Offshore: Blazing a trail

Groundbreaking decisions continue to emerge from the Channel Islands courts. LB talks to key litigators involved in recent headline cases and assesses their wider impact

Two important judgments have emerged from Jersey and Guernsey this year. In April, in the case In the matter of the Shinorvic Trust (Shinorvic), the Royal Court of Jersey had to consider whether a longstanding principle of English law applies to trusts in Jersey; while in March, Guernsey’s Privy Council awarded the largest ever compensation payout in the UK in the Helmot case, a whopping £14m. This decision profoundly impacts on how damages for future losses in personal injury cases are calculated.

The two cases saw the Channel Islands’ legal elite line up on both sides. In Shinorvic, Lisa Springate, a Jersey-based partner at Bedell Cristin, advised the representors, BasTrust Corporation, while Robert Macrae, a partner in Carey Olsen’s Jersey office, acted for MF (the settlor’s sister) and others. In Helmot, Gordon Dawes, a Guernsey partner at Mourant Ozannes, led the advice to claimant Manny Helmot, while London firm Alan Taylor & Co acted for the defendant.

Such cases present many positives for the islands. While Shinorvic confirms that Jersey’s dispute resolution market keeps abreast of UK judgments yet remains progressive in its own right, Helmot will deeply influence not only the UK, but how damages are calculated in non-UK common law jurisdictions.

Move with the times

The Shinorvic Trust was established in 1988. In 1990, the settlor added his girlfriend Mrs B as a beneficiary. The settlor died in 2005 and the representors BasTrust became the trustees in 2009.

In 2011, it was discovered that the settlor’s signature on the deed concerning Mrs B was not witnessed. Accordingly, there was an issue over whether she was a beneficiary, despite receiving distributions from the trust fund. The court had to determine whether the equity paid out would remedy the defective execution, a longstanding principle of English law.

Despite the parties never marrying – and both enjoying other relationships – the court said that there was a clear intention that the settlor wished to provide for Mrs B during their lifetime and after his death; consequently, the principle of equity operated in her favour. The court also made it clear that it did not wish to open the floodgates, so each scenario would be assessed on a case-by-case basis.

‘The facts of the case are fascinating but the litigation also generated great interest because it clarified that the doctrine of equity exists in Jersey and that it applies in a modern and unconventional scenario,’ says Springate.

This was a difficult dispute to manage. Springate’s team reviewed the original files, which were over 20 years old, and located the original legal and financial advisers to provide affidavits. In addition, all the cases that had established the doctrine of equity dated from the 18th and 19th centuries; there were few modern authorities that had dealt with a case of this nature.

‘We were fortunate to obtain affidavit evidence from the financial and legal advisers that were involved at the material time,’ says Springate. She believes that a decision like this shows that Jersey has moved with the times, by recognising that the traditional family unit no longer exists in the same way as it used to.

‘It is increasingly common to see jurisdictions such as Guernsey and Jersey producing judgments that affect UK law and practice’

The decision is therefore another potential remedy for trustees and beneficiaries when faced with a similar situation because it confirms that the doctrine of equity should keep with the times and that the obligation to support financially extends to a wider category of person.

Bedell Cristin and Carey Olsen are not the only offshore firms to be instructed on major litigation in Jersey. As a litigation specialist, Sinels recently acted in disputes ranging from claims in the sum of £1.5m in a local estate matter, to claims exceeding $60m in a foreign land dispute concerning the Caribbean. Meanwhile Jersey firm Dickinson Gleeson acted in disputed Beddoe proceedings in March, which confirmed that in administrative proceedings relating to a probate estate, the court has wide and flexible supervisory jurisdiction to intervene in an estate’s administration for the beneficiaries’ overall interest. The case was brought by an executor of the Jersey estate of a billionaire seeking directions concerning a disputed £10m debt, which was a potential asset of the estate. Partner James Gleeson advised the professional executor, while partner James Dickinson represented a family executor and a residuary beneficiary.

Deep impact

In November 1998, cyclist Manny Helmot was injured in a collision with a car, suffering severe brain damage.

The defendant’s insurers did not dispute liability, but the key issue was how much compensation Helmot would receive, by calculating what sum would put him in a position financially equivalent to where he would have been had he not been injured.

This is done by multiplying the amount of projected loss per year by the number of years of loss. To prevent the plaintiff investing the payout and gaining more than they are entitled to through interest, this total is discounted on the assumption that the monies will be invested and produce a return.

While the same method of calculating future losses will continue to be used after Helmot, the discount rate applied in Guernsey, Jersey, and any jurisdiction where there is no fixed discount rate, can now be determined on a case-by-case basis, taking into account economic factors relevant to that jurisdiction, including wage inflation.

The decision in Helmot is likely to have an effect in the UK on the Lord Chancellor’s review of the discount rate to be used in England and Wales. A consultation was launched on this in August. The rates have been complained about in the UK for many years and this case is the clearest demonstration that they are now at indefensible levels. ‘The Lord Chancellor is bound to take the Helmot case into account,’ says Dawes, who led the advice for the claimant. ‘It may be that the consequence is an entirely new approach to the question of how discount rates are set.’

The litigation’s greatest challenges were logistical. Manny Helmot suffered multiple injuries and experts were required in several medical disciplines. Additionally, experts were needed in areas such as care regimes, occupational therapy and housing needs. ‘On top of this, we required expert evidence from a forensic accountant, an economist and an actuary,’ says Dawes. All this was in addition to the factual witnesses and the co-ordinating of experts from the UK, who gave evidence in Guernsey. ‘Simply making the trial happen over a six-week period was a huge challenge and a great team achievement,’ adds Dawes.

Helmot illustrates the ability of the Guernsey courts to deal effectively with complex and lengthy cases, producing real advances in the law with far-reaching consequences outside of their own jurisdiction. ‘It is increasingly common to see jurisdictions such as Guernsey and Jersey producing judgments that affect UK law and practice,’ says Dawes.

Trust me

The Royal Court of Guernsey has also heard landmark disputes this year, such as the June court case involving Robert Tchenguiz that is likely to create precedent trust law in the Channel Islands.

When Icelandic bank Kaupthing collapsed in October 2008, Guernsey law firms became involved in the resulting litigation, as the joint liquidators of four BVI subsidiaries of the Tchenguiz Discretionary Trust (TDT) – administered by Investec Trust and Bayeux Trustees (Investec) – pursued approximately £183m of debt from the TDT.

The TDT had borrowed enormous sums from both the BVI companies and Kaupthing to maintain a heavily geared investment portfolio. In late 2008, Kaupthing collapsed. Partners at Grant Thornton, appointed as the BVI companies’ liquidators, demanded the return of the debt.

New trustees – Swiss-based Rawlinson & Hunter Trustees (R&H) – replaced Investec in July 2010, and intervened in the proceedings between Investec and the BVI companies, making breach of trust claims against Investec for creating the debt and failing to extinguish it.

R&H argued that Investec was liable for the debt and that TDT’s trust assets should not be compromised, while the BVI companies argued that they were creditors of TDT with legal recourse to TDT’s trust assets. Investec primarily argued that it was not liable at all, but if it was found to be liable, the debt had to be repaid from the TDT’s remaining assets – estimated at £30m – rather than being personally payable by Investec.

Ian Swan, a partner at Guernsey firm Babbé, advised R&H, while Mourant Ozannes’ Guernsey partner Jeremy Wessels represented Investec.

Carey’s Guernsey partner John Greenfield represented the liquidators. He tells LB that the case had several extraordinary features, such as dealing with a Guernsey-administered Jersey trust with a structure that was a speculative, and highly leveraged, complex investment business. This is without mentioning the 300 associated legal entities, including English and BVI companies, Geneva-based trustees and an Icelandic bank, as well as reams of documentation.

With over 130,000 documents, Greenfield’s team adopted a sophisticated approach when examining them during the disclosure process. ‘We collated everything electronically and identified through keyword searches which documents warranted closer inspection,’ says Greenfield. ‘We were very conscious that we could not afford to miss crucial evidence.’

Being a multijurisdictional case, several legal issues needed addressing and it was a great challenge for Greenfield’s team to obtain all the documents from the various jurisdictions involved. Furthermore, the interaction of BVI, Jersey, Guernsey and English law provided added complications.

The Royal Court of Guernsey had not previously looked at a case like this and Guernsey’s trust legislation required close examination in terms of how it rests with the lenders and how best to channel TDT’s benefits to beneficiaries and other interested parties.

‘This is a very important case for trust business in the Channel Islands in terms of creditor rights and where there is a conflict between lenders to trusts and the beneficiaries,’ says Greenfield.

LB went to press before the judgment was issued, which will be closely analysed by other jurisdictions regarding insolvent trusts and by claimants of insolvent trust assets. No longer the only claimants, beneficiaries will be keen to see how the Guernsey court deals with insolvent trusts’ competing interests.

‘What a case of this stature shows is that the Channel Islands courts have senior and professional judges and that we are serious and professional jurisdictions’

Whatever the outcome, Greenfield feels confident that clients will continue to have faith in Channel Islands trusts and the associated trust industry, knowing that if things do go wrong the islands are robust and experienced legal jurisdictions that can resolve issues both wisely and promptly.

‘What a case of this stature shows is that the Channel Islands courts have senior and professional judges and that we are serious and professional jurisdictions,’ he says. The dispute was also processed incredibly quickly and efficiently – between March and June this year – a notably short period of time for a dispute of this level of complexity and magnitude.

High value

Guernsey’s litigators can look forward to more headline disputes. Led by partner Simon Davies, Ogier’s Guernsey office currently acts for Carlyle Investment Management (CIM), other Carlyle Group companies and the executive directors of Carlyle Capital Corporation (CCC) in the defence of a $1bn-plus claim brought by CCC’s joint liquidators against the directors and CIM as well as other parties. The liquidators of Guernsey-incorporated CCC allege that the former directors of the company breached their fiduciary duties, rendering Carlyle’s insolvent liquidation inevitable.

The claim was launched in four separate jurisdictions – Guernsey, New York, Washington DC and Delaware – in July 2010. After nearly two years of legal argument over the forum in which the dispute should be heard, the proceedings are now progressing before the Royal Court of Guernsey.

‘This is Guernsey’s largest-ever piece of litigation in terms of value, complexity, materials filed at court and the size of the legal teams involved,’ says Davies. Mourant’s Wessels is acting for the joint liquidators and CCC, while Gareth Bell, a Guernsey partner at Collas Crill, represents CCC’s independent directors.

Another case involving both Kaupthing and jurisdictional challenges will shortly be heard in the Isle of Man (IOM). IOM firm Cains, with partner Peter Clucas leading, acts for Isis Investments (in liquidation) (Isis), indirectly a wholly owned subsidiary of Kaupthing.

Isis recently brought an action, which sought damages in the IOM, against three of its former directors for breach of duty and against Kaupthing and affiliate Kaupthing Finance, seeking declarations to set aside certain transactions valued at over £400m, as well as damages.

‘A standout feature of the case is likely to be its evidential complexity, particularly with regard to the defendants’ relationships with other parties with which they were dealing at the time of some of Isis’ transactions,’ says Clucas.

The defendants, who are challenging jurisdiction, are locally represented by M&P Legal’s associate advocate, Vicki Unsworth, while Callin Wild’s partner Jonathan Wild acts for the two local former directors.

According to Clucas, a hearing to determine jurisdiction is to be heard by the Isle of Man High Court in late November but the Kaupthing parties are seeking to reschedule this for early 2013.

These cases all demonstrate that UK offshore courts frequently host complex and high-value disputes that showcase Jersey, Guernsey and the IOM’s top litigators alongside their legal systems’ ability to produce decisions that generate far-reaching consequences. With headline cases waiting in the wings, the islands’ dispute resolution lawyers will continue blazing a trail. LB

julian.matteucci@legalease.co.uk