Jersey Unreported Judgments

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Cite as: [1999] UR 94

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ROYAL COURT

(Samedi Division)

28 May 1999

Before: F C Hamon Esq Deputy Bailiff and

Jurats Quérée and Le Breton

 

In the matter of the Bankruptcy (Désastre) (Jersey)

Law, 1990; and In the matter of Jerseycard, Limited, en désastre

 

Representation No. 2 of the Deputy Viscount, Philip William Sewallis Shirley, Party Joined

Representation by the Deputy Viscount, seeking the Court’s sanction to a proposed settlement, pursuant to Article 26(c) of the Bankruptcy (Désastre) (Jersey) Law, 1990, which settlement is opposed by the Party Joined.

Advocate A J N Dessain for the Representor

The Party Joined on his own behalf

JUDGMENT

THE DEPUTY BAILIFF: Jerseycard Limited ("Jerseycard") is a Jersey registered company incorporated on 16^th January, 1989. Its business is described in the Representation before us as the "placement and maintenance of point of sale electronic card readers, the processing of debit, credit and smart card transactions, the operation of an interface between such card readers and certain acquirers of transaction data and the issue and sale of magnetic stripe cards and multi-function smart cards."

Mr. Philip William Sewallis Shirley was a promoter of Jerseycard and served as its managing director until October, 1994, and as a director until August, 1995. On 6^th March, 1996, Mr. Shirley obtained a summary judgment against his former company in the sum of £18,086.86 together with interest and costs. On 2^nd August, 1996, further judgments were obtained by other creditors and on 9^th August, Mr. Shirley obtained a déclaration en désastre against Jerseycard.

The Viscount, who now brings this representation before us, has assumed the administration of the désastre in accordance with the provisions of the Bankruptcy (Désastre) (Jersey) Law, 1990. Article 8(1) reads as follows:

The prayer of the Viscount’s representation is in four parts. It firstly asks for an order to serve the representation on Mr. Shirley and obviously that has been done. It also asks the Court to ratify a decision to accept an offer of £14,000 from Supercard; to order that the costs incurred by the Viscount of and incidental to his representation be paid on a full indemnity basis from property realised in the désastre; and to make such further order as the Court thinks fit. We shall deal with that aspect in a moment. The representation centres upon negotiations that the Viscount has carried out with Supercard Limited.

On 12^th December, 1995, after Mr. Shirley had left the company, Jerseycard agreed to sell for one pound sterling and the assumption of certain liabilities, its business, goodwill and assets to Supercard.

There was a written agreement of which clause 6 - and because it is important I shall cite the whole of that clause - reads as follows:

Then there are certain definitions set out.

As to clause 6(2) the Viscount requested audited accounts in his letter to Supercard of 25^th November, 1997, but these were never forthcoming and that particular matter is dealt with nearly nine months later in the legal opinion of Le Gallais and Luce to which we shall refer later in the judgment.

There is a threat of litigation in the letter that the Viscount sent to Supercard in his final words: "In the event that the above mentioned sum of £25,736.34 and the auditors’ certificate are not received by close of business on 5^th December we will have no alternative but to instruct counsel to institute proceedings." The letter is copied to Advocate Wheeler who is the signatory to the formal opinion. In our experience productive litigation is not based on empty threats but whether or not the letter of Mr. Ogden dated 6^th January, 1998, which refers to the orderly close down of the business of Supercard is related to the fact that no litigation flowed from that demand we just do not know.

To go back to the scenario the Viscount received £4,788.10 from Supercard on account of sums by way of commission due and payable on 31^st March, 1996. There was then protracted and often one-sided correspondence where the Viscount sought better information from Supercard. As we have said, Mr. Ogden, who appears to be the managing director of Supercard, wrote on 6^th January, 1998, in defence of his client’s inability or unwillingness to pay any further sum and in that letter he blamed Jerseycard for causing damage to the business of Supercard. Not least of his complaints was that the désastre of Jerseycard had a direct adverse financial effect on his company’s business. There is no way of testing the veracity of that statement.

At some time a without prejudice offer of £25,000 was made and withdrawn. A later offer of £5,570.77 was proffered in full and final settlement; that came and went. As we have said all these negotiations proceeded over many months.

On 21^st January, 1998, a circular letter was sent to all the creditors whose claims had been admitted in the désastre. Mr. Shirley had opposed some of the claims and argued on claims of his own. The rejection of these matters is pending before the Royal Court and the Court of Appeal and that is a matter - albeit subsidiary to what we have to decide - that we must always bear in mind. The letter to creditors dated 21^st January, 1998, reads as follows:

We think that Mr. Shirley’s problems are easily resolved if, instead of the word "debtor" we impose the word "Jerseycard", and it will be immediately seen that Article 20 is really of no avail to Mr. Shirley or to the Viscount in trying to ascertain the assets of Supercard.

Replies to the circular were received from Mr. Shirley and from Ernst & Young but there was no positive response to the circular from anyone else and the Viscount continued to negotiate. He has now reached the stage where he has on the table an offer of £14,000 in full and final settlement. On that point a further circular was sent to all creditors on 30^th September, 1998. The Viscount in that letter said that taking into account all proper commercial considerations, it had been decided to accept the offer which the Viscount did not believe could be bettered. Mr. Shirley, of course, argues and has strenuously argued before us that the Viscount has not obtained sufficient information on which to base that supposition. However, it should be noted as we have mentioned before that the Viscount took formal legal advice from Le Gallais and Luce. The opinion letter counsels against litigation and counsels for a settlement. There is great doubt expressed in the opinion as to a successful outcome and we need not summarise the contents of the 4½ page letter here although the opinion does deal with one significant factor of many where it says: "…there is a real possibility that any sums which you might recover in the litigation would be regarded by the Comptroller of Income Tax as income in the désastre and would thus be liable to Income Tax."

The only response to the circular letter as we have said from Mr. Shirley, who opposed the acceptance of the offer, and, of course, continues forcefully to oppose it now. In passing but certainly not in criticism of him we note that Mr. Shirley has decided not to fund the legal proceedings or to accept an assignment of the agreement. As to participating in a fighting fund he said, quite candidly, that he was not prepared to support the fighting fund because he had - from correspondence that had passed between them - no faith in the Viscount in this matter and he did not concede that it was an individual’s duty to fund litigation which the Viscount had a duty to uphold on behalf of the public at large. On that point we have to say that the discretion of the Viscount lies within his general power under Article 26 of the Law and in Article 26(c) we find these words:

Because of the continuing opposition of Mr. Shirley to the proposed compromise the Viscount has, quite rightly, referred the matter to the Court for its sanction. Accompanying the representation was a fully detailed affidavit of Christopher Francis Renault, the principal Administrator in the Désastre Section, a position which we note he has held since 1989. He has been employed in the section since 1986 and it is trite, we think, to say that he clearly has a wealth of experience behind him. He deposes to having been involved in the region of 250 désastres some simple, some complex, and many contentious.

Mr. Shirley was surprised to read in the skeleton argument that we all received, very helpfully as it happens, sometime yesterday afternoon a statement which says this:

We can understand Mr. Shirley’s indignation as a layman because the Viscount has always inferred to Mr. Shirley that he was not able to draw on the public purse. Nevertheless, and despite that indignation, the argument in the skeleton argument is correct. There are matters of public interest where the Viscount is entitled to approach the Finance & Economics Committee. We know of some recent applications and we think of instance of the case of In re Delaney (1996) JLR 96, but we could not concede that this is one of those cases.

There is a second affidavit sworn by Mr. Renault on 24^th May, 1999, some two months after the first affidavit. That second affidavit shows by way of exhibit the summary of the monthly BACS creditors received by Supercard and commissions payable to Jerseycard under the agreement up to the time that Supercard ceased trading in July, 1998. That shows amounts due to Jerseycard after a deduction of the £4,788.10 of £45,147.81. There is also a statement of receipts and expenses which shows a deficit in the désastre of £9,855.67. We must agree with Mr. Shirley - and the Viscount does not demur from that point in argument - that the figures which have been supplied are figures supplied by Supercard.

There is also a letter from Mr. Ogden dated 17^th September, 1998, which reads:

That £14,000 we understand is held by the Viscount now in an escrow account.

Mr. Shirley, although he supplemented helpfully some of his arguments before us this morning, has given us a detailed written submission which we have found extremely helpful, as he is not represented in this matter and appears in person. His arguments are nine-fold.

1.He disputes the fact that the Viscount has no funds available. Mr. Shirley argues that the Viscount implies that because there are no funds in the désastre no legal action is permitted by law. As we have attempted to say, this is not the case and there is no law to support that as a proposition. Mr. Shirley, however, appears to assume the correctness of the argument that the désastre is in deficit but he goes on to say that "The Viscount may choose not to utilise his departmental budget and his staff may be forbidden to do so, but that is a different matter altogether …" It is indeed, because it is not of course a question of departmental budgets, it is a question of matters of public interest going to the Finance & Economics Committee for funds. But it would be a question of whether there is in the Viscount’s discretion any good commercial reason to throw good money after bad. Mr. Shirley uses the verb "to choose" and that is neither more nor less in our view than an indication that he accepts that the Viscount has - as he clearly has under the law - the exercise of a discretion given to him under that law and particularly as we have said in the terms of Article 26(c). It is in our view somewhat obtuse use to the words "there are no funds available" to imply that the Viscount being a States Department has public monies in his general departmental budget to launch actions. We have earlier dealt with that understandable but popular misconception. If the Viscount sees a matter of public importance he can approach and justify his argument to the Finance & Economics Committee and we are helped in that supposition by the view of the Court of Appeal in the case of Eves -v- The Viscount (24^th September, 1998) Jersey Unreported CofA where the Appeal Court in the leading judgment of the President, Sir David Calcutt, QC, said this:

2.Mr. Shirley talks of bluff and counter-bluff in negotiations. We find that argument a little difficult to follow. It is really a question of whether one accepts Mr. Shirley’s view of the scenario which the Viscount has attempted to set out in the affidavit of Mr. Renault, that the accompanying documentation has a history of weakness, delay, idle threats and capitulations. Our reading of that correspondence and of those affidavits does not allow us to take that view.

3.Mr. Shirley asserts that the proof of the pudding is in the eating which is another way of saying that only by launching himself into litigation would the test of the chance of success be resolved. Now, that in our view is not a prudent way to litigate. We cannot read the opinion letter of Le Gallais and Luce in the way that Mr. Shirley would have us read it. In our view the opinion is cautious but it rehearses satisfactorily all the necessary problems. In support of that we would ask what could be clearer than the conclusion of the letter which reads:

The letter counsels seeking the sanction of the Court of course with an opportunity at that time for any creditor to address the Court. That is in our view the prudent a proper course that the Viscount has adopted.

4.Mr. Shirley complains that the Viscount stands accused of gross dereliction of duty by not pursuing Supercard through the Court when in his view it was ‘flush with money’. That is not a question that we can address easily because we have no proof but only supposition to support it. We would only say in passing that Mr. Shirley was offered the opportunity - as were the other creditors - to take an assignment of the agreement or to put in to the fighting fund. He declined for reasons that he has explained to us earlier.

5.Mr. Shirley states that in his opinion there was no counterclaim and that advice given to him - whatever that advice was and from whoever it came - was that the Viscount’s case "is well nigh watertight." Our comments equally apply to that remark.

6.Mr. Shirley claims that the public interest has been sacrificed to expediency. Our reading of the papers do not lead us to that inevitable conclusion.

7.Mr. Shirley strongly protests that the exact liability of Supercard is not known. He estimates the loss at £40,000. The Viscount estimates the loss at between £25,000 and £100,000. We find an argument on that basis very difficult to support or deny on the information that is available to us. We still cannot fully understand, if that is the case, why Mr. Shirley is firm in his belief - and having taken advice - that there were solid grounds that litigation would result in the recovery of £40,000 together with costs. He actually says that in his letters declining the Viscount’s offer to take over the benefit of the assignment, although we should not perhaps criticise Mr. Shirley too much in that regard. We cannot, however, on a careful reading of the correspondence between Mr. Ogden and the Viscount, come to as clear a view of the situation as does Mr. Shirley. Indeed, Mr. Shirley candidly said to us that he did not know if there was money actually available, he merely stated that it was the Viscount’s duty to find out and that he had the power to do so. For the reasons that we have attempted to explain, we do not entirely share that view.

8.In fairness to Mr. Shirley he covers the matter in his eighth submission when he alleges that the Viscount supports the rich (that is the public) but will not support the poor, that, presumably is Mr. Shirley and the other creditors. However, that argument is to a certain extent disingenuous and cannot be supported in fact for the reasons which we have explained.

9.Mr. Shirley’s ninth point ‘mops up’ the other points.

The Viscount has never said that he cannot fund the litigation. He has said - and it is wearisome to repeat it - that there are no funds in the désastre; he has taken legal advice from an independent lawyer; he has reached - before taking that advice - a commercial decision; the legal advice confirmed that commercial decision; and, under the law, he has a discretion. It is a wide discretion notwithstanding that he still comes to Court with all the available evidence that he has to ask for the Court to sanction his decision.

It is interesting that Ernst & Young, in declining to participate in the fighting fund, took a commercial view themselves. They said so in their letter of 25^th February, 1998, that: "…it is very much a question of throwing good money after bad".

In a detailed letter to Mr. Shirley on 26^th February, the offer to assign the agreement was indeed hedged with terms and we think, in fairness to Mr. Shirley, because we have twice now impliedly criticised the fact that he did not take over the assignment, we will set out those terms, which are these:

We merely set out the above because it gives us a very clear indication of why Mr. Shirley did not at least take the assignment when it was offered to him.

We share some of Mr. Shirley’s disquiet and it would be quite wrong of us if we did not say that and it is for that reason that we have gone into detail.

When Mr. Dessain began his address to us this morning, he implied that we were only here to give an answer to the representation and it was quite unnecessary for us to go into any detail. We could not share that view at all. The whole matter has been pleaded in great detail. Mr. Shirley has been invited to put in his opposition and he has done so, as we have said, very clearly and in some detail and for that reason alone we felt that we should put forward the views that we take in this case.

As I have said, we share some of Mr. Shirley’s disquiet but in the circumstances of the representation we will support the Viscount’s proposed cause of action. However, we would say this, the authority which we give to the Viscount to proceed - and we now do that - is not to be enforced until such time as the Court of Appeal has delivered a judgment in the matter that is pending. We feel that if we did not take that course, Mr. Shirley might very well be stymied from what is a perfectly proper appeal to the Court of Appeal. We may need to hear both parties again when that judgment is in written form and each party, of course, has liberty to apply to us on that basis.

When I say that we have some sympathy with Mr. Shirley, perhaps there is an extra ‘kick’ in this matter. We feel that much of the antagonism that has arisen between Mr. Shirley and the Viscount might have been avoided had there been a better liaison with Mr. Shirley. We would say this. He has not been helped by an article in ‘The Jersey Evening Post’ last night where Mr. Ogden, the managing director of a company called ‘Word Pay plc’ has publicly expressed his delight in the words of the article by "beating off several big US competitors to win a major contract with one of the world’s largest credit and debit card processors." But the problem is, although we can understand Mr. Ogden’s feelings about that article, that the glowing terms of the article do nothing to resolve the financial standing of Supercard now that it has ceased trading. Therefore, we make the Order accordingly.

Authorities

Bankruptcy (Désastre) (Jersey) Law 1990: Articles 8(1); 20; 26(c).

In re Delaney (1996) JLR 96.

Eves -v- The Viscount (24^th September, 1998) Jersey Unreported CofA. [1998.192]