Jersey Unreported Judgments

Trust - detailed written reasons for various directions given in relation to the Appleby Manutius inquiry.

[2018]JRC157

Royal Court

(Samedi)

29 August 2018

Before     :

Advocate Matthew John Thompson, Master of the Royal Court.

 

Advocate E. B. Drummond for the Plaintiffs.

Advocates E. Moran and S. J. Williams for the Fourth Defendant.

Advocate A. D. Hoy for the Fifth Defendant.

CONTENTS OF THE JUDGMENT

		Paras
1.	Introduction	1-12
2.	The issues	13-15
3.	The Stay	16-17
4.	Pleadings	18-21
5.	Experts on Luxemburg and Swiss Law	22-26
6.	Valuation	27-34
7.	Evidence on taxation	35
8.	Investment returns	36
9.	Litigation funding	37
10.	An affidavit from Mr Delrieu	38-39
11.	A further affidavit from the fourth defendant	40-43
12.	Further accounting evidence	44
13.	Confidentiality	45-46
14.	Trial dates	47
15.	Miscellaneous orders	48

judgment

The master:

Introduction

1.        This judgment contains my detailed written reasons for various directions given in relation to the Appleby Manutius inquiry ordered by paragraph 1 of the Act of Court of the Royal Court dated 15^th September, 2017, following on from the declarations set out in paragraphs 4 and 6 of the Royal Court Act of Court dated 11^th September, 2017. 

2.        Paragraph 6 of the Act of Court dated 11^th September, 2017, provides as follows:-

"1.       The Fourth Defendant acted in breach of trust (further to the breach of trust referred to in paragraph 4 above) in:

a.        not collecting the accrued and accruing interest on the Promissory Note;

b.        agreeing to the amendments to the Promissory Note;

c.        assigning the Promissory Note to GFin; and

d.        amending the provisions of the Grand Trust, thus giving GFin a platform to commence rival proceedings in Mauritius."

3.        Paragraph 24 of the Act of Court of 11^th September, 2017, required the fourth defendant to pay into Court the face value of the capital and accrued interest on the un-amended Promissory Note which duly occurred. 

4.        It is also right to record that by an Act of Court dated 15^th September, 2017, the Royal Court appointed receivers over the Promissory Note and made a number of future consequential directions. 

5.        On 10^th October, 2017, I made various orders requiring the filing of pleadings and discovery in relation to the Appleby Mauritius inquiry. 

6.        By an Act of Court dated 12^th December, 2017, the time limit for compliance with the discovery directions was extended.  The fifth defendant (and the first defendant) were also permitted if advised to do so to file a response to the fourth defendant's pleaded case.  The fifth defendant has chosen not to do so.  Nothing has been heard from the first defendant. 

7.        By an Act of Court dated 12^th March, 2018, (amended under the slip rule on 11^th April, 2018) the fourth defendant was given permission to amend its compensation particulars to plead that the trust was a dry trust and that in the absence of funding it was not in a position to institute proceedings and was under no obligation to do so at its own expense.  This led to consequential amendments to the plaintiffs' pleadings in response. 

8.        By the same Act of Court the first plaintiff was also given permission to file evidence setting out how she could have funded proceedings by the fourth defendant in 2012 to enforce payment of the Promissory Note.  The provision of any affidavit was subject to various express orders intended to preserve confidentiality restricting access to the plaintiff and the fourth defendant, their representative advisers and other directly interested parties, only.  The affidavit was not provided to the other defendants or their advisers. 

9.        Directions were also given in relation to expert evidence on Dutch law, Italian law and Mauritian law on the ability to enforce payment of any sum due under the Promissory Note in those jurisdictions as well as accountancy evidence.  Both the plaintiffs and the fourth defendant have disclosed and exchanged the expert evidence required by the Act of Court of 12^th March. 

10.      At the March hearing the fourth defendant also argued that I should permit expert evidence on the enforceability of the Promissory Note in Luxembourg, Monaco and Switzerland.  I indicated that a decision to order such evidence depended on the Dutch and Italian law evidence which was clearly needed.  It also depended on the accountancy evidence.  I therefore reached the view that it was premature to order the additional expert evidence asked for by the fourth defendant until production of the expert evidence from the accountancy, Dutch and Italian law experts. 

11.      It is also right to record that the principal judgment of the Royal Court dated 11^th September, 2017, (Crociani v Crociani [2017] JRC 146) was appealed by the fourth defendant both in respect of whether or not it had acted in breach of trust in 2012 and whether it should be required to compensate the plaintiffs for the entire value of the Promissory Note or only half of the Promissory Note representing the plaintiffs interest in the trust.  Judgment on this appeal was handed down on the day after the directions hearing that led to this judgment but before I informed the party of my decision in relation to what further directions were being ordered. 

12.      In the briefest of summaries, the fourth defendant's appeal against findings of breach of trust was dismissed but the fourth defendant was successful in its argument that it should only be required to account for half the value of the Promissory Note.  Leave to appeal this decision has been refused by the Court of Appeal albeit the plaintiffs and the fifth defendant may seek leave to appeal from the Privy Council.  The fourth defendant does not intend to seek leave to appeal from the Privy Council.  However the outcome of the appeal does not alter the need for an inquiry, only the amount that will be due as a result of the inquiry. 

The issues

13.      The issues I had to determine were as follows:-

(i)        Whether or not to grant a stay of the proceedings to enable the parties to negotiate their differences;

(ii)       Whether any further amendments to the plaintiffs' pleadings were required;

(iii)      Whether to permit expert evidence from Luxemburg or Swiss lawyers;

(iv)      Whether expert valuation evidence of real estate owned by subsidiaries of the Croci  Group was required;

(v)       Whether expert evidence on the tax effect of any sale of real estate was required;

(vi)      Whether there was a requirement for expert evidence on the investment return that could have been achieved had the interest been called in 2012;

(vii)     Expert evidence on possible litigation funding;

(viii)    Whether the father-in-law of the first plaintiff should file affidavit evidence;

(ix)      Whether or not the fourth defendant should be permitted to file affidavit evidence;

(x)       Whether further accounting evidence by way of supplementary reports was required;

(xi)      Should the confidentiality order made in respect of the first plaintiff's affidavit be varied or set aside;

(xii)     Should trial dates should be fixed and if so the estimated length of trial.

14.      I also made various consequential orders which were either agreed or which flowed from the orders I made.  It is not necessary to set out any reasons for these orders. 

15.      I propose to deal with each issue and set out the arguments for the parties in respect of that issue in turn. 

A stay

16.      Advocate Williams for the fourth defendant, in light of the Court of Appeal judgment, suggested that the Appleby Mauritius inquiry be stayed to enable the parties to see if they could resolve their differences through mediation.  Advocate Drummond opposed this because the Royal Court had wanted an inquiry in early course.  Yet nearly a year had already passed since the Royal Court's original judgment.  Any inquiry was going to take until early the following year and therefore his clients were opposed to any further delay.  This did not mean that the parties could not discuss settlement in the meantime but he was opposed to a stay. 

17.      In light of the Royal Court's clear indication it wanted an inquiry to take place in early course, I agreed it was not appropriate to order a stay albeit I encouraged the parties to look to see if they could resolve their differences by agreement now that they had the benefit of the judgment of the Court of Appeal which at least from the fourth defendant's perspective gave greater certainty in terms of its challenges to the Royal Court judgment which it was not minded to pursue any further. 

Pleadings

18.      The fourth defendant argued in light of the accountancy evidence that had been produced that the real issue between the parties was now the value of the Promissory Note in 2017 i.e. the date of the Royal Court's judgment.  This was because the view of both expert accountants was that the value of the Promissory Note was significantly higher in 2017 than it was in 2012.  Any breaches of trust or other steps that had taken place between 2012 and 2017 had not had the effect of reducing or diminishing the value of the Promissory Note.  The issue for the Court therefore was its value in 2017.  Effectively this was an invitation to the plaintiffs not to pursue their case further in relation to the effect of any events between 2012 and 2017. 

19.      The plaintiffs through Advocate Drummond made it clear that their case was set out in summary at paragraph 6 of their amended response to the fourth defendant's compensation particulars dated 6^th April, 2018.  Paragraph 6 provides as follows:-

"6.       The Fourth Defendant assigned the Promissory Note to Gfin in breach of trust on 29 January 2016.  The Fourth Defendant is liable for the losses caused by its breaches of trust, namely:

(1)       to reconstitute the Grand Trust with the value of the Promissory Note as at 11 September 2017;

(2)       in so far as the value of the Promissory Note on 11 September 2017 is less than it otherwise would have been, the Fourth Defendant is also liable to compensate the Grand Trust for the effect of any actions or omissions by the Fourth Defendant which negatively affected the value of the Promissory Note as compared to the position on 11 June 2012;

(3)       in so far as any actions or omissions by the Fourth Defendant led to increased irrecoverable costs of pursing sums due under the Promissory Note, said irrecoverable costs; and

(4)       for the Plaintiffs' irrecoverable costs of and incidental to the proceedings launched by Gfin in Mauritius thereafter."

20.      At this stage, the plaintiffs were not withdrawing any part of their case.  Their case contained all the issues at present that they wished the Royal Court to determine.  This did not mean their position might not change either following the further expert evidence, if that was ordered, or following meetings of experts.  While the plaintiffs accepted at this stage that there appeared to be sufficient assets in the Croci Group to pay the Promissory Note, the plaintiffs were not in a position to accept that meant that the issues could be simplified as the fourth defendant had suggested.  The plaintiffs had only just had the benefit of the Court of Appeal judgment and wanted to consider the effect of that including any rights on any appeal.  In short it was too early for any concession to be made. 

21.      The view I reached was that the pleaded case of the plaintiffs in paragraph 6 is clear.  The plaintiffs have an experienced team of advisers and fully understand the risks of pursuing an issue that may not turn out to be required and, if that is the case, they appreciate the risk that costs consequences may follow.  While I encouraged the parties to focus on what is necessary, for the hearing of the inquiry, it would not be an appropriate exercise of the case management powers vested in me to direct the plaintiffs to focus solely on the value of the Promissory Note in 2017.  This is because I consider the plaintiffs are entitled to await the further expert evidence I consider is necessary and also to assess the impact of the Court of Appeal judgment and any further possible appeals.  The fourth defendant, if the Royal Court finds that the plaintiffs' stance on this issue is unjustified, can also be compensated in costs.  I also do not possess the power to prevent an issue proceeding to trial which a party wishes to pursue unless it is one which can be struck out or summary judgment given.  The plaintiffs' pleaded case is not such a case. 

Experts on Luxembourg and Swiss law

22.      The fourth defendant argued that this evidence was necessary for the accountancy experts to determine how long litigation might take, the likely cost of any such litigation and how far such litigation or associated costs impacted on the value of the Promissory Note. 

23.      In summary the fourth defendant wished to ask experts in Luxembourg and Switzerland the same questions as had been asked of Dutch and Italian lawyers, in particular Italian lawyers relating to the enforceability of a Dutch judgment in either of the two jurisdictions.  This was relevant because, by reference to various structure charts, there were companies in Luxembourg and Switzerland with assets which appeared to be of significant value at least by reference to the historical accounts that both accountants had considered. 

24.      It is right to record in relation to this aspect of the directions that firstly the accountants have taken very different approaches.  The plaintiffs' accountant simply operated on what the value could be realised from the Croci Group.  The fourth defendant's accountant approached matters by assessing the market value of the Promissory Note and whether any discount should be applied on the basis that any sale of the Promissory Note would be a sale of distressed debt.  While this difference of approach is ultimately one for the Royal Court to resolve, both experts appeared to have recognised that the length of time any enforcement proceedings might take and the costs of any proceedings were factors at least to be considered in relation to their overall conclusions. 

25.      The cost of any proceedings and how long they might take were particularly relevant to the approach taken by the fourth defendant's accountant who argued that the value of the Promissory Note should be discounted because any enforcement would be regarded as collecting a distressed debt.  The fourth defendant's accountant also by reference to Italian law expert evidence was of the view that enforcement against what has been described as the jewel in the crown known as Vitrociset might be difficult because of the possibility of the Italian government preventing a sale of shares of this company.  Such a possibility could reduce the amount of assets available to discharge the Promissory Note from the remainder of the Croci Group. 

26.      The conclusion I reached was that it would not be appropriate to exclude evidence that was arguably relevant to the accountancy evidence which was central to assessing the value of the Promissory Note.  This was also not an issue raised for the first time on this application.  Rather it has been raised at the previous hearing in March by Advocate Moran as noted above where I indicated I would wait and see the conclusions of the expert evidence ordered at that time.  My consideration of that expert evidence leads me to conclude that it would not be appropriate to prevent expert evidence on Luxembourg and Swiss law relating to enforcement of the Promissory Note in those jurisdictions. 

Valuation

27.      The fourth defendant wished to take its expert evidence further and to obtain valuations of real estate assets owned by various companies in Luxembourg, Switzerland and Italy forming part of the Croci Group.  This was because firstly the accountants had assessed the value of the Promissory Note by reference to the asset position of the Croci Group on a historical cost basis rather than by reference to accounts showing the underlying value of real estate.  The fourth defendant therefore wished to obtain expert evidence of the current value of this property. 

28.      I was also informed that the receivers might be obtaining evidence of such a property as part of their attempts to enforce the Promissory Note. 

29.      Advocate Drummond opposed this request primarily because evidence of current value was not needed.  Both accountants had concluded applying the historical costs basis for real estate that there were sufficient assets in the Croci Group to enable the Promissory Note including interest to be repaid in full. 

30.      Secondly, there was no evidence showing any diminution in value of the underlying properties.  Rather the evidence from the valuations carried out by KPMG in 2011 referred to in the fourth defendant's expert's report showed that the value of the real estate was far higher than the historical cost basis. 

31.      Thirdly, if the receivers obtained any current valuation of a property this would be disclosable under their ongoing obligation of discovery. 

32.      Fourthly, any such evidence was going to be of limited use because the history of this dispute suggested there would be no cooperation from the first or fifth defendants in allowing valuations to be obtained.  Any valuation would have had to be by reference to records in any public land registry and a valuation of the relevant property by an external inspection. 

33.      Fifthly, requiring valuation evidence would make more complex what was already a complex inquiry, would lengthen the inquiry hearing and would produce further delay. 

34.      The conclusion I reached was that I agreed with Advocate Drummond essentially for the reasons he gave.  There was no evidence before me to suggest that the value of any real estate had deteriorated to a level below its historical cost.  Had that been the position then I would have been sympathetic to such evidence being adduced to show that the net asset value of the Croci Group was less than that recorded in the accounts currently available.  As the only evidence before me was that in fact the property had increased significantly, it is not necessary to produce evidence to record that the value of underlying assets had increased and was greater than their cost value.  Such evidence would also add a complexity to what is already a complex inquiry and would be of limited benefit also because there would be no cooperation to obtain such valuations.  Clearly if any evidence emerges from the receivers about the value of any particular real estate, such evidence can be disclosed and drawn to the attention of the accountants whom I gave permission to file supplementary reports. 

Evidence on taxation

35.      The issue raised here was that if any real estate had gone up in value this would have tax consequences and so expert tax advice was required.  I rejected this request firstly because I was not persuaded that it was appropriate to obtain evidence of the value of any real estate.  Secondly, any taxation arising would only relevant to any gain over and above the historical cost of any real estate.  Any tax payable on a sale would still lead to an improved net asset position.  Thirdly, as Advocate Drummond observed, the parties had no information as to the current tax arrangements of the Croci Group or of the companies holding assets, what tax arrangements were in place and what reliefs might be available.  Any expert therefore had no information to provide an informed opinion and would be operating on little more than a hypothetical basis. 

Investment returns

36.      This expert evidence relates to the argument that had the Promissory Note had been called in and paid in 2012 with accrued interest, the plaintiffs would have been able to invest these monies and had lost the opportunity to do so.  This issue follows on from the plaintiffs still pursuing the entirety of their present pleaded case which I have ruled they are entitled to do.  However, the issue may not arise if the plaintiffs elect to simply focus on the value in 2017.  Secondly, further consideration needs to be given as to what periods any investment advice should cover i.e. should it be an assumption that the Promissory Note would have been paid had payment been required in 2012, which seems unlikely, or should any evidence be produced on an assumption of allowing a hypothetical reasonable period for the fourth defendant to collect the Promissory Note.  At present that period or a range for that period was unknown because it depended on expert evidence from lawyers in various jurisdictions on how long enforcement might take.  The view I reached therefore was to await the provision of all the expert legal evidence I ordered and meetings of experts to see whether any more clarity could be shown on for what period investment advice was likely.  This decision also allows the plaintiffs to consider their position further as noted above and whether they intend to continue to pursue this part of their answer. 

Litigation funding

37.      This issue arises because of the amended pleading by the fourth defendant that the trust in 2012 was a dry trust and there were no funds available to the fourth defendant to enforce payment of the Promissory Note.  This therefore led the plaintiffs to plead in response that either the first plaintiff or a third party could have provided funding.  Given this is an issue between the parties, I regarded it as appropriate to permit expert evidence on the availability of litigation funding.  While this issue is one of those based on collecting the Promissory Note in 2012 and may fall away, the cost of any litigation funding may also be a relevant factor for the accountants to take into account in deciding the overall value of the Promissory Note because litigation funding might be part of the costs that could be taken into account in reaching an overall value. 

An affidavit from Mr Delrieu

38.      This issue relates to the affidavit filed on the part of the first plaintiff which argued that funding could have been provided for a claim by the fourth defendant to enforce the Promissory Note because funding was in fact provided by the first plaintiff's father-in-law for the present proceedings in a substantial sum.  The fourth defendant therefore wanted the first plaintiff's father-in-law to file an affidavit so that he could be cross-examined on how far he would have been prepared to provide funding in respect of enforcing the Promissory Note and the various risks that might arise.  Advocate Drummond made it clear that no such affidavit would be forthcoming.  Secondly, the matters raised by the fourth defendant (through Advocate Moran) were matters that could be dealt with by way of submission. 

39.      The view I reached was that firstly any order to file an affidavit could not be given effect because I had no ability to compel the first plaintiff's father-in-law to appear or to file an affidavit.  Secondly, the points raised by Advocate Moran can be dealt with by submission at trial, cross-examination of the first plaintiff, or a combination of the two.  Accordingly, this application was refused.

A further affidavit from the fourth defendant

40.      The fourth defendant wanted to file an affidavit to address:-

(a)       events during the course of the receivership of the Promissory Note litigation;

(b)       the determined opposition of Madame Crociani, Princess Camilla or the Croci companies to any enforcement action;

(c)       what it would have done as a prudent trustee;

(d)       The basis upon which the draft 2012 and 2013 accounts were prepared.

41.      I refused the first three parts of this request.  In respect of what has happened during the receivership including any resistance by the first or fifth defendants or the Croci companies, there is an ongoing obligation of discovery on the receivers.  Any relevant documents created during the receivership including any evidence of any resistance can be produced to the Royal Court. 

42.      Secondly, in relation to what the fourth defendant would have done had it acted as a prudent trustee, this is hypothetical evidence after the event.  The Royal Court found, which has been confirmed by the Court of Appeal, that the fourth defendant acted in breach of trust.  The issue for the Royal Court is what resistance there might have been to the enforcement of the Promissory Note, not what the fourth defendant would have done in relation to funding or pursuing litigation.  As Advocate Drummond observed, in the Royal Court's judgment on the portfolio and loan inquiries (Crociani v Crociani and Ors [2018] JRC 091A), at paragraph 82, the Royal Court rejected evidence from the general manager of the third defendant, that it was never intended that certain loans to be called in being opinion as rather than factual evidence.  Evidence as to what the fourth defendant would have done had it acted as prudent trustee falls into the same category. 

43.      By contrast the basis on which the draft 2012 and 2013 accounts were prepared is factual evidence and might arguably be relevant to the expert opinions of the accountants.  I therefore allowed evidence to be adduced by the fourth defendant to this extent only and provided it was only directly relevant to preparation of the 2012 and 2013 accounts. 

Further accounting evidence

44.      In respect of this issue there was no real dispute between the parties.  While Advocate Drummond queried whether supplementary reports were necessary, and suggested the matters could simply be dealt with by a meeting of accountants, I indicated, in view of the additional expert evidence I had permitted, that supplementary reports could be useful for the Royal Court because that would allow both experts to take into account all the reports received and any conclusions from meetings of the legal experts.  Supplementary reports also provided a framework for a meeting of the accountants. 

Confidentiality

45.      The fourth defendants sought to extend the confidentiality order in relation to the first plaintiff's affidavit to provide the affidavit to experts and to the receivers as set out in its skeleton.  I rejected this submission because I did not regard it as necessary for any of the experts or the receivers to see this affidavit.  The previous orders preserving confidentiality had been made deliberately to ensure that any sensitive information provided should only be seen by those directly involved in the dispute and should not revealed to any other party.  If some of the information now provided was already in the public domain, as was suggested, this was still not a reason to alter the arrangements put in place which had been done to provide assurance to the plaintiffs that an affidavit could be provided which would not be misused or made available to anyone not directly involved in the Appleby Mauritius inquiry that needed to see the same. 

46.      The parties had agreed that the expert evidence should be confidential and I made orders accordingly. 

Trial dates

47.      There was disagreement about whether 5 days or 10 days was required for a trial.  I took the view that it was important to fix trial dates now to enable parties to work towards such dates.  I therefore ordered trial dates to be fixed for 10 days but with an obligation on both counsel to inform the Royal Court at once should any issues be agreed allowing Court dates not needed to be released. 

Miscellaneous orders

48.      Finally, I made orders in relation to meetings of experts, the timing of these meetings, preparation of trial bundles and filing of skeleton arguments.  This order allowed the inquiry to take place in the spring of next year.  I also made it clear that I expected both parties to keep to the timetable set as far as possible and, if any unforeseen delays occurred, to raise these as soon as possible with the other party and, if necessary with me, should adjudication be required. 

Authorities

Crociani v Crociani [2017] JRC 146

Crociani v Crociani and Ors [2018] JRC 091A