Jersey Unreported Judgments

Companies - reasons for refusing to order a preliminary issue.

[2019]JRC229

Royal Court

(Samedi)

26 November 2019

Advocate J. W. Angus for the Plaintiffs. 

Advocate G. C. Staal for the Fourth Defendant. 

The other Defendants did not appear and were not represented. 

CONTENTS

judgment

the master:

Introduction

1.        This judgment contains my reasons for refusing to order a preliminary issue as requested by the fourth defendant. 

Background

2.        The proceedings are brought by the Joint Administrators of the estate (the Estate") of James Donald Hanson (the 'deceased').  The joint administrators were appointed by the High Court in England and Wales on 28^th October, 2015. 

3.        The second plaintiff (Creditforce), an English company, is wholly owned by the estate. 

4.        The first defendant was incorporated as a Jersey company which now continues in the jurisdiction of Panama, having ceased to be incorporated under the Companies (Jersey) Law 1991 pursuant to Article 127(V)(a).  There is a dispute between the parties as to the validity of the first defendant's continuance as a Panamanian company. 

5.        The plaintiffs' case is that the deceased had control of the first defendant. 

6.        The second defendant is a Panamanian foundation.  During the course of 2014 all the shares in the first defendant which had been held on the trusts of a charitable trust were purportedly transferred to the second defendant.  The validity of this transfer is also in issue. 

7.        At various times the third, fourth and fifth defendants were former trustees of the charitable trust.  The fourth and fifth defendants are also former directors of the first defendant. 

8.        While the pleadings are lengthy and the order of justice runs to some 39 pages, the relief sought by the plaintiffs was summarised at paragraph 2.1 of their order of justice as follows:-

"2.1     For the reasons set out herein below, the Plaintiffs seek the following declarations:

(a)       that prior to their purported settlement on the purported trusts of the SRCT, all of the shares in ARTL belonged beneficially either to Creditforce and/or the Deceased;

(b)       that as regards the SRCT;

(i)         it was not a valid charitable trust because its purposes were not exclusively charitable as a matter of Jersey law; or, in the alternative;

(ii)         that it was a sham and that the Trustees  at all times  held the shares  in ARTL as bare nominees for Creditforce and/or the Deceased;

(c)       that the purported transfer  by the SRCT of its shareholding in ARTL to ARF in 2014 (the 2014 Transfer) was invalid as having been made without the authority of Creditforce and/or the Deceased (or the latter's executors);

(d)       that ARF holds the ARTL  shares as bare  nominee for Creditforce and/or the Estate and that the ARTL shares have at all times been beneficially owned by Creditforce and/or the Estate; and

(e)       that the purported continuation of ARTL as  a  Panamanian  company  (the Panamanian Continuation)  is void and that ARTL is and has at all times been a company incorporated under the provisions of the Law."

9.        The reference to SRCT is a reference to the charitable trust, ARTL is the first defendant and ARF is the second defendant. 

10.      At paragraph 6.1 and 6.2 of the order of justice the following was pleaded:-

"6.1     The instrument which created the SRCT provided for its assets to be applied solely for charitable purposes but defined:

(a)       "Charity" as "any trust foundation association company or other body established for purposes recognizable to be charitable"; and

(b)       "Charitable purpose" as "any purpose which is charitable either under the law of Jersey or under the law of the jurisdiction where such purpose is or is to be carried out ".

6.2      The effect of the emphasised italicised words is that the SRCT fails as a charitable trust because its purposes are not exclusively charitable as a matter of Jersey law. This is so because they permit the trust property to be applied for purposes which are not recognized as charitable purposes under Jersey law- and under Jersey law as it was at the time of the settlement of the SRCT a trust for a purpose other than a charitable purpose was not recognized as a valid trust and was void accordingly."

11.      It was this issue that the fourth defendant sought to be determined as a preliminary issue.  The only substantive answer filed in this case is by the fourth defendant which runs to 91 pages.  In relation to whether or not the charitable trust was valid, the plaintiffs' case was denied and the fourth defendant avers that the charitable trust was a valid charitable trust. 

Decision

12.      In relation to the applicable legal principles as to when a preliminary issue is ordered, both parties referred to Berry & Ors v BT Trustees (Jersey) Limited & Ors [2000] JLR 293 at 299 lines 5 to 14 which the headnote summarise as follows:-

"Held, dismissing the application:

(1)       The general principle was that all matters should be resolved at the trial and it was the exception to order that a case be broken down into separate issues. This was particularly so where the facts were disputed, as the court should not decide legal issues on the basis of hypothetical or potentially erroneous facts. The court might, however, order the trial of a preliminary issue if satisfied that it was convenient to do so and that its resolution would be likely to be determinative of the whole or a substantial part of the case, thereby saving time and costs (page 299, lines 5-14)."

13.      Both parties also referred me to Stock v Pantrust [2015] JRC 268 at paragraphs 13 to 14 which stated:-

"13.    I was also reminded of the words of Southwell J.A. in Public Services Committee v Maynard [1996] JLR 343 at page 360 lines 11 to 19 as follows:-

"However, in our judgment, the Royal Court should consider its current practice.  To single out bare points of law in this way (which might, when the facts are found, prove to be hypothetical) is likely to increase costs and to extend the time before the plaintiff knows whether he or she is to receive damages for his or her injury and receives the damages awarded.  Justice delayed is usually justice denied, particularly in personal injury cases, in which the normal approach should be to fix as early a date as possible for the trial of all issues."

14.      He also referred me to a decision of the English Court of Appeal reported at McLoughlin v Grovers [2001] EWCA Civ 1743.  In setting aside a first instance judgment where a preliminary issue had been ordered and had taken place, the English Court of Appeal were critical of a trial on the issue of foreseeability of damage only.  Mr Justice David Steel at paragraph 65 of the decision stated:-

"No attempt was made to distinguish between the factual investigations required for the purposes of the limitation plea as opposed to the issue of foreseeability.  It was wholly impracticable for there to have a full trial of the factual issues pertinent to foreseeability.  It was an issue that should have presented on agreed or assumed facts.  If this was not a practical proposition, the issue of foreseeability should never have been taken separately.

In my judgment, the right approach to preliminary issues should be as follows:-

a.        Only issues which are decisive or potentially decisive should be identified;

b.        The questions should usually be questions of law;

c.        They should be decided on the basis of a schedule of agreed or assumed facts;

d.        They should be triable without significant delay, making full allowance for the implications of a possible appeal;

e.        Any order should be made by the court following a case management conference.""

14.      These are the principles I have applied.

15.      The difficulty with Advocate Staal's application was in my judgment that it was not going to be an issue that was decisive or potentially decisive following the approach set out in Stock.  Nor was the preliminary issue likely to determine the whole case or a substantial part of it.  I reached this view for the following reasons. 

16.      Although the validity of the charitable trust had to be determined, if the charitable trust was held to be void, there was still a significant factual dispute as to whether the shares in the first defendant would then fall back into the estate of the deceased or whether they would be held on resulting trust for the person who is said to have settled the shares on trust.  It was the plaintiffs' case that the shares were settled on to the charitable trust by a nominee settlor and that the real settlor was the deceased.  This was disputed by the fourth defendant. 

17.      In addition, the matters in dispute as to who settled the assets overlapped with the alternative case advanced by the plaintiffs that the charitable trust was a sham.  I was not therefore persuaded that the saving in time and costs would be as significant as contended for by Advocate Staal because some of the factual matters relevant to the question of sham would remain in dispute in relation to the question of who was the settlor of assets held on the charitable trust. 

18.      Furthermore, a trial court will have to also resolve the issue of whether or not the transfer of shares in the first defendant in 2014 was valid and whether the purported continuation of the first defendant as a Panamanian company was also valid.  These are also factual disputes.  To address the validity of the charitable trust issue first therefore falls into the trap of approaching the determination of the case on an issue by issue basis which the courts on various occasions have warned against. 

19.      Finally, construction of the charitable trust itself may require some background evidence which itself could lead to factual disputes.  The approach the court should take was set out in Crociani & Anor v Crociani & Ors [2017] (2) JLR 303.  Paragraph 2 of the headnote at page 309 states as follows:-

"         (2) When interpreting documents such as the Grand Trust deed, the court was to establish the presumed intention of the maker(s) of the document from the words used, construed against the background of the surrounding circumstances or "matrix of facts" at the time the document was executed. The circumstances relevant and admissible for this purpose were those that must be taken to have been known to the maker(s) at the time. Evidence of the subjective intention, drafts and negotiations, and other matters extrinsic to the document in question would be inadmissible, as was evidence of subsequent events. Words should as far as possible be given their ordinary meaning."

20.      For all these reasons the application was therefore refused.

21.      What I did order was discovery followed by a stay.  I ordered a stay because while the parties wanted a stay, they disagreed as to when that should occur.  The view I reached was that discovery was at the heart of this case and therefore a stay following discovery was appropriate.  If the matter did not settle a further directions hearing would then take place to enable a trial to occur.  

Authorities

Companies (Jersey) Law 1991

Berry & Ors v BT Trustees (Jersey) Limited & Ors [2000] JLR 293

Stock v Pantrust [2015] JRC 268

Crociani & Anor v Crociani & Ors [2017] (2) JLR 303