the Chings to Ms Alexandra as wealthy. The expression “extremely wealthy” is, however, the Plaintiffs’;
the words used by Ms Alexandra in her statement were “very wealthy”.
More importantly, Ms Alexandra accepted in her oral evidence that it was
not Mr Killmister who used the words “very wealthy”; that was
merely her summary of the financial information which Mr Killmister
had given to her. That financial
information comprised essentially the £560,000, which the Trust did
indeed have in cash, and the share portfolio, which, for the reasons set out
below, we consider that Mr Killmister was justified
in valuing at between £750,000 and £1,000,000 in January 2007. Those assets, it seems to us, could
quite properly be described as substantial; indeed it is the Plaintiffs’
own pleaded case in para.9.3(iv) that the Chings’
share portfolio “had a significant
value”. On the basis of
that correct information as to the assets of the Trust, it also seems to us
that Ms Alexandra was justified in concluding that this made the Chings “very
wealthy”. But, we repeat,
that was her description, not Mr Killmister’s. In those circumstances we are not
satisfied that Mr Killmister made any misstatement to
Ms Alexandra as suggested in subpara.(iii).
Para.9.3(iv): Mr and Mrs [Chings’]
assets included a share portfolio valued between £750,000 to
£1,000,000
307. We have difficulty with the proposition
inherent in the Plaintiffs’ first criticism that:-
“Mr Killmister
did not have a genuine belief that this was true although it was in fact
correct to say that the share portfolio had a significant value”.
That proposition is that if X says
something that is in fact true but which X does not believe to be true, X is
guilty of misstatement. X may be
open to criticism on other grounds, but if what X says is in fact correct then X
is not guilty of misstatement.
Leaving that point aside, the simple answer to the Plaintiffs’
first criticism is that Mr Killmister did, as we
find, genuinely believe in January 2007 that the Chings’
Digger shares were worth the figures that he mentioned. He believed that the Chings
owned some 900,000 shares, that being the figure upon which everyone concerned
with the Chings’ affairs was working at that
time. His evidence was that he
checked the value of the shares on the internet, which seems to us an entirely
proper approach, and that the end result was the figures he mentioned to Ms
Alexandra. The graph of Digger
share prices provided to us is consistent with his evidence.
308. As for the Plaintiffs’ second criticism,
namely that Mr Killmister’s figures “tended to give a misleading
impression ... that the share portfolio was an alternative source of
income”, again the simple answer is that Mr Killmister
never intended to give any such impression. Nor, as Ms Alexandra confirmed in
cross-examination, did she understand that that was the impression which Mr Killmister was seeking to give.
309. Accordingly the criticism in subpara.(iv) also fails.
Para.9.3 (v): the relevant cash for the proposed
investment, being an amount of £450,000 at Mr Killmister’s
suggestion, was already held in the UK and was the proceeds of the sale of a
Jersey property owned by Mr and Mrs Ching
310. It is important to recognise that the
Plaintiffs accept that this statement was accurate. They contend, however, that it was
misleading because Mr Killmister did not disclose
that the £450,000 comprised the entire sale proceeds of the former
matrimonial home. In short, the
complaint is not what Mr Killmister said, but what he
failed to say; we doubt whether such a complaint can properly be described as a
misstatement but we proceed to consider it nonetheless.
311. We suspect that the origin of this complaint
lies in para.23 of Ms Alexandra’s statement which read:-
“However, if I had been
aware that (i) the Chings
were not as wealthy as Mr Killmister suggested; (ii)
that save for a shareholding (potentially significant) in Canada,
£560,000 represented the sum total of the Chings’
assets; or (iii) that the proceeds of sale of a property comprising the cash
invested came from the sale of Mr and Mrs. Ching’s only home, I would not
have given the same advice.”
The Court investigated Ms Alexandra’s
point (iii) with her. It emerged
that the potential relevance of the sale proceeds coming from the sale of an
investor’s only home would lie in her concern for the investor’s
general financial position. The
questioning by the Court concluded as follows:-
“Q. If [the Chings] did have another property that they lived in,
albeit a rented property, would it matter that the sale proceeds came from the
sale of their only home?
A. No, as long as their needs were fully
catered for.”
That response by Ms Alexandra seems to us
entirely sensible and we apply her reasoning to the Plaintiffs’ complaint
under subpara.(v).
312. The Plaintiffs make no pleaded case that the Chings’ needs were not fully catered for as at
January 2007. More importantly, the
£160,000 which Mr Killmister had retained from
the proceeds of the sale of Granville would, barring unforeseen events, have
been sufficient to cater for the Chings’ need
for a monthly income of £3,500 a month (the figure mentioned in Ms
Alexandra’s note) for nearly four years. In those circumstances it seems to us
that the criticism of Mr Killmister in subpara.(v) is likewise unjustified.
Para.9.3(vi): CITE had been appointed by the Court in Jersey to oversee all of Mr and Mrs
Ching’s financial needs, to make all financial decisions on behalf of Mr
and Mrs Ching, and to ensure that
Mr and Mrs Ching’s assets were looked after such that an income from
those assets could be provided in the future to Mr and Mrs Ching from CITE as
their trustee
313. It was Ms Alexandra’s evidence in her
witness statement that Mr Killmister had made these
statements. If made, the statements
were clearly incorrect. It was Mr Killmister’s evidence that at the meeting on 31
January 2007 he explained to Ms Alexandra both the concept of a curatorship in
Jersey law and that CITE was acting as the trustee of the Trust. In the context of a curatorship, his
evidence was that he explained to her that Mr. Manning was Mr Ching’s
curator, that he had been appointed by the Royal Court and that through his
appointment he would have got approval to transfer the funds to the Trust. But Mr Killmister
denied making the remarks ascribed to him in the context of the Trust, suggesting
that Ms Alexandra had confused what he said.
314. In cross-examination Ms Alexandra accepted that
she might have confused the two aspects of what Mr Killmister
had said to her and we find that that is indeed what happened. We are fortified in that conclusion by
the consideration that Mr Killmister is unlikely to
have lied about something like the appointment of CITE by the Court in
circumstances where Ms Alexandra, had she been minded to do so, could have
checked the information for herself.
Finally, we record that Ms Alexandra accepted in cross-examination that
this information would in any event have been irrelevant to any investment
decision.
315. Accordingly we are not satisfied that Mr Killmister was inaccurate or misleading in respect of the
matters mentioned in subpara.(vi).
Para.9.3(vii): At that time, Mr and Mrs Ching had
sufficient liquid assets from which they could derive an income for, at least,
the next two to three years
316. As Mr Killmister
explained in his evidence, he did indeed make this statement and it was
true. He was proposing to hold back
£160,000 (the difference between the £560,000 in cash that he had
mentioned to Ms Alexandra and the £400,000 he was proposing to invest) so
as to ensure that he had funds to pay for the Chings’
living expenses over the initial period.
In addition, he knew that Mr Manning still held funds in Jersey. We see no basis upon which the statement
in subpara.(vii) can be said to be inaccurate or
misleading in any way.
Para.9.3(ix): CITE had otherwise been given permission by
the Court in Jersey to take whatever action it deemed appropriate in relation
to Mr and Mrs Ching’s affairs
317. This seems to us simply to be a variant of the
allegation in subpara.(vi), which is no doubt why Mr Garrood did not cross-examine Mr Killmister
separately about it. Accordingly we
dismiss this allegation for the same reasons as we have already given in
respect of subpara.(vi).
318. It follows from our conclusion that Mr Killmister made none of the misstatements alleged by the
Plaintiffs that the plea of dishonest assistance must fail on that ground
alone. And if the alleged
misstatements were never made, then by definition they were not made
dishonestly.
319. There is no allegation by the Plaintiffs that
the payment of the £7,200 (which, we record, the Plaintiffs do not claim
from Mr Killmister in this action) amounted to
dishonest assistance simpliciter.
The Plaintiffs’ case is simply that the payment of that
introducer’s commission was the motive for Mr Killmister’s
dishonest misstatements. But for
the sake of completeness we proceed to examine the allegation against him of
dishonesty as pleaded in paras.9.3B and 9.3C of the Order of Justice as
amended.
320. It emerged from Ms Alexandra’s evidence
in cross-examination that the commission of £7,200 was paid to Mr Killmister pursuant to an introducer’s agreement
which had been drawn up by AYP. In
his statement Mr Killmister explained the position as
follows:-
“76. It was explained to me by Ms
[Alexandra] that there were ... two options regarding AYP’s
commission. Either they would take
3% up front and 0.5% annually thereafter, or they could take a 6% commission
upfront. CITE chose the latter as
it seemed to be in the best interests of the beneficiaries, who incidentally
had been consulted on the choice of investments.”
AYP’s commission was, therefore,
£24,000 but this was partially mitigated by an enhanced allocation to the
bond of 3% of the commission charge, amounting to some £12,000. Mr Killmister’s
statement continued:-
“77. It was agreed between CITE and AYP that
the commission would be split. As a
matter of course, the two companies paid referral fees for business
introductions to one another. I can
no longer recall whether it was offered or CITE requested it. In any event, CITE was paid £7,200
out of the 6% for AYP as an ‘introducer’s fee’. Both AYP’s commission and
therefore CITE’s receipt are recorded in the relevant accounts for the
[Trust].”
In examination in chief Mr Killmister added the following comment:-
“The commission was a
relatively small amount of money.
It is common practice for introductory commissions to be paid between
businesses and the amount that is involved was actually probably less than the
amount that I personally lent to the trust at the outset to reinstate Mitsukiku and bring the other two companies back into good
standing. I can’t imagine why
I would do that for the sake of £7,200.”
321. In the light of that evidence, which we accept,
we find that it was not commercially unacceptable, or dishonest, for Mr Killmister to have accepted the sum of £7,200 from
AYP in connection with CITE’s investment in the AIG bond.
322. Furthermore, given our conclusion that the
Trust was valid, Mr Killmister would be able to
invoke clause 30(c) of the Trust deed as relieving him of any liability to
account for the receipt of the £7,200. As Advocate Garrood
rightly accepted, Mr Killmister could not be guilty
of dishonesty if the payment was excused by that clause. For this additional reason it was not,
in our view, dishonest of Mr Killmister to have
accepted the £7,200.
323. Finally, as Mrs Ching accepted in her second
witness statement:-
“I also wrote to Mr Killmister in early 2007 (see [para.54 above]) advising
that I was concerned regarding the commission received by CITE in relation to
the AIG investment policy.”
In cross-examination, however, Mrs Ching
said that she did not remember this letter. There is no suggestion that she or Mr
Ching (or Mr Manning) pursued this concern further with CITE or Mr Killmister. In
those circumstances it seems to us that the Chings
and Mr Manning in any event acquiesced in the payment to, and receipt by, Mr Killmister of the £7,200.
324. It follows that the Plaintiffs’ claim
against Mr Killmister based upon dishonest assistance
in a breach of trust fails on all counts.
(6) Improper
fees charged
325. The Plaintiffs contend that CITE is liable to
compensate them for the improper payments that each of the Defendants received
in their respective capacities. The
sums claimed by the Plaintiffs under this head can be summarised as follows:-
(a) the total of £59,425.14 received by
companies wholly owned by Mr Killmister; and
(b) the total of £28,245 received by Mr
Gidley.
The Plaintiffs no longer pursue under this
head the fees paid to Mr Manning.
326. We have already addressed at paras.179 to 186
above the issue of the fees claimed by the Plaintiffs as damages for negligent
misstatement, and at paras.199 and 200 as damages for breach of fiduciary
duty. We do not, therefore, repeat
under this head our comments in those paragraphs.
327. Again, and for the final time, we approach this
issue on the alternative bases:-
(a) that the Trust was valid; and
(b) that the Trust was invalid.
(a) The Trust was valid
328. Mr Pallot accepted that if the Trust was valid,
the effect of the Trust deed was that these fees had been properly
charged. Accordingly this claim
must fail.
(b) The Trust was invalid
329. For the reasons set out in para.265 above, we
have already accepted that CITE remained entitled to be indemnified for
expenses properly incurred in the administration of the Trust until such time
as the resulting trust came into existence. In those circumstances, for the same
reasons mutatis mutandis as set out
in paras.185 and 186 above we conclude that the Plaintiffs are not entitled to
recover from CITE the £59,425.14 claimed in respect of the payments to Mr
Killmister’s companies, and for the same
reasons mutatis mutandis as set out
in paras.183 and 184 above we reach the same conclusion in respect of the
payments to Mr Gidley.
330. In addition, we have no doubt that both Mr
Ching and Mr Manning as professional men familiar with the operation of trusts
would have realised from the outset that both Mr Killmister
(and/ or his companies) and Mr Gidley would be entitled to, and would, charge
fees for their services to the Trust.
In Mr Ching’s case, this is confirmed by his letter of 25
September 2007 (see para.58 above).
As for Mrs Ching, in the light of Mr Killmister’s
note of their meeting on 28 April 2006 (see para.33 above), of Mr
Manning’s letter to the Chings of 7 November
2006 (see para.47 above) and of the Trust accounts, we are likewise satisfied
that she too knew that Mr Killmister and Mr Gidley
would be charging for their respective services; she did not object to this
state of affairs. Again, therefore,
it seems to us that the Chings and Mr Manning in any
event acquiesced in the payment of the fees set out in para.325 above.
(7) Prescription
331. In the light of our findings thus far, the
issue of prescription does not arise.
Nevertheless we proceed to consider it. This issue arises only in respect of Mr
Gidley and Mr Killmister.
332. Mr Gidley and Mr Killmister
were joined as Defendants on 30 November 2011 and the Amended Order of Justice
was served on them on 16 December 2011.
Both of them contended that all the causes of action against them were
prescribed on the basis that they had arisen more than three years before 16
December 2011. It was common ground
between the parties at the strike out hearing before Master Thompson (to which
we refer further below) that for the purposes of the Defendants’
limitation defence the relevant date was the date upon which the Defendants
were served.
333. The Plaintiffs did not argue that any of the
causes of action had accrued later than 16 December 2008. Their case on prescription as set out in
their final written submissions and in the additions thereto was as follows:-
(a) While they accepted that the limitation period
in respect of all the causes of action except breach of fiduciary duty was
three years, the limitation period in respect of the claim for breach of
fiduciary duty was ten years, so that that cause of action was not prescribed
at all.
(b) Mrs Ching was at all times under an empêchement de fait
in respect of all the causes of action until some time
after December 2008, more particularly until shortly after the Court’s
order of 5 May 2010.
(c) As for Mr Ching:
(1) he was under an empêchement de droit vis-à-vis both Mr Gidley and Mr Killmister until 25 November 2008 (when Mr MacFirbhisigh replaced Mr Manning as his curator) and
thereafter was under the same empêchement
de fait as his wife; alternatively
(2) he was at all times under the same empêchement de fait
as his wife.
334. We take first the question of the limitation
period in respect of claims for breach of fiduciary duty. This issue was not the subject of any
oral argument by the parties but was addressed in the written submissions. The Plaintiffs’ written closing
submissions read as follows.
“163. The Plaintiffs say that it is settled law
that:
(i) an action [personelle] mobiliere has a
prescription period of 10 years – In the Matter of Northwind
Yachts Limited [2005 JLR 137]...;
(ii) an action in tort has a prescription
period of 3 years – Article 2 Law Reform (Miscellaneous Provisions)
(Jersey) Law 1960 ...; and
(iii) an action for breach of trust has a
prescription period of 3 years on the terms of Article 57 Trusts Jersey Law
1984.
164. An action for breach of fiduciary duty is a personal
action, “une action personelle”. It is also an action that does not
relate to an immoveable and is therefore “une
action mobiliere”. An action for breach of fiduciary duty
is not an action in tort nor is it an action [for] breach of trust such that
either of Article 2 of the Miscellaneous [Provisions Law] [or] ... Article 57
of the Trusts law displaces the customary period of 10 years. In addition, when we look at Paras 30-33
of Northwind, Sir Michael Birt makes it clear his
view is that the period is a 10 year period. The Plaintiffs submit that in the
absence of express statutory intervention, such as there has been for tort and
breach of trust, the customary period in respect of an action personelle mobiliere must apply:
it must be 10 years in any event.”
335. In the Northwind
case the respondent director of a company, who was alleged to have been in
breach of his fiduciary duty to the company, resisted an application by a
co-director for leave to bring a derivative action in the company’s name. One of the grounds upon which he
resisted the application was that it was prescribed, his contention being that
the relevant limitation period was three years under Art. 53 of the Trusts
(Jersey) Law 1984 (“the 1984 Law”). The Court decided on other grounds to
stay the application but also addressed the prescription point. The Court held that Art.53 could not
apply directly to breaches of fiduciary duty by a director because of the
particular definition of various terms in the 1984 Law. As for the alternative argument that
Art.53 applied by analogy, the Court declined to express a decision as they had
not heard full argument and it was not necessary for their decision. Accordingly the Court concluded (at
para.35):-
“For these reasons, had we
not ruled that there was an alternative remedy, we would not have held at this
stage that the action proposed on behalf of the Company ... was not well
founded because of difficulties over prescription.”
336. The Court referred to Gwembe
Valley Development Co Ltd v Koshy (No.3) [2004] 1 BCLC 131 where the
English Court of Appeal held that, although personal claims against fiduciaries
would normally be subject to limits by analogy with claims in tort or contract,
by contrast, claims for breach of fiduciary duty against a director would
normally be covered by s.21 of the Limitation Act 1980 which dealt with
time limits for actions in respect of trust property. In the Gwembe
case Mummery L.J. referred (at para.85) to Bristol and West Building Society
v Mothew [1996] 4 All E.R. 698, in which Millett
L.J. provided authoritative guidance as to the proper use of the term fiduciary
duty and
“distinguished duties, such
as the duty of care, which, though owed by fiduciaries, are no different in
principle than equivalent duties in common law”.
337. In In re Esteem Settlement [2002] JLR 53
the Court said (at para.257):-
“We think that the time has
come to hold that the 10-year period referred to by Le Geyt
is a general period which should be taken to apply to all personal actions and
all actions concerning movables, save to the extent that they have already been
held to be subject to a different period, e.g. tort, actions concerning estates
etc., or that some other period is, by analogy, clearly more applicable.”
In the circumstances of the present case it
seems to us that some other period, namely the three year period in respect of
claims in tort, is clearly more applicable. The claim against Mr Gidley and Mr Killmister for breach of fiduciary duty was a personal
claim; it alleged a duty which was, in effect, simply a duty of care, hence the
reliance by the Plaintiffs on the same facts in support of their claims both in
negligent misstatement and for breach of fiduciary duty. It would, in our view, do a disservice
to the law of Jersey for the limitation period in respect of the negligent
misstatement claim to be three years, and for that in respect of the identical
fiduciary duty claim to be ten years.
In this context we do not find the decision in Northwind,
where the alleged fiduciary duty was very different from that alleged in the
present case, to be of any assistance.
338. Accordingly we conclude that all of the causes
of action relied on by the Plaintiffs are subject to a three year limitation
period.
339. We now address in turn the two forms of empêchement relied on by the
Plaintiffs.
(a) Empêchement de droit
340. As we have already recorded, there is no
suggestion that Mrs Ching was ever under an empêchement
de droit; this limb of the empêchement
doctrine is relied on solely on behalf of Mr Ching.
341. In his judgment delivered on 18 December 2014
dismissing the Defendants’ application to strike out the
Plaintiffs’ claims on the basis that they were prescribed, Master
Thompson dealt with the Plaintiffs’ empêchement
de droit argument as follows (at para.37):-
“Firstly, I am not satisfied
that an empêchement de droit exists as against the second and third
defendants. Any empêchement
de droit can only operate in respect of a claim against i.e. the fourth
defendant Mr Ching’s curator.
This is because Mr Ching was able to act through Mr Manning. His inability to act was limited to an
inability to replace or sue Mr Manning as his curator. An empêchement de droit in my
judgment therefore only operates as between an interdict and a curator and not
against the world at large.”
It seems to us that it is not now open to
the Plaintiffs to reargue this point and on that ground alone we reject their
case based on empêchement de droit.
We add that the conclusion reached by Master Thompson on this issue is,
in our view, plainly correct in any event.
(b) Empêchement de fait
342. The Plaintiffs rely on this limb of the empêchement doctrine either in
addition, or in the alternative to, empêchement
de droit. Not surprisingly, all
parties were agreed that the relevant legal principles were to be found in two
decided cases, namely Public Services Committee v Maynard [1996] JLR 343
and Boyd v Pickersgill and Le Cornu [1998] JLR
305. In Boyd, Beloff J.A. said (at p.290):-
“In Maynard, this
court recognized that the maxim upon which the Appellant relies was part of the
customary law of Jersey. A
comprehensive analysis was made of such classic commentators as Terrien in Commentaires du Droict Civil 91578) and Poingdestre in Les Lois & Coutumes de Jersey (1928). Southwell JA. said (1996 JLR at 354):-
“We can summarise our
conclusions so far on the application of the maxim in Jersey law in this way:-
(a) It is common ground that the
maxim can apply to the customary law of prescription of claims in contract
after 10 years, and is preserved by art.2 of the 1960 law in relation to
prescription of claims in tort after 3 years.
(b) The principle underlying the
operation of the maxim in Jersey law is the practical impossibility of the
plaintiff being able to exercise his rights.
(c) Mere ignorance does not bring
the maxim into operation.
(d) Where there is an impediment
creating such a practical impossibility, of which ignorance is part, then the
maxim may come into operation and prevent time running.”
In those circumstances I see no
reason, even were it open to us to do so, to review the authorities
further.”
343. Beloff J.A. then discussed what was meant by a practical impossibility (at
p.291):-
“In my view, the epithet
“practical” deployed in Maynard softens rather than
strengthens the concept of impossibility.
It requires a consideration of what is in fact, not in theory,
possible. While ignorance of a
cause of action does not per se trigger a suspension of the limitation period,
it may, in appropriate circumstances, constitute or create a relevant
impediment. The issue before us is
of what those circumstances may consist.
The test, as it seems to me, is
whether the ignorance of the cause of action is reasonable in all the
circumstances, reasonable, that is, both in respect of the facts giving rise to
the cause of action and that a cause of action arises in such
circumstances. While ordinary cases
of professional negligence, as in this case, may be against a lawyer for advice
unconnected with court proceedings, it is difficult to see how it could ever be
reasonable to assert that one was unaware that a lawyer owed obligations in
contract. There may be cases,
however, where the law is uncertain, e.g. in respect of an advocate’s
conduct connected in some way with court proceedings, where ignorance even of
the possibility of a cause of action may be reasonable.”
344. Southwell J.A. (at p.295) clarified that:-
“the test is to be applied
objectively to a reasonable person in the particular circumstances in which the
plaintiff was placed. It is not a
subjective test.”
Finally Sumption
J.A. stated (at p.295):-
“I am satisfied that the law
regards ignorance as reasonable as a matter of legal policy where there was no
means by which the particular plaintiff could reasonably have been expected to
discover the facts on which her cause of action was based.”
345. In his strike out judgment to which we have
already referred, Master Thompson also said as follows:-
“38. However, I am of the view that it is arguable that Mr
Ching was under an empêchement de fait as
against the second and third defendants for so long as Mr Manning was acting as
curator. This is because I accepted
it was arguable, as Advocate Jones contended, that because the fourth defendant
was appointed as curator on the recommendation of the second and third
defendants, that he was not going to act contrary to their advice or to take
steps to pursue them for such advice being negligent. I accepted such a failing may give a
rise to a claim against the fourth defendant. However, I did not consider it
appropriate to determine on a strike out application that the scenario advanced
by Advocate Jones on behalf of the plaintiffs of an empêchement de fait as between the plaintiffs and the second and third
defendants could not succeed. In my
judgment whether an empêchement arises and therefore whether or not the
defence will succeed can only be properly determined at a trial having heard
evidence from each of the second, third and fourth defendants and the
plaintiffs as well as legal submissions on the limits of any empêchement
doctrine.
39. Once Mr MacFirbhisigh
was appointed as curator, again I consider it a matter for trial for the Jurats
to determine when a reasonable man in the position of Mr MacFirbhisigh
had sufficient information in order to commence proceedings. In particular, I consider it is a matter
for the Jurats to evaluate when there was sufficient information known to the
plaintiffs or which ought reasonably to have been known to enable them to
conclude that the advice of the second and third defendants was wrong. While it is clear that the plaintiffs
were seeking information about the trust assets, including why an English Law
trust had been set up and what had happened to the trust assets, it is a matter
for the Jurats as to whether it was practically possible for a person in the
position of the plaintiffs to evaluate the advice that had been given. I am not therefore satisfied that the
second and third defendants, despite the potential force of the rhetorical
question asked in reply by Advocate Baxter, have reached the required threshold
to enable me to strike out the plaintiffs’ claims against the second and
third defendants on the basis that such claims, other than dishonest
assistance, are prescribed. I do
not consider it possible to answer what the plaintiffs knew or ought to have
known about the advice that they received and what had happened in relation to
assets without hearing from all the witnesses and without seeing all relevant
documents. The epithet of practical
impossibility softens rather than hardens the test for an empêchement to
apply. There is also a danger of
looking at matters through the prism of hindsight rather than the actual
context in which individuals were operating. The history of this litigation and
matters leading to the proceedings is reasonably complicated and in my judgment
not one that can be determined on a strike out application. Rather it is best left for consideration
at trial.”
346. Given the broad brush approach that the
Plaintiffs had adopted in their opening skeleton argument, the Court raised
with Advocate Garrood what we expected of the
Plaintiffs’ final written submissions in this context, in the following
terms:-
“THE COMMISSIONER: ...
The second main area is the
issue of prescription which of course only runs against Mr. Gidley and Mr. Killmister. It
is not raised by CITE. I appreciate
that we have your argument that the prescription period for the breach of
fiduciary duty claim is, I think you said it is ten years.
ADVOCATE GARROOD: Ten years.
THE COMMISSIONER: Obviously we will wait to see your
submissions about that. In relation
to the other heads of claim, I understand it to be common ground that the
limitation [or] prescription period is three years.
ADVOCATE GARROOD: For the tortious claims, yes.
THE COMMISSIONER: If there are any other claims which are
not three-year claims then you will identify them. That, of course, brings us to the
empêchement point and empêchement de fait where, understandably, I
think the parties are agreed on the principles as set out in the relevant
Jersey authorities. I assume, you
may tell me otherwise, that the evidential burden is on you as the person
seeking to raise empêchement de fait to establish it. As I understand it, the substitute Order
of Justice was served on Mr. Killmister and Mr.
Gidley on 16th December 2011, so
winding back the relevant period for a three-year prescription period will be
16th [December] 2008. What I think
we are looking for in your final skeleton is your detailed submissions in
relation to each of your heads of claim on essentially two questions, and this
is my attempt to pose as questions the legal test. If it is a slightly inaccurate
reflection of the legal test then you can tell me so in due course.
Point one is: What information
did the plaintiffs not have and could not have reasonably obtained prior to
16th December 2008 which they needed in order to be able to bring the claim in
question?
Second: What is the evidence, oral or written,
to prove that or to establish that the [plaintiffs] did not have and could not
reasonably have obtained that information which you say that they required and
could not have done that prior to 16th December 2008?
Then I think we will understand
precisely how it is that you put your case on prescription and what the evidence
is upon which you rely to establish it.
Does that make sense?
ADVOCATE GARROOD: Yes, I understand that.”
347. Unfortunately the Plaintiffs’ final
written submissions did not condescend to the degree of detail that the Court
had indicated. Accordingly we
raised the issue again during Mr Pallot’s final
oral address, as follows:-
“The problem is, Mr. Pallot,
that you have not, with respect, spelt out in relation to each of the heads of
claim what the information is that you did not have and could not reasonably
have obtained prior to 16th December 2008, that being three years before
service on Mr. Gidley and Mr. Killmister, nor have
you identified for us the evidence oral or written in relation to those points
which you say you did not know and could not reasonably have found out.
I will certainly in the
circumstances give you one last chance to do that. May I take an example and I am not
expecting you to answer on the hoof, let us simply take the negligent
misstatement claim. Your clients
knew, they say, what advice they had been given and they knew that by April
2006. If that advice was wrong they
knew by April 2006 that it was wrong.
So, I am just putting this
[hypothesis] to you. They knew well
before December 2008 that the AIG Bond had been taken out. They knew well before, sorry, just while
I am passing, and of course they could always have gone to Ms. Alexandra and
asked her what had happened in relation to the bond. So far as the Digger shares were
concerned they knew that they had not had the Digger shares back. They knew from the trust accounts that [the]
trustees had been charging commission.
Now, again, you may tell me that factually that is wrong but I am simply
putting that to you.
So in that case I ask rhetorically
what else did your clients need to know about the negligent misstatement claim
that they did not know by December 2008 to bring this claim? That is the sort of detail which I
[envisaged] that you were going to provide in your final submissions following
what I said to Mr. Garrood in [the] passage which I
have just cited. That is at the
moment what we lack. That, I am
afraid, is what the court needs to know if you are going to persuade us that
your empêchement plea stands examination.”
The Plaintiffs’ response took the
form of the additions to their final written submissions. That response, however, still lacked
much of the detail that the Court had requested.
348. The essence of the Plaintiffs’ case on empêchement de fait
as set out was as follows:-
(i)
Mrs Ching
suffered a practical impossibility of knowing what had been occurring to enable
her to bring a claim because she had reposed complete confidence and faith in
Mr Gidley, Mr Killmister and Mr Manning. This remained the position until such
time as she was rid of the control of these individuals, which was not until Mr
MacFirbhisigh was appointed in Mr Manning’s
stead.
(ii) Mr MacFirbhisigh
could not have brought any claims prior to his appointment as curator on 25
November 2008. It was not
practically possible for him to have evaluated the information that he had, or
ought reasonably to have been able to review, by 16 December 2008. Indeed it was not until February 2009
that for the first time he started to receive information and documentation
from Mr Manning.
We take first the negligent misstatement
and breach of fiduciary duty claims (issues (1) and (2)), taking in turn the
position of each Plaintiff, adopting the two stage approach of Master Thompson.
(i) Mrs Ching
349. As for the period of Mr Manning’s
curatorship, we accept that, at least initially, she trusted Mr Gidley, Mr Killmister and Mr Manning. We do not, however, consider that she
was in any way under the control of these individuals. On the contrary, we conclude that during
the relevant period she was her own woman.
More particularly, she was able to, and did seek the advice of Mr MacFirbhisigh in July 2006 regarding the sale of
Granville. She consulted him again
in June 2008 regarding the difficulties that, she said, she and Mr Ching were
having with Mr Manning and the Trust although, as we have recorded in para.48
above, she had originally voiced concerns about Mr Manning to Mr Gidley some 20
months earlier. If she felt
dissatisfied with what Mr Gidley and Mr Killmister
had told her and her husband, the onus was on her to seek legal advice; nor was
there any obstacle to her doing so.
350. More particularly, we return to the factual
scenario which the Court put to Mr Pallot as recorded in para.347 above. In the absence of any detailed response
from the Plaintiffs, we remain of the view provisionally indicated in the
transcript. Mrs Ching knew by April
2006 what advice she and her husband had been given and if that advice was
wrong, she knew, or could have discovered, that by the same date. She knew that the Digger shares had not
been returned to them. She knew by early
2007 that CITE had invested in the AIG bond; if she had wanted more detail
about what had been said at the time that the investment had been made, she had
only to ask Ms Alexandra. Finally,
she knew that CITE, Mr Gidley and Mr Manning had been charging fees. So we return to the fundamental
question; what information was it that Mrs Ching did not know, or could not
reasonably have obtained, during the period up to 25 November 2008 that she
needed to know in order to bring proceedings against Mr Gidley or Mr Killmister for negligent misstatement or breach of
fiduciary duty? The Plaintiffs have
not answered that question and on the information available to us, we cannot
identify any such missing information.
Accordingly Mrs Ching was not, in our judgment, under any empêchement de fait
in respect of this first period.
351. As for the second period after Mr MacFirbhisigh had taken over as curator, for the reasons
set out later in this judgment we find that there was no empêchement de fait so far as Mrs Ching was concerned in
respect of this period either.
(ii) Mr MacFirbhisigh
352. Taking first the period of Mr Manning’s
curatorship, it seems to us that there are two reasons why no empêchement de fait arose as
regards Mr Ching or Mr Manning.
353. First, we recognise the force of the argument
summarised by Master Thompson at para.38 of his strike out judgment that since
Mr Manning was appointed on the recommendation of Mr Gidley, it was unlikely
that he would turn on Mr Gidley and pursue him (or Mr Killmister)
for giving the Chings bad advice. Understandably, Master Thompson expected
that at trial the Court would have the benefit of evidence from all three
individuals on this issue. In fact,
for the reasons we have already explained, Mr Manning did not give evidence at
all; nor were either Mr Killmister or Mr Gidley
cross-examined to the effect that they pulled the strings and Mr Manning simply
danced to their tune. In the
absence of any evidence to that effect we decline to find that Mr Manning did
anything other than exercise his own judgment in relation to Mr Ching’s
affairs. In particular, we decline
to find that he shut his eyes to the possibility of a claim by Mr Ching against
Mr Killmister or Mr Gidley simply because of the
circumstances of his appointment.
It seems to us that Mr Manning’s apparent failure to contemplate
proceedings against Mr Killmister or Mr Gidley arose
from the fact that, despite his being in the best position to evaluate Mr
Ching’s position, he saw nothing for the Chings
to complain about in relation to the advice that they had been given, a view
which, for the reasons we have already given, we entirely share. And there was, of course, no suggestion
that Mr Manning was under any empêchement
de fait.
354. Second, it was open to Mr Ching (with the
assistance, if necessary of his wife or Mr MacFirbhisigh)
to apply at any time to remove Mr Manning as curator and to replace him with
someone more amenable. That was,
indeed, the course that was eventually adopted when Mr MacFirbhisigh
replaced Mr Manning.
355. Turning to the second period, Mr MacFirbhisigh had until at least early April 2009 (three
years after the establishment of the Trust and the transfer by the Chings into the Trust of their Digger shareholdings, which
was the earliest act of reliance by them on the allegedly bad advice) to
commence proceedings within the limitation period, i.e. something over four
months from his appointment. In
fact proceedings were not commenced until November 2009, and then not against
either Mr Killmister or Mr Gidley.
356. We accept the Plaintiffs’ contention that
Mr MacFirbhisigh could not have brought any claims
prior to his appointment as curator on 25 November 2008. But in considering the submission that
it was not practically possible for him to have evaluated the information that
he had, or ought reasonably to have been able to review, by 16 December 2008,
it is important to bear in mind that, contrary to the Plaintiffs’
suggestion that he had only 23 days to form a view, Mr MacFirbhisigh
did not begin from a standing start on 25 November.
357. Thus it became clear during the oral evidence
of Mr MacFirbhisigh that he had been actively
involved during Mr Manning’s curatorship in preparing for what came to be
the present proceedings. Towards
the end of his cross-examination Mr Baxter took Mr MacFirbhisigh
to the curatorship inventory as at 25 November 2008 to which we have referred
in para.85 above, and in particular to the references to the contingent fee of
£36,045 then payable to Mr MacFirbhisigh and to
the “vast majority” of Mr
MacFirbhisigh’s time having been spent as “a direct result of this litigation”. Mr MacFirbhisigh
confirmed that this showed that the present litigation had been in
contemplation prior to his appointment.
(We note in passing that any agreement that Mr MacFirbhisigh
should be entitled to his fees if they were recoverable from the Defendants in
this litigation is an agreement that he must have made with Mrs Ching; Mr
Ching, as an interdict, would have had no authority to make such an
agreement.) We infer that Mr MacFirbhisigh had been working on these proceedings for
much of the five months since his meeting with Mrs Ching at the wedding in
early June 2008. In short, Mr MacFirbhisigh hit the ground running on 25 November.
358. As one would expect, in cross-examination Mr
Baxter investigated the question of Mr MacFirbhisigh’s
state of knowledge. Mr MacFirbhisigh’s evidence was to the following
effect:-
(1) He knew in the summer of 2006 that Mrs Ching
was settling the proceeds of the sale of Berkeley Court into the Trust.
(2) He had been told that the Trust was for the
benefit of Mr and Mrs Ching, his basic understanding being that the Trust would
pay their rent and living expenses.
(3) He himself had transferred the £10,000
proceeds of the sale of Mr Ching’s car into the Trust.
(4) He accepted that:-
“all of this is happening
because, as far as you know, Mr. and Mrs. Ching had been told they needed to
liquidate their assets and settle the Trust”.
(5) His impression when he came on the scene again
in 2008 was that:-
“It was apparent that the
Chings had entirely rested on the advice of SG as
regards the Trust”.
(6) The nature of the problems that he was told
about in June 2008 included serious problems with the Trust, problems with the
Digger shares/Mitsukiku and complaints by third party
shareholders in Digger who were trying to get their shares back.
(7) By this time the Chings
had a copy of the Trust deed.
(8) In broad terms he knew by June 2008 that the Chings had been advised to sell their assets and settle
them into the Trust.
359. In response to Mr MacFirbhisigh’s
comment that it was important to understand the depth of his knowledge in 2008,
the cross-examination continued:-
“Q. This is what I am
trying to establish. What exactly
did you know at that time? So,
first of all, you knew what [the Chings] had been
advised to do?
A. In broad terms, yes.
Q. As we know, and that was to sell
assets and put them in a Trust; yes?
A. Yes.
Q. And you knew that they had sold their
properties; yes?
A. Yes.
Q. And you knew what they had sold those
properties for; yes?
A. Yes.
Q. And you knew that they had put the
proceeds in a Trust to provide at least for their rent and living expenses?
A. That was my understanding.
Q. Yes. You also knew that the trustee had the
Digger shares, did you not?
A. At this meeting now, in 2008?
Q. Yes.
A. Yes.
Q. And you knew that those shares had a
value; yes?
A. That was my understanding, yes.
Q. And you also knew what the terms of
the Trust were?
A. No.
Q. Well, you did see a copy of the Trust
Deed at that meeting?
A. I did, indeed, but I was certainly not
in a position to understand that.
Q. But you had at least seen the Trust
Deed at that point?
A. I had seen the Trust Deed, yes”.
360. The relevant part of the cross-examination
concluded as follows:-
“Q. Just to summarise
then. By your appointment, which is
25th November 2008, you knew who had advised the Chings,
yes?
A. Indeed.
Q. What they had been advised?
A. Broadly.
Q. What they had sold as a result?
A. Yes.
Q. What they had settled on the trust?
A. Broadly.
Q. And what expenses they had had to meet
in the first year of the curatorship?
A. When you say expenses?
Q. The expenses listed in the
accounts. If we assume those
are correct, that is what you would
see.
A. As you say, assuming these are
correct.
Q. So you had all the information you
needed to bring this claim in negligent misstatement, did you not?
A. Not at all.”
361. We do not accept that final answer of Mr MacFirbhisigh.
It does not bear examination in the light of all the other points which
we have summarised in the preceding paragraphs. As for the Plaintiffs’ submission
that it was not until early 2009 that Mr MacFirbhisigh
started to receive detailed financial information from Mr Manning, the simple
answer is that he did not need such information in order to commence
proceedings against Mr Gidley or Mr Killmister for
negligent misstatement or breach of fiduciary duty. Similarly the fact that Mr MacFirbhisigh may not have had in his possession all the
relevant documentation is immaterial; the process of discovery would have
produced any material documents. As
Le Quesne J.A. stated in Minories Finance
Limited v. Arya Holdings Limited [1994] JLR 149 (at p.167):-
“As I have indicated,
Advocate Michel argued that even if Arya could in theory have taken either or
both of these steps, in practice Arya could not effectively take either step
until it had been put into possession of the necessary documents and
information, which were in the possession of the receivers. In my judgment, this is
misconceived. Periods of
prescription do not cease to run, in the absence of specific provision to that
effect, merely because a potential plaintiff may not have all the information
or documents needed to press home his cause of action. A patient wishing to sue a hospital
would find himself prescribed unless he brought his action within the relevant
prescriptive period, even though all relevant information and documents are
held by the hospital.”
Accordingly we conclude that Mr MacFirbhisigh was not subject to an empêchement de fait during Master Thompson’s second
period.
362. It follows that we would have held that the
claims by both Plaintiffs for negligent misstatement and breach of fiduciary
duty (issues (1) and (2)) against both Mr Gidley and Mr Killmister
were prescribed.
363. For the purposes of the remaining heads of
claim, we do not need to distinguish between the Plaintiffs.
364. As for the claim based on the invalidity of the
Trust (issue (3)), both Mrs Ching and Mr MacFirbhisigh
could have investigated the issue of Mr Ching’s mental capacity (the
Plaintiffs’ ground (a)) long before 25 November 2008. Most obviously, Mrs Ching could have
addressed this issue as soon as Dr Harrison signed on 20 April 2006 the
relevant statement for the purposes of the curatorship proceedings. In addition, she or Mr MacFirbhisigh could have written to Dr Jackson much earlier
than Mr MacFirbhisigh eventually did on 14 January
2009. So far as the
Plaintiffs’ grounds (b), (c) and (d) are concerned, both Mrs Ching and Mr
MacFirbhisigh had copies of the Trust deed long
before 25 November 2008 and both could have sought legal advice on the validity
of the Trust deed had they wished to do so. Accordingly neither Mrs Ching nor Mr MacFirbhisigh were under any empêchement de fait in respect of
issue (3).
365. As for the Digger shares (issue (4)), both Mrs
Ching and Mr MacFirbhisigh knew from the very start
that the Digger shares had not been returned to them. Accordingly neither Mrs Ching nor Mr MacFirbhisigh were under any empêchement de fait in respect of
this issue.
366. Turning to the AIG bond (issue (5)), we accept
that it would have been necessary for someone to write to Ms Alexandra to
discover what had passed between her and Mr Killmister
before CITE invested in the bond.
But this is something that either Mrs Ching or Mr MacFirbhisigh
could have done at any time after the investment had been made in early
2007. It follows that neither Mrs
Ching nor Mr MacFirbhisigh were under any empêchement de fait
in respect of issue (5).
367. Finally so far as issue (6) is concerned, both
Mrs Ching and Mr MacFirbhisigh knew before 25
November 2008 that Mr Gidley and Mr Killmister had
charged fees. Again, therefore,
neither Mrs Ching nor Mr MacFirbhisigh were under any
empêchement de fait
in respect of this issue.
368. We therefore conclude that all of the
Plaintiffs’ claims against both Mr Gidley and Mr Killmister
would have failed in any event on the ground that they were prescribed. On this additional ground, therefore, we
would have dismissed all the Plaintiffs’ claims against Mr Gidley and Mr Killmister.
Conclusions
369. It follows that all the Plaintiffs’
claims against all the Defendants fail and are dismissed. We recognise that our decision will have
serious financial repercussions for the Chings. Nor is it pleasant for the Court to have
to criticise Mr Ching given his present medical condition and in circumstances
where he has not been able to defend himself. But the Court’s duty is to follow
the evidence wherever it may lead.
The truth is that Mr Ching was a spendthrift with a misplaced belief in
his abilities as an investor. He,
and he alone, was responsible for the financial difficulties that he first
disclosed to Mr Gidley, and only later to his wife, in late 2005. The subsequent deterioration in the Chings’ finances was the direct result of those
initial difficulties, and of the problems associated with the Digger shares
(including his refusal to sell any of his Digger shares) for which he again was
responsible, coupled with the effect of the credit crunch. We can well understand Mrs Ching’s
feelings of anger when she learnt of their predicament in late 2005, and her
disappointment that their finances continued to deteriorate thereafter. Sadly Mrs Ching has come to believe, or
has been persuaded, (we know not which) that that subsequent deterioration was
the fault of Mr Killmister or Mr Gidley. It is not, and it never was. In addition the Plaintiffs’ claims
in this action were, as we have found earlier in this judgment, riddled with
serious errors. All that these
proceedings have done is to make the Chings’
bad financial position worse.
370. Nor should one overlook the impact of these
proceedings on the Defendants, particularly in terms of their professional
reputations. CITE has had these
proceedings hanging over its head for nearly six years, while Mr Killmister and Mr Gidley (and, of course, Mr Manning) have
been in the same position for nearly four years. For more than the first two of those
four years the individual Defendants faced claims of conspiracy, dishonesty and
deceit, and Mr Killmister faced an allegation of
dishonest assistance until the very end of the trial. Whilst Mr Killmister
and Mr Gidley will no doubt be relieved that we have acquitted them of all
these accusations made against them by the Plaintiffs (and Mr Manning will
likewise be relieved that the Plaintiffs discontinued all their claims against
him), the reality is that none of the Defendants should have been subjected to
the stresses and strains of these accusations, or of these proceedings, in the
first place.
371. Finally we would wish to repeat our gratitude
to the advocates and their teams for the assistance which they provided to the
Court. In this regard we recognise
the particular burden which fell on Advocate Garrood
in having to take over the main burden of the case for the Plaintiffs at the
eleventh hour.
Costs
372. Unless the parties are agreed on the
appropriate costs order, we will hear submissions on this issue when this
judgment is handed down.
Authorities
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