Jersey Unreported Judgments

2001/246

ROYAL COURT

(Samedi Division)

 

12th December 2001 

 

 

 

 

IN THE MATTER OF an application to recall the Désastre of La Sergenté Farm Limited, declared on 8^th October, 2001, pursuant to the Bankruptcy (Désastre) (Jersey) Law 1990.

 

 

Advocate A.P. Begg for Anchor Trust Company Limited

Advocate M.J. Thompson for Lloyds TSB (Jersey) Limited

Advocate D.R. Wilson for the Viscount

Advocate M.H.D. Taylor for the Trustees of The Theakston (1986) Trust did not appear

Advocate H. Boleat for Bristol & West Building Society did not appear

 

 

judgment

the deputy bailiff:

1.        This is an application by Anchor Trust Company Limited ("Anchor"), as trustee of the Forrest Family Settlement, in its capacity as beneficial owner of the entire issued share capital of a company called La Sergenté Farm Limited ("the Company"), which was declared en désastre on 5th October 2001.  The application is to recall the declaration of désastre. 

2.        The Company is the owner of a very substantial residential property known as La Sergenté Farm, St. Mary, Jersey, together with adjoining land.  The property is the home of Mr Michael Forrest, his second wife, Mrs Hazel Forrest and their children.  There are also some tenants or lodgers in part of the house.  The Company is owned by the Forrest Family Settlement.  Over the years the Company entered into a number of guarantees in respect of various liabilities of Mr Forrest.  In this respect there are three judicial hypothecs over the property to secure guarantees given to Bristol & West Building Society, the Trustees of The Theakston (1986) Trust and Lloyds TSB (Jersey) Limited ("Lloyds"). 

3.        Mr Forrest has failed to pay the principal obligation in each of these cases and also has other liabilities.  As a result he was declared en désastre on 8th July, 1999.  The administration of that désastre continues.  In that connection the Viscount has instituted proceedings to set aside the Forrest Family Settlement on the grounds that it is a sham and also infringes the maxim "donner et retenir ne vaut". 

4.        As a result of Mr Forrest's failure to pay the amount due to it, Lloyds wrote to the Company on 22nd October, 1999, making formal demand pursuant to the guarantee.  Lloyds made a further formal demand on 4th April, 2001.  Subsequently the advocates for Lloyds wrote to the Company on 17th July, 2001, enclosing a draft application for a désastre  with supporting affidavit.  The letter informed the Company that Lloyds would defer applying for the désastre in order to avoid destabilising a proposed application to recall the désastre of Mr Forrest, but warned that Lloyds would apply to declare the Company en désastre if it became clear that the recall application in respect of Mr Forrest was either not progressing or was unlikely to be successful.  It received no response and nor was any application to recall Mr Forrest's désastre made.  Accordingly they once again gave notice to the Company of their intention to apply for a désastre on 5th October.  The déclaration was granted on that date on the basis that the Company was insolvent i.e. it could not pay its debts as they fell due. 

5.        Since the déclaration the Viscount has advertised for claims.  The closing date was the date before the hearing of this application and the exact figures were not available; but they appear to be something marginally in excess of £850,000.  The largest single creditor by far is Bristol & West Building Society in the sum of approximately £675,000.  The claim of Lloyds is stated to be £67,823 as at 26th September, 2001 with interest accruing thereon.  The claim of The Theakston (1986) Trust is £26,640. 

6.        The Theakston (1986) Trust, the Viscount and Bristol & West Building Society were all convened to this hearing.  They rest on the wisdom of the Court but Lloyds opposes the application for recall. 

The nature of the application

7.        Article 7 of the Bankruptcy (Désastre) (Jersey) Law 1990 is in the following terms:-

"Debtor's application to recall a declaration

(1)       The debtor may at any time during the course of the "désastre" apply to the court for an order recalling the declaration.

(2)       The debtor shall give to the Viscount not less than forty-eight hours' notice of his intention to make an application under paragraph (1).

(3)       The Court shall refuse an application made under paragraph (1) where it is not satisfied that property of the debtor vested in the Viscount pursuant to Article 8 or Article 9 is at the time of such application sufficient to pay in full claims filed with the Viscount or claims which the Viscount has been advised will be filed within the prescribed time. 

(4)       In considering an application under paragraph (1) the court shall have regard to the interests of -

(a)       creditors who have filed a statement of claim;

(b)       creditors whose claims the Viscount has been advised will be filed within the prescribed time; and

(c)       the debtor.

(5)       ...

(6)       ...

(7)       ...."

8.        It is also possible for a debtor who has been declared en désastre at an ex parte hearing to apply for an inter partes hearing as to whether the declaration should be maintained.  This was made clear in In re Blue Horizons Holiday Limited (1997) JLR 124 CofA at 135 where the Court of Appeal said:-

"In the light of this, I have the following observations to make.  First, although there is no express provision for it in the Law or in the Rules, the court has an inherent jurisdiction to rehear, inter partes, any application which it has dealt with ex parte.  This is the only basis on which a power to decide matters ex parte can be reconciled with the rules of natural justice.  It follows that a debtor is entitled not only to apply under art. 7 for the recall for the declaration, but to ask that the original application should be re-argued inter partes.  If the debtor can show on the re-argument that the original declaration should not have been made, for example, because he was not unable to pay his debts as they fell due, or because the creditor's claim was unfounded, he is entitled to have the order set aside even if he cannot satisfy the more stringent requirements which would apply on an application under art.7."

9.        In the course of his submission, Advocate Begg, on behalf of Anchor, disclaimed any wish for an inter partes hearing on whether the désastre should have been granted and confirmed that the application was being brought solely under Article 7.  However it seems to us that two of his submissions (namely whether there is a certain debt and whether there was full and frank disclosure) ought more properly to be dealt with at an inter partes reconsideration of the granting of the désastre because they go to the question of whether the désastre was properly granted in the first place.  We therefore propose to treat this application as being made under both the inherent jurisdiction of the Court and Article 7 of the 1990 Law.

(i) No certain debt

10.      The guarantee by the Company of Mr Forrest's indebtedness to Lloyds was entered into on 30th April, 1996.  The principal amount guaranteed was £50,000 but there was provision for interest on that sum.  Although we have no evidence of the figures it appear that, at all material times, Mr Forrest was indebted to the bank.  Indeed, on 14th January, 1999, a company known as Langtry House Limited ("Langtry") undertook to Lloyds in the following terms:-

"We, Langtry House Limited, undertake to pay £50,000 to the account of Michael Forrest held with Lloyds TSB Bank (Jersey) Limited, account number 0583946, no later than 31st December 1999."

11.      As we have said, Mr Forrest was declared en désastre on 8th July, 1999.  On 22nd October, 1999, Lloyds made formal demand on the Company under the guarantee.  This produced a letter from Mr Forrest dated 27th October, 1999, complaining that the terms of the undertaking on the part of Langtry referred to above meant that it was inappropriate to make demand under the guarantee.  On 9th December, 1999, the bank replied to the Company as follows:-

"I write further to the Formal Demand issued to you and subsequently correspondence with Mr. Michael Forrest to whom I am sending a copy of this letter.  I also refer to a Letter of Undertaking from Langtry House Limited dated 4th January 1999 addressed to Lloyds TSB Bank (Jersey) Limited.

The purpose of this letter is to advise you that to the extent that any payment by Langtry House Limited to Lloyds TSB to reduce the indebtedness of Mr. Forrest with Lloyds TSB is challenged successfully by the Viscount's Department then Lloyds TSB reserves the right to continue to proceed against La Sergenté Farm Limited for the full amount due under the terms of its guarantee.

If, however, the Viscount does not challenge any sums paid by Langtry House Limited to Lloyds TSB Bank Limited or any subsequent right of set off then the amount due under the terms of the guarantee from you will be reduced accordingly."

12.      Subsequently Langtry paid the sum of £50,000.  We were informed by Mr Thompson at the hearing that this took place on 31st December, 1999, although the date of the payment did not appear from the papers before the Court.  Not surprisingly, Lloyds was concerned as to whether it could properly keep the £50,000 which the undertaking said was to be paid to an account in Mr Forrest's name.  Mr Forrest had, of course, by then been declared en désastre.  We have not seen a letter from Lloyds to the Viscount but it is clear that it wrote to the Viscount on 4th January concerning the matter because the Viscount replied to Lloyds on 10th January 2000 as follows:-

"Re: Mr Michael William Forrest, "en désastre"

Thank you for your letter of 4 January 2000 concerning the Undertaking by the Langtry Trust Group to pay £50,000 to the account in the name of Mr Forrest.

In a recent exchange of correspondence with the Langtry Trust Group, we were not in a position to confirm to The Langtry Trust Group that, in all circumstances, the payment pursuant to the Undertaking would effect a full discharge in respect of the amount so paid by The Langtry Trust Group.  We recommended that the Langtry Trust Group should take legal advice on the issue and, regretfully, we are unable to assist you in your decision as to whether your Bank should apply the sum of £50,000, held in a new account designated Langtry Trust (Channel Islands) Limited, pursuant to the original Undertaking."

Accordingly Lloyds has placed the sum of £50,000 in a separate interest bearing account in the name of Langtry Trust (Channel Island) Limited, where the sum remains to this day.

13.      As mentioned earlier, as well as proving in the désastre of Mr Forrest, Lloyds issued a further formal demand upon the Company under the guarantee on 4th April, 2001.  Furthermore on 17th July 2001 its lawyers wrote to the Company giving notice of an intention to apply for a désastre because of the failure to pay under the guarantee.  At no stage was any reply received.

14.      Originally, in the affidavit sworn in support of this application by Mr Barry Shelton of Anchor, it was contended that the guarantee had been discharged.  During the course of the hearing Mr Begg conceded that he could not maintain that stance, but argued that there was certainly an arguable defence against the claim on the grounds that the sum of £50,000 had been paid in discharge of the guarantee.  In this respect he referred us to an extract from the case of Re Baltic Partners Limited (18th April 1996) Jersey Unreported CofA where the Court of Appeal said at page 16 of the Judgment:-

"In summary, before an individual or a company is placed en désastre, the Jersey Courts must be satisfied that there is a clear liquidated claim to which there is no reasonably arguable defence."

He argued that the facts set out above were certainly confused and that there was therefore a reasonably arguable defence.

15.      In our judgment, on the basis of the material before us, there is no reasonable prospect of a successful defence.  The fact is that Lloyds has not received the sum owing to it under the guarantee.  The sum is placed on deposit in the name of Langtry.  Lloyds is therefore still owed the full amount.  Furthermore, we are satisfied that Lloyds has behaved perfectly reasonably in this respect.  Given that the undertaking was to pay the sum of £50,000 to a specific account in Mr Forrest's name and given that, by the date of the payment, Mr Forrest was en désastre, it is clearly strongly arguable that the Viscount is entitled to claim that sum as being an asset of Mr Forrest received after the déclaration en désastre.  Certainly until the Viscount confirms that he makes no claim to this amount or that he would not seek to enforce the covenant again against Langtry, it seems reasonable for Lloyds not to accept the proffered sum in reduction of the amount owed under the guarantee.  In any event it has not done so and therefore the full amount remains outstanding. 

16.      In this respect it is to be noted that, at no time since the sum of £50,000 was paid on 31st December, 1999, has the Company protested that it is no longer liable under the guarantee despite formal demand being made in April, 2001, and notice of intention to apply for a désastre being given in July, 2001.  The point has been raised for the very first time in the affidavit of Mr Shelton prepared for this hearing.

17.      Accordingly we are satisfied that there is a clear liquidated claim to which there is no reasonably arguable defence.  It follows that Lloyds was a creditor who could properly apply for a désastre.  We would add however that we think that it would be helpful if the Viscount were able to reach a conclusion as to the stance which he wishes to adopt over the £50,000.  We were informed that the désastre of Mr Forrest is very complex and characterised by lack of co-operation on Mr Forrest's part.  In the overall context, the Viscount has not concentrated on the comparatively small sum of £50,000 when he knows that that sum is being held in a separate account.  Nevertheless we think that he should reach a conclusion on whether he contends that the £50,000 is part of Mr Forrest's assets or whether it can safely be released to Langtry or Lloyds. 

(ii) Failure to give full and frank disclosure

18.      The Court of Appeal made clear in Blue Horizon Holidays that there was a duty of full and frank disclosure on an applicant for désastre.  The Court stated the position in these words at page 135:-

"The second observation I would make is this.  An affidavit sworn in support of an ex parte application must make candid disclosure of all matters known to the creditor which are adverse to his application.  Failure to observe this rule may result in the declaration being set aside on that ground alone."

19.      Mr Begg argued that the affidavit sworn by Mr Prescott of Lloyds in support of the application for the désastre failed this test in two respects.  First he contended that the affidavit was not sufficiently clear about the £50,000 payment referred to above.  In particular the affidavit did not make clear that the payment due under the undertaking of the £50,000 would or might give the Company a defence; it did not disclose the date upon which the £50,000 was paid to Lloyds; it did not quote the letter of 9th December, 1999, from Lloyds to the Company in full but merely enclosed it as an exhibit; and it should have made clear that, if Lloyds recovered the sum due under the guarantee in the désastre of the Company, Lloyds would return the £50,000 to Langtry. 

20.      As to the first of these, we have found that there is no prospect of a defence to the claim and therefore the point does not arise.  As to the second submission we agree that the affidavit should have made clear when the £50,000 was paid over, as the fact that the payment was made after the désastre was clearly significant.  However the failure to do so cannot have prejudiced the Company.  On the contrary, the fact that the payment was made after Mr Forrest's désastre simply strengthens the position of Lloyds rather than weakens it, because it is clear that Lloyds would have been taking a gamble if it had accepted, in reduction of a debt, money paid to the debtor after the déclaration en désastre.  As to the last two points, we think there is nothing in them.  Accordingly we are quite satisfied that, subject to the point concerning the date of receipt of the money, there was full and frank disclosure as required in relation to the £50,000.  To the extent that the affidavit did not do so in relation to the date of payment, this caused no prejudice to the Company and could not have affected the Court's decision.

21.      The second aspect of the affidavit criticised by Mr Begg relates to the fact that Ogier & Le Masurier apparently act for Langtry as well as for Lloyds although different partners are involved, with, we were informed by Mr Thompson, a Chinese wall between them.  Mr Begg submitted that this fact should have been mentioned in the affidavit.  Whilst we can envisage the possibility of a future dispute between Lloyds and Langtry over the £50,000, there is no such dispute at present.  We cannot see how the fact that Ogier & Le Masurier acts for both of them is in any way relevant to whether the Company was insolvent and should be declared en désastre.  Accordingly we find no failure to give full and frank disclosure in this respect. 

22.      In summary, Mr Begg was forced to concede that there was no doubt that the Company was insolvent at the date of the déclaration and remains insolvent.  It has no cash; it owns only one asset which is the property La Sergenté Farm; it owes several debts, a number of which have been outstanding for several years.  We see no grounds for setting aside the déclaration under the inherent jurisdiction of the Court on the ground that it ought not to have been granted or that full and frank disclosure was not made. 

(iii) Article 7

23.      We turn therefore to consider whether we should recall the désastre under Article 7.  As a precondition to a recall, the Court must be satisfied that the assets of the debtor exceed its liabilities.  All parties are agreed that that precondition is met in the present case.  The Viscount has received a valuation of La Sergenté Farm in the sum of £1.85 million.  Claims against the Company are in the region of £850,000 and there is clearly therefore a substantial surplus. 

24.      However once the balance sheet test is satisfied, the Court then has to exercise a discretion as to whether to recall the désastre or not.  In doing so it is enjoined by Article 7(4) to have regard to the interests of the creditors and the debtor.  It therefore has to undertake a balancing exercise in the interests of both these parties.

25.      Mr Begg's submission was along the following lines.  He accepted that the debt to Lloyds had been outstanding for a long time. However this was because of the attitude of Mr and Mrs Forrest.  The previous trustee of the Forrest Family Settlement had been a company called Cranfield Limited.  This was a creature of Mr and Mrs Forrest and indeed Mrs Forrest had been a director of it.  Therefore it had not been co-operative.  All that had changed on 31st August, 2001, when Anchor became involved. Mr Shelton had adopted a realistic approach.  Previously the Company (with Mrs Forrest as a director) had marketed the property at £3.25 million.  This had therefore attracted little interest.  Mr Shelton appreciated that the property had to be sold and that the asking price had been too high.  He had therefore reduced it.  Furthermore he wished to use the surplus proceeds to see if he could negotiate suitable arrangements with the creditors of Mr Forrest so as to bring the whole complex saga to an end.  There was concern that, if the désastre remained, the maximum sale price of the property would not be achieved because it would be perceived as a forced sale and prospective purchasers would pitch their offers accordingly.  In effect, said Mr Begg, there had been a "new broom" since 31st August, 2001, in the shape of Anchor and Mr Shelton.  Anchor had not been aware of the application for a désastre (because Mr Forrest had failed to communicate the warning letter of 17th July 2001 from Lloyds' advocate).  He submits that Anchor should be given, say, three months to secure a firm buyer.  The Court could indicate that, if no binding agreement of sale of the property had been entered into by the end of January 2002, it would receive sympathetically any new application for a declaration of désastre.  This would act as an incentive to ensure that Anchor worked energetically to procure a sale.  Leaving a sale in the hands of Anchor would not only enhance the prospects of achieving the best price, but it would also save on the fees of the Viscount, which will be some 12.5% of the value of the assets. 

26.      The underlying basis of Mr Begg's submissions received something of a body blow when Advocate Wilson, in response, produced evidence making it clear that Anchor had become trustee of the Forrest Family Settlement some time before August, 2000, rather than in August, 2001, as the Court had been led to believe by Mr Begg.  Taking urgent instructions from Mr Shelton, Mr Begg confirmed that Anchor had indeed become trustee of the Forrest Family Settlement in June, 2000.  What he had meant to say in his submissions was that it was on 31st Augus, 2001, that Mr Shelton had become a director of the Company in place of Mrs Forrest.  Anchor had had to leave Mrs Forrest in charge of the Company between June, 2000, and August, 2001, because the books and records of the Forrest Family Settlement were in an appalling state and Anchor had not been able to assume control at an earlier time.  Mr Begg apologised for inadvertently misleading the Court. 

27.      This development certainly damaged Anchor's case.  Far from Anchor being shown to be a new broom who had adopted a realistic attitude and would ensure that a sale at a reasonable value was pursued with determination, it was shown to be a company which, as trustee, had been responsible for the Company, but had done nothing between June, 2000, and late 2001 to enable the Company to meet its liabilities. 

28.      Mr Thompson, on behalf of Lloyds, submitted that there were a number of reasons why the Viscount should be left to control the disposal of the Company's property:

(i)        The fact that the Viscount would be in charge would not in this particular case cause any prejudice in terms of sale value.  The evidence before the Court was that an unconditional offer of £1.8 million and a conditional offer of £1.9 million had been received for the property.  Yet it was a matter of public knowledge that the Company was en désastre because notices had been placed in the paper and the period for filing claims had just expired.  Accordingly there were no grounds for thinking that the proper market value of the property could not be received if the Viscount were in charge. 

(ii)       Anchor could not be relied upon to press ahead with the sale at a realistic price.  The creditors would have no input into the process.  Anchor had been in overall charge since June, 2000, yet nothing had happened.  The creditors had been kept out of their money for some two years.  Anchor had had plenty of opportunity to procure the sale but had failed to do so.  Only now was a flurry of activity taking place because of the désastre.  The time for delay had passed.  The creditors were entitled to a realisation of the Company's assets in early course so that their long outstanding claims could be paid.  This could only reliably be done under the auspices of the Viscount. 

(iii)      The property was still occupied by Mr and Mrs Forrest.  Their attitude to a sale was not known.  Given their attitude to the désastre in the past, it was quite likely that they would not be co-operative.  Accordingly it might be necessary to take a firm line with them and that would best be done by the Viscount rather than by Anchor. 

(iv)      He accepted that, if the désastre were continued, the fees would be greater than if it was not, but that was the fault of Anchor.  If the Company had shown any sign of co-operating at an earlier stage, there would have been no need for a désastre.  The Company had had its opportunity and could not now seek another.

(v)       The désastre was not a complicated one.  There was only one asset.  There were only half a dozen creditors.  There was no reason why it could not be completed in early course with the surplus being returned to the Company at the end of the désastre.  Anchor would then be free (subject always to the claim brought as to the validity of the settlement by the Viscount in Mr Forrest's désastre) to use the surplus in order to try and negotiate a settlement of Mr Forrest's désastre, as it stated that it wished to do. 

29.      On behalf of the Viscount, Mr Wilson rested on the wisdom of the Court.  He did however say that the Viscount's fees were not fixed and could be reduced in simple cases such as this.  Furthermore, he pointed out that, in the course of administering the désastre so far, the Viscount had established that the household insurance policy on La Sergenté Farm had lapsed on 12th August, 2001.  The property had therefore been uninsured until the Viscount had taken out a temporary policy following his discovery.  This failure had occurred whilst Anchor and Mr Shelton were in overall charge of the Settlement and its assets.  In fairness to Mr Shelton, we should point out that, in reply, Mr Begg informed us that he was instructed that Mr Shelton had asked about the household insurance and had been assured by Mr Forrest that the property was insured.  Nevertheless he had clearly not taken any steps to seek confirmation of this assurance. 

30.      Our duty is to balance the interests of the Company against those of the creditors.  We are in no doubt in this case where that balance lies.  The Company has no one to blame but itself for the fact that a désastre was declared.  Lloyds first demanded payment under the guarantee over two years ago in October, 1999.  Essentially the Company has done nothing since then to try and arrange payment of that claim and other amounts which it owes.  Whilst, initially, it was submitted that, this was because Anchor had only just became involved and Mr and Mrs Forrest had previously adopted an unco-operative attitude, it transpired that Anchor has been trustee of the Settlement (and therefore in a position to assume control of the board of directors of the Company) since June, 2000.  Anchor has therefore had ample opportunity to resolve this matter satisfactorily.  It is not the new broom portrayed by Mr Begg.

31.      Conversely, we see little evidence of prejudice if the désastre is continued.  Offers have been made during the period of désastre which are near the market value of the property as advised by estate agents.  There is no reason why the sale should not be concluded in the near future.  It is true that extra fees will be incurred because of the involvement of the Viscount but in our judgment the Company has no one to blame but itself for having allowed this situation to develop. 

32.      In our judgment the Company has shown no good grounds upon which this désastre should be recalled.  Lloyds has been kept waiting for its money for over two years.  That is long enough.  In the light of the history of this matter, we have no confidence that, if we recall the désastre, we will not be back here in three months' time with no sale having taken place and the Court being faced with an application for a new désastre.  The time has come to realise the assets of the Company in order that the creditors can be paid and we think that that is best done by the Viscount.  It is for these reasons that we refused the application to recall the désastre. 

 

 

 

 

 

 

 

Authorities

Bankruptcy (Désastre) (Jersey) Law, 1990: A.7.

In re Blue Horizon Holidays, Ltd (1997) JLR 124 CofA.

In re Baltic Partners, Ltd (18^th April 1996) Jersey Unreported CofA.

Super Seconds Ltd, G & J. Santer -v- Sparta Investments (1997) JLR 112.