Jersey Unreported Judgments

En desastre - representor's challenge to decision of the Viscount to discontinue three pieces of litigation.

[2016]JRC086

Royal Court

(Samedi)

19 April 2016

Before     :		Sir Michael Birt, Commissioner, and Jurats Olsen and Clapham
Between	Alan Paul Booth		Representor
And	The Viscount		Respondent

IN THE MATTER OF THE REPRESENTATION OF ALAN PAUL BOOTH (EN DESASTRE) (NO 2)

Advocate N. D. E. Addis for the Representor.

Advocate D. R. Wilson for the Respondent.

judgment

the commissioner:

1.        The Representor was declared en désastre on 16^th October, 2015.  He applies by representation for the Court to intervene in the Viscount's conduct of the désastre in three areas. 

2.        The first relates to the proposed sale of a property known as Beaumont Hill House, St Peter. That has already come before the Court and was the subject of a judgment dated 25^th February, 2016, reported at Booth-v-Viscount [2016] JRC 049. 

3.        The second area involves three pieces of litigation which the Representor had commenced prior to the désastre and which the Viscount has decided to discontinue.  The Representor seeks to challenge that decision and that is the matter with which we are concerned.  

4.        The third area of challenge is yet to be heard. 

Background

5.        The background is to be found in the judgment of the Court of Appeal at Investec Bank (Channel Islands) Ltd-v-Booth [2016] JCA 025.  In broad terms, the Representor owned two immovable properties in Jersey at the time of the désastre.  These were valued in aggregate by the Viscount at £3.5m, although the Representor considered that they were worth more.  One of them has been sold by the Viscount following the decision of the Court referred to in paragraph 2, realising a sum just under the valuation of the Viscount. 

6.        The debts secured upon the immovable properties total some £5.3m.  It can be seen therefore that it is highly unlikely that the immovable property will be sufficient to clear the secured debts. 

7.        The Viscount stated in her report before us that the amounts owed to unsecured creditors come to approximately £330,000.  To that will have to be added any balance of the amounts owed to the secured creditors which remains unpaid after sale of the two immovable properties.  That balance is likely to be quite substantial. 

8.        Apart from the claims referred to below, the assets other than the immovable properties (comprising chattels, goodwill of the Representor's business as a surveyor and work in progress and fees in relation to the business) are valued by the Viscount at some £44,000, although she considers that the value of some of these assets is subject to some uncertainty. 

9.        It follows that, in the absence of any recovery from the three claims, there is little prospect of any recovery for unsecured creditors and there is no cash within the désastre to fund any litigation on the part of the Viscount.  

 The three pieces of litigation

10.      What follows is an extremely brief summary of the three claims brought by the Representor.  We have had the advantage of seeing the pleadings and the affidavit of the Representor summarising the claims and exhibiting various documents in relation to them. 

(i) Claim against Collas Crill

11.      This is an action commenced by order of justice dated 2^nd July, 2015.  The order of justice was issued by the Representor acting personally.  In broad outline the claim concerns the following. 

12.      In September 2009, the Representor and his late wife entered into an agreement to purchase a 50% shareholding in a company called Bravura Investments Limited ("Bravura") from a Mr Eric Evans.  Bravura owned certain property in Cornwall.   The consideration for the purchase was a cash sum of £250,000 together with an acceptance of a further potential liability for £52,000 said to be owed by Bravura to the relevant local authority in Cornwall. In return for this, it was agreed that Bravura would pay £1m to Mr Booth and his late wife on or before 6^th July, 2011.  According to the valuation provided by Mr Evans to the Representor, the property in Cornwall was valued at £4.5m with a mortgage of £3m, leaving an equity of £1.5m.  The Representor took out a second mortgage on his home in order to fund this acquisition. 

13.      The sum of £1m was not paid in July 2011.  The Representor's late wife was very ill at the time and, according to the Representor, he instructed Collas Crill to 'protect the investment in Bravura'.  As a consequence of not receiving the £1m, the Representor had to repay the second mortgage and replace it with a larger loan from Investec Bank (Channel Islands) Limited ("Investec").  

14.      It transpired subsequently that the Representor had never been registered as a 50% shareholder in Bravura.  It further emerged that Mr Evans had failed to procure the sale by Bravura of any of the properties in Cornwall and that the mortgage company had seized the properties under a receivership following Bravura's non-payment of the mortgage.  

15.      The Representor has been declared en désastre on his own application.  He had been unable to repay the loan owed to Investec. 

16.      The Representor asserts that Collas Crill were negligent and did not protect his investment in Bravura.  In particular, he asserts that they did not establish that he had not been registered as a shareholder.  It was asserted on his behalf during the hearing before us that, had he been informed of this, he would have been able to take steps to be registered, which would then have enabled him to deal with the mortgage company in England and avoid a receivership.  

17.      There are other allegations in the order of justice but in essence, the Representor attributes his present dire financial position to the negligence of Collas Crill and seeks damages.  

18.      Collas Crill deny any negligence or breach of duty.  Various pleadings have been exchanged and Collas Crill have applied to strike out the claim.  This was due to be heard on 24^th September ,2015, but has been adjourned in the light of the désastre and the Viscount's decision.  

(ii) The claim against Zenith Trust Company Limited

19.      This is a claim brought by the Representor against Zenith Trust Company Limited ("Zenith") by order of justice dated 4^th February, 2015.  Again it was a pleading filed by the Representor acting personally.  It is not entirely easy to gather the nature of the claim from the order of justice but fortunately the matter has been before the Master on more than one occasion and in judgments reported at Booth-v-Zenith Trust Company [2014] JRC 231 and Booth-v-Zenith Trust Co Ltd [2015] JRC 142, the Master has helpfully described the position - see in particular paras 2-10 of the 2014 judgment and paras 11-13 of the 2015 judgment.  In essence the claim arises out of the operation of a tax avoidance scheme known as an ITPM scheme between 2000 and 2002, at which time it was closed following receipt of tax advice that the scheme was not workable.  The Representor contends that he designed the scheme in relation to the construction industry.  He further contends that he agreed that it could also be used in relation to the IT sector providing his financial interests for doing so were protected.  It is alleged that he entrusted the benefit of the ITPM scheme to Zenith, requiring Zenith to account for the value of his interest in the ITPM scheme.  In effect he claims 20% of the gross revenues representing his intellectual property rights in the ITPM system out of any surplus of income over expenditure received by Zenith. 

20.      Zenith brought a strike-out application, which was upheld in the 2014 judgment in relation to claims for breach of trust and negligence on the ground that they were prescribed, but not in relation to the claims in contract which were allowed to continue.  A further strike-out application was brought and was the subject of the 2015 judgment.  This was based on the reflective loss principle.  The Master held that only the contractual claim summarised in the latter part of the preceding paragraph could proceed.  

21.      We were informed that discovery has taken place, witness statements have been exchanged and the matter was due to come on for trial in March 2016.  That hearing was however vacated following the désastre.  The claim is denied by Zenith.  We were informed during the hearing that in 2003 the value of the claim was put by the Representor at some £2.3m. 

(iii) Claim against Mr Bults

22.      The Representor instituted proceedings by summons against Mr Bults in 2015, which were elaborated by particulars of claim dated 14^th August, 2015.  Again, these were filed by the Representor acting personally.  In essence this is a claim for repayment of a loan in the sum of approximately £174,000.  The Representor and Mr Bults were well known to each other and indeed had both been involved with Zenith.  The Representor alleges that Mr Bults asked him for a loan in July 2005.  The Representor asserts that he agreed to this request and borrowed money from Jersey Home Loans Limited secured on a share-transfer property in Jersey whose shares were registered in his name.  From the proceeds of the loan, he lent £160,000 to Mr Bults.  Subsequently the property was sold and the Representor used the sale proceeds to repay the loan from Jersey Home Loans Limited just referred to.  According to him, that still leaves the loan to Mr Bults outstanding.  

23.      Mr Bults, on the other hand, says that the share-transfer property was in fact owned equally by him and the Representor because it had initially been funded by monies from a company in which they each had a 50% shareholding, namely Custodian Business Management Services Limited.  Accordingly, Mr Bults contends that he has repaid his loan by reason of the Representor using his (Mr Bults') half-share in the property to repay the loan from Jersey Home Loans Limited. 

The Viscount's decision

24.      The Viscount has decided not to pursue any of the three actions referred to above and has notified all creditors in the désastre and the defendant in each of the cases to that effect.  She has also determined not to assign any of the claims to the Representor so that he can pursue them personally.  

25.      It is those two decisions which the Representor now challenges.  He asks the Court first to direct the Viscount to proceed with the claims, failing which he asks the Court to direct that she assign the claims to him so as to enable him to pursue them. 

The legal test

26.      In Booth v The Viscount [2016] JRC 049, the Court considered the appropriate test to be applied by the Court when reviewing decisions of the Viscount in a désastre.  We respectfully entirely agree with the decision of the Court as expressed at paras 14-19 of the judgment of Clyde-Smith, Commissioner.  In summary the Court will only intervene if the decision is one which no reasonable Viscount could have made, i.e. Wednesbury unreasonableness.  That approach is consistent with the dictum of the Court of Appeal in Eves v The Viscount [1998] JLR 192 (24 September, 1998, Jersey Unreported 192) where Calcutt JA said this:-

"In my view the Viscount has a complete discretion to carry out his statutory functions as he sees fit, having regard to all the various interests which he must both have in mind and seek to balance; and proven fraud and bad faith apart, the Court will only interfere if the Viscount, as liquidator, has done something so utterly unreasonable and absurd that no reasonable man would have done it ..."

Application to the facts

27.      In order to consider the reasonableness of the Viscount's decision not herself to proceed with any of the claims, it is necessary to discuss them in a little more detail.  It would clearly be wrong that the potential defendants should be aware of such matters and accordingly we are issuing a confidential annex which deals with this aspect of the case. 

28.      Suffice it to say that, for the reasons set out in that annex, we cannot possibly categorise the decision of the Viscount not herself to pursue the three pieces of litigation as being one at which no reasonable Viscount could arrive.  

29.      That leaves the second question, namely whether her decision not to assign any of the claims back to the Representor is subject to challenge on the same ground.  

30.      In our judgment, there is a simple answer to this.  Such an assignment is prohibited by the Code of 1771.  The relevant provision of the Code ("the provision") states "Personne ne pourra contracter pour choses ou matières en litige".  That is translated as "No one may contract for things or matters in litigation."  The provision was subject to detailed analysis in Barclays Wealth Trustees (Jersey) Limited v Equity Trust (Jersey) Limited [2013] (2) JLR 22 where it was held that the provision was concerned with acquiring title to litigation by way of assignment where litigation has actually commenced (see paras 26 and 29). 

31.      We agree with the view there expressed.  In our judgment, the provision prohibits the assignment of a claim where litigation in respect of the claim has already started.  That is the position here.  There is existing litigation in respect of all three claims.  They are "matières en litige".  

32.      The Court in Barclays Wealth considered the effect of a breach of the provision.  It held that entering into a contract contrary to the provision would not amount to a criminal offence but that such a contract would be contrary to public policy.  Indeed, it would be an illegal contract because it is specifically prohibited by a statute.  It would therefore be unenforceable as between the parties.  

33.      The question arises as to whether the Viscount could nevertheless enter into such a contract, even though acknowledging that it would be unenforceable.  It could after all be put into effect if both parties abided by it because no need for enforcement would arise.  

34.      However, one cannot ignore the fact that this Court is the ultimate upholder of the law and the Viscount is the Court's enforcement officer.  It cannot be permissible for this Court to direct the Viscount to do something which is specifically prohibited by a statute.  That would not be upholding the law, it would be acting contrary to the law.  That is not an appropriate role for the Viscount or for this Court. 

35.      Accordingly, we hold that the Viscount in a désastre may not assign a claim which is in the process of litigation (en litige), nor may this Court direct the Viscount to do so. 

36.      That ruling is determinative of this aspect of the representation.  However, in case we are wrong on the legal point just decided, we would go on to say that we would not have found a refusal by the Viscount to assign these claims to the Representor to be one to which no reasonable Viscount could come.  In particular, we agree with the submission that, in the event of the claims being assigned back to the Representor but ultimately being unsuccessful, there would be a risk of the Viscount being ordered to pay the costs.  It is not possible to quantify the level of that risk but we accept that it exists.  One can foresee a successful defendant making a strong case that he has been forced to incur substantial expenditure in defending a claim brought by a penniless plaintiff in circumstances where the only reason that this has occurred has been the decision of the Viscount to assign the claim.  Furthermore, this would be so in circumstances where it is likely that the Viscount would benefit from the success of any such litigation either by reason of the terms of any assignment or as a result of the operation of Article 9 of the Bankruptcy (Désastre) (Jersey) Law 1990.  As there will clearly be no funds within the désastre to meet any adverse costs order, any such order would ultimately fall upon the taxpayer. 

37.      The Viscount expressly took this consideration into account in coming to her decision and in our judgment it was entirely reasonable that she should do so. 

Conclusion

38.      For the reasons given in this judgment and in the confidential annex, we conclude therefore that the Viscount reached a reasonable decision in deciding not herself to proceed with any of the three pieces of litigation.  We further find that she cannot assign claims in the process of litigation because of the provision and that, even if she could, her decision not to do so in this case would be reasonable.  

Postscript

39.      We cannot leave this case without observing that the time has come to consider whether the provision should be repealed or amended.  As the Court made clear in Barclays Wealth at paras 32-41, the provision was introduced to prevent maintenance and champerty.  These concepts were introduced at a time when people would assign claims to nobles and others who could expect to be more favourably treated by the courts.  That is of course no longer the case.  On the other hand a simple repeal might not satisfactorily address the position of lawyers and others where there are arguments for ensuring that they should not benefit financially from the fruits of litigation on behalf of their clients.  We respectfully suggest that it may be appropriate to refer the matter to the Jersey Law Commission for detailed consideration and recommendation. 

Authorities

Booth-v-Viscount [2016] JRC 049.

Investec Bank (Channel Islands) Ltd-v-Booth [2016] JCA 025.

Booth-v-Zenith Trust Company [2014] JRC 231.

Booth-v-Zenith Trust Co Ltd [2015] JRC 142.

Booth v The Viscount [2016] JRC 049.

Barclays Wealth Trustees (Jersey) Limited v Equity Trust (Jersey) Limited [2013] (2) JLR 22.

Bankruptcy (Désastre) (Jersey) Law 1990.