Guernsey recently passed the world’s first-ever legislation to protect image rights and, following in Jersey and the Isle of Man’s footsteps, the island has introduced a foundations law. LB assesses the reaction from the local legal market
Thanks to new law that came into effect in Guernsey in December, a person or company can now register their image rights. This is the first legislation of its type in the world, allowing individuals to protect voices, expressions, pictures, videos and recordings. A modern, online-specific registry has also been designed for that purpose.
The new law is likely to appeal particularly to sports and entertainment personalities, where their images can be protected and utilised for commercial reasons, as well as big brands looking to commercially exploit new IP rights. It is also anticipated that the law will attract new business to the island, benefiting Guernsey’s wider wealth management offering.
As part of the island’s commitment to ensuring it remains competitive as an international financial centre (IFC), Guernsey has also introduced its own version of the foundations law made popular in Jersey and the Isle of Man (IOM). Jersey and IOM foundations are wealth-management vehicles that are best described as a hybrid of a trust and a company. The legislation awaits Royal Assent, which was imminent at press time.
‘The image rights legislation shows Guernsey to be nimble and innovative in identifying new products, and that it can use its status as an established, reputable IFC with a highly sophisticated workforce’
In becoming the first place in the world where people can formally register their image rights, Guernsey has trumpeted its ability to listen to business and offer bespoke products that answer commercial needs, while its foundations law demonstrates the island’s talent for taking existing legislation from other jurisdictions and shaping it to its own needs.
Valued asset
Prompting Guernsey’s new image rights law was a lack of common recognition of image rights as valuable assets. The value of personalities and images is growing and previously there was no clarity or effective management of these assets. ‘The new image rights legislation introduced by Guernsey intends to allow the marketplace finally to pin down the right,’ says Elaine Gray, of counsel at Carey Olsen.
To date, such IP rights have been treated in varying ways in different parts of the world. In the UK, for example, there are currently no codified rules on the subject and image rights are not recognised by law. This can make them valuable assets that are difficult to protect.
‘In the UK, they are handled in terms of privacy and confidentiality laws, while in the US they are dealt with on a state-by-state basis and may include areas such as publicity rights, but only up to the date of death, or for, say, 50-70 years, depending on the state concerned,’ says Jason Romer, managing partner of Collas Crill.
According to Jessica Roland, a partner at Mourant Ozannes, the island recognised that image rights were already being exploited as part of a personality’s earning potential. Footballers, for example, earn substantial sums from trading on their image rights. ‘With the cult of celebrity growing, this represents a potential income stream and therefore a valuable business opportunity to the financial services industry where Guernsey is a premier player,’ she says.
Guernsey first started looking at this subject back in 2002; but it wasn’t until 2007 and 2008 that the jurisdiction made a concerted effort to bring this law into effect, taking another few years to pass through the island’s legislative process. Because the world is much more globalised now, Romer believes that the law has more relevance in 2013. ‘It would have had less resonance had it been introduced ten years ago,’ he says.
The image rights law was also part of a suite of legislation that reflects a decision taken in 2004 by Guernsey’s legislature to diversify its economy by focusing on intellectual property. As well as updating its legislation on standard IP rights, Guernsey decided to offer legislation that responded directly to the needs of the commercial marketplace. After obtaining authority from the UK to introduce delegated legislation in IP matters, Guernsey is now able to act quickly and with agility to market needs. The resulting law is a hybrid between trade mark and copyright principles and the commercial needs of individuals and corporations, alongside freedom of the press and fair dealing.
Carey Olsen’s Gray believes that the law brings clarity and certainty to the marketplace in image rights. For the first time, personalities will be able to point to a statutory property right that they can use, and regulate the use of, including taking enforcement action. It is also important to note that this opportunity extends to corporations, as well as to individuals and groups. This is a key feature of the law as it offers image protection to big brands. Once registered, the image right can more easily be used commercially, allowing the image right to be licensed, assigned or disposed of.
To date, no other jurisdiction has tackled the difficult task of conceptualising and giving expression to the image rights maze. For many, the image rights legislation demonstrates Guernsey’s ability to grapple with difficult areas of commerce and its leadership role in the provision of innovative, clear and accessible solutions. ‘It shows Guernsey to be nimble and innovative in identifying new products, and that it can use its status as an established, reputable IFC with a highly sophisticated workforce,’ says Mourant’s Roland.
David Evans, a director of Collas Crill IP, believes it was extremely farsighted of Guernsey to introduce such an innovative law and effectively create a new class of IP. Moreover, it was able to do this in a way that some other jurisdictions might not, because of its flexible, enabling legal system. There has already been plenty of media attention concerning the legislation and both the island and those who offer image rights agents’ services will be busy promoting it across the globe. And while Collas Crill has been active in promoting the benefits of the law in the UK, the EU, the US and Singapore, Guernsey Finance, a promotional agency for Guernsey’s finance industry, has held its own initiatives, notably a London event in January 2013.
‘To date, Guernsey Finance has been doing a fantastic job of promoting the benefits of the law, especially to the UK and the US, in addition to the Netherlands and Singapore,’ says Evans.
Roland believes that the larger law firms in Guernsey will offer advice in this area, leveraging off their established IP practices, while Carey Olsen’s Gray says that law firms that offer IP specialisms are rare in the offshore community. ‘We have a significant portfolio of well-known brand names that are likely to be interested in corporate image registrations,’ she says.
‘To date, Guernsey Finance has been doing a fantastic job of promoting the benefits of the law, especially to the UK and the US, in addition to the Netherlands and Singapore’
Carey Olsen was first out of the blocks: it registered the first image right for Lesley Everett of Walking TALL International, whose business is entirely focused on corporate and personal branding. Gray says that the client is a superb example of the value of the image rights opportunity and the need for an image right solution with statutory integrity. The firm has also received enquiries from pop groups and sport stars.
Meanwhile, Collas Crill has seen a lot of interest from the sports and media industries – the enquiries coming from all over the world because of the global nature of the legislation – while Mourant’s enquiries have ranged from individuals, seeking to protect their images, to agents on their behalf.
While there is a clear market for celebrities and entertainers, it’s not only the IP lawyers who will benefit from new work streams. ‘With such legislation now in place, this legislation sends out a very clear message that Guernsey is the jurisdiction of choice for the protection of people’s assets generally, whether cash, capital, funds, real estate or IP,’ says Romer.
Sports stars and celebrities are expected to take advantage of the expertise of Guernsey’s wealth management community in order to hold the image rights and manage the associated royalties, using existing and forthcoming vehicles such as trusts and foundations. Additionally, Guernsey cell company structures are likely to be of interest to large collective organisations, which represent a number of celebrities or sports stars.
According to William Simpson, managing partner of Ogier Guernsey, the new law will allow a number of fiduciary and administration firms, predominantly on the private wealth side, to expand into this area. In addition, it will give legal and accounting firms opportunities that were not previously available. A degree of technical ability will be required locally, which is generally where Guernsey scores well, being close to London and with a high standard of general and ongoing professional education.
Collas Crill’s Romer has already seen great interest from professional trustees, who of course owe fiduciary duties to the beneficiaries of a trust at all times. An especially interesting aspect of this legislation is its ability to recognise the personality and image rights of both living and dead people, which is particularly relevant in a trust scenario. In addition, these rights can be renewed and are able to exist in perpetuity, which has never before been the case anywhere in the world.
If the law turns out to be the success many hope it will be, Jersey and IOM may well follow suit. However, according to Romer, Jersey’s difficulty is that it does not have the benefit of Guernsey’s enabling laws as far as IP is concerned and would therefore have to seek Privy Council approval.
All jurisdictions have their own particular challenges, but Evans tells LB that countries such as Hong Kong, Luxembourg and Singapore are expected to take a close look at this legislation. ‘Luxembourg might have a problem harmonising legislation of this nature with EU legislation but Singapore is a well placed, busy IP market and we would anticipate that it introduces something similar,’ he says.
This would not be the first time that Guernsey has introduced first-of-its-kind legislation that other jurisdictions have then replicated. ‘The legislation that created protected cell companies was copied in many jurisdictions in one form or another,’ says Simpson. ‘Guernsey has always monitored developments throughout the world and consistently responded in a creative and practical manner.’
Don’t trust
Guernsey has led the way through its image rights legislation but it was the last of the Crown dependencies to bring foundations to life. Jersey has been living with foundations since 2009 and the IOM passed its own Foundations Act in 2011.
The advent of Guernsey foundations is a response to client demand. Carey Olsen partner Russell Clark – who was consulted in the drafting of the law – believes that some clients from certain civil law jurisdictions will never understand how trusts operate. ‘The island’s gatekeepers in London and elsewhere were saying that there were clients out there who were more familiar with foundations than with trusts, but who did not want to go to jurisdictions like Panama,’ he says.
Many observers maintain that common law trusts are not a well understood concept in several civil law emerging markets in which Guernsey has been developing new business, such as South America and the Far East. ‘Foundations will allow us to speak the same language as our clients in those emerging markets much more effectively,’ says Collas Crill senior associate Angela Calnan.
‘Guernsey has always monitored developments throughout the world and consistently responded in a creative and practical manner’
Some clients, who are only used to English law, will always be suspicious of foundations. Because of a lack of familiarity, they may associate them with less transparent jurisdictions that have less history of international co-operation or anti-money laundering law, which counters the financing of terrorism. Those clients needed a jurisdiction like Guernsey, which has good administration services, solid regulation, and a reliable and robust judicial system.
Guernsey was the first of the dependencies to look at the question of foundations – the introduction of foundations legislation was originally looked at back in 2004. The trust law reform working party formed in 2005 was tasked to consult on the introduction of foundations but was the last to implement them. But with changes to both the island’s companies law and trusts legislation in recent years, the issue of limited resources helps explain the delay.
There were both advantages and disadvantages to being the last of the dependencies to bring foundations into effect and Guernsey was keen to differentiate itself from other jurisdictions offering foundations.
Consequently, the law has some key differences to Jersey’s version. ‘Once it was appreciated that Jersey’s law would be introduced in advance of Guernsey’s, it was felt that it would be sensible to defer the introduction of the law and to observe the Jersey experience,’ says Mourant associate Matthew Guthrie,
In particular, the Jersey requirement to have a qualified member (QM) on the council put off some clients from using Jersey foundations. Furthermore, foundations are effectively marketed as corporate trusts in Jersey. ‘They wanted to cede greater control to the founder than they could in a traditional trust,’ says Carey Olsen’s Clark.
In Jersey, there are no requirements to endow capital, no-one owes the beneficiaries of a Jersey foundation any particular duty of care; and although there must be a guardian, such guardian does not have to be independent of the council. These strike some civil lawyers as peculiar.
‘Our own feedback in Guernsey told us that the island needed something that felt and sounded like a civil law foundation and that clients wanted the council to be more accountable for its actions,’ says Clark.
By studying closely the introduction of foundations law in the other Crown dependencies, Guernsey has arguably introduced best-of-breed legislation. In putting together the law, extensive advice was taken from civil law experts. Moreover, instead of just copying Jersey’s legislation, Guernsey has attempted to make the law much more detailed. It has envisaged a number of potential scenarios, so as to assist the courts and give clients greater clarity.
Appleby’s Guernsey managing partner, Gavin Ferguson, believes that the Guernsey legislation is more akin to the Liechtenstein foundations legislation. The result is a foundation that has some of the characteristics of a company – such as a separate legal personality – and some of the elements of a trust – such as the ability to hold assets for the benefit of others.
The Guernsey foundation will also have a constitution made up of a charter and a set of rules, a council to administer the foundation, and a founder to provide the initial endowment. It must appoint a resident agent in Guernsey if none of the foundation officials are licensed fiduciaries in Guernsey and is required to have a registered office in Guernsey. In addition, to establish a foundation, an application must be made by a licensed fiduciary to the Guernsey Registrar. However, the law allows the flexibility of having or not having a representative of a licensed fiduciary on the council, depending on the particular circumstances and the wishes of both the founder and the trust company providing services.
Other key features include the foundation having to have a purpose, but it need not have beneficiaries. If there are beneficiaries, they may be enfranchised or disenfranchised, enabling founders to limit rights of information for certain beneficiaries, depending on the particular circumstances of the foundation – for example, on the grounds of the beneficiary’s age. The enfranchised are entitled to certain information about the foundation and have standing to apply to the Royal Court to enforce its terms whereas the disenfranchised have no such rights.
For Collas Crill’s Calnan, perhaps the most significant innovation has been the introduction of enfranchised and disenfranchised beneficiaries. ‘The ability to promote and demote beneficiaries between classes during the life of the foundation will be particularly attractive to patriarchs that are keen to incentivise their children to participate fully in the family business,’ she says.
The Guernsey foundation may also have a guardian, although there is no requirement to have one unless the foundation has either disenfranchised beneficiaries or has been established for a purpose with no beneficiaries.
Guernsey has been more restrictive on the powers that can be reserved to the founder, and the duration for which they can be reserved. Where an individual founder establishes a Guernsey foundation, the power to revoke and amend its constitution or purpose can only be reserved during the founder’s lifetime. For a corporate founder, such power can only be reserved for a period of 50 years.
‘These restrictions were included to ensure that Guernsey foundations offer a robust vehicle for asset protection and wealth preservation,’ says Mourant senior associate Tim Crook.
Suspicious minds
Not all observers are delighted by the arrival of foundations in Guernsey. For some, they remain associated with jurisdictions reputed to be less transparent. Not every response during the consultation period was positive.
‘Yes, I am certain that foundations in some parts of the world have been used for both money laundering purposes and the filtering through of the proceeds of crime but so have bank accounts and company ledgers all over the world,’ says Carey Olsen’s Clark. He does not believe that this is sufficient reason to be wary of foundations in themselves. ‘It is how they are used that causes problems,’ he says. ‘If you decide to rob a bank using a VW Golf, it’s not the vehicle that should get blamed, with all other VW Golfs tarred as a result.’
Some observers even worried that, with Guernsey’s strong reputation for trusts, the introduction of foundations might signal an indication that there was a problem with the trust product. ‘That of course is not the case,’ says Clark. ‘Trusts and foundations fulfil similar purposes. It is just that, for certain clients, foundations are more readily understood.’
Calnan believes that Guernsey practices, like Collas Crill’s, with fiduciary experience in the more complex dynastic structures, and firms with experience in acting for internationally mobile clients that have cross-jurisdictional affairs, are likely to steal a march in terms of significant mandates.
In terms of specific mandates, Ogier’s Simpson expects clients predominantly
from continental Europe, South America and the Far East, while Mourant’s Guthrie anticipates that foundations will principally appeal to clients from civil law jurisdictions unfamiliar with the concept of trusts.
‘Based on Jersey’s experience, it is likely that foundations will appeal to clients from Russia, the Middle East, the Far East and certain European jurisdictions,’ he says.
Clark expects the instructions to come in from eastern Europe, Asia, Middle East and Latin America, while Collas Crill is looking to attract clients where tax is not a primary driver, such as the Middle East. ‘Foundations are also very useful for clients from nil tax jurisdictions, such as the Middle East,’ says Calnan. That said, given that foundations can be used in such a variety of ways – such as to hold shares, for philanthropy and as an estate planning vehicle – it is entirely open as to the sort of instructions the firm will receive.
Collas Crill has already received an enquiry for a foundation for philanthropic purposes in Oman and a foundation for Shariah-compliant purposes for a Dubai-based client. Appleby’s Ferguson tells LB that the firm has received preliminary instructions to set up Guernsey foundations for a variety of purposes, including philanthropic, independent wealth-holding structures, and in the corporate context.
With regard to the type of instructing client, Mourant’s Guthrie anticipates the firm being involved in drafting bespoke foundations for fiduciary companies and private clients. Unlike companies and, to a lesser extent, trusts, each foundation will need to be specifically tailored to the client’s specific needs. There is unlikely to be a one-size-fits-all approach due to the flexibility offered by the law.
Mourant’s Crook expects to use foundations as: vehicles to create orphan structures for finance transactions and funds, in much the same way as purpose trusts are used now; as vehicles for charitable or philanthropic purposes; and as bespoke solutions for wealth management and estate planning. Clients may also look to migrate foundations, which are incorporated in other jurisdictions, to Guernsey, to take advantage of the flexibility of the island’s legislation and its reputation as a centre of excellence for the administration of wealth and asset management structures.
199 foundations have been established in Jersey since its own foundations legislation came into force in July 2009 and the end of last year. ‘The run-rate on creation is averaging one a week,’ says Mourant partner Giles Corbin. Mourant’s Jersey office has advised on around 50 Jersey foundations and has a further dozen or so in the pipeline, while Collas Crill has acted on approximately 20% of the foundations established in Jersey. ‘Unsurprisingly, instructions have predominantly originated from civil law jurisdictions, including Russia, northern Continental Europe and Far East Asia, where the concept is more familiar,’ says Corbin.
The rate of incorporations has been accelerating, according to Appleby senior associate Marc Guillaume, indicating a steady growth in their popularity in the marketplace. Appleby itself has advised on the constitutional documentation of bespoke and complex foundations, to be used as vehicles for wealth and succession planning. Furthermore, Appleby Trust (Jersey) currently acts as a QM for, and administers foundations that hold significant assets, including investments, real property and other tangible moveable property.
Broadly speaking, Corbin’s experience has been that one-third of Jersey foundations have been established for private wealth management purposes as a civil law-friendly private trust substitute structure; one-third established for philanthropic structuring, typically where the site of underlying assets or objects of benefit are located in civil law jurisdictions; and the remaining one-third founded for orphan structuring in lieu of non-charitable purpose trusts.
Because only around 200 foundations have come to life to date, some critics say that Jersey foundations have not been a success, and that Guernsey foundations will be equally unsuccessful. However, Clark says: ‘I do believe that foundations will, similarly, take off slowly but that is not a cause for concern. When Guernsey introduced companies, it took 40 years before we had 100 companies registered here and no one says that was a mistake.’
In any event, it is not a numbers game. ‘I’d rather have one multibillion dollar-valued foundation here than hundreds of minor ones,’ he adds.
Negative opinions have also been levied at the operation of Jersey foundations at court level. In Dalemont Ltd v Alexander Gennadievich Senatorov and others, the Jersey Royal Court criticised how Jersey’s foundations legislation operated in practice, where there seemed to the court no basis upon which the qualified council member of the Jersey foundation could compel fellow council members to produce information.
Dalemont (the plaintiff) was owed $44m by Alexander Gennadievich Senatorov (the defendant), a Russian real estate magnate, under Russian judgments, obliging Senatorov to pay up under security agreements he had entered into that guaranteed debts incurred by his companies to a bank. Those judgments were recognised in Jersey, but the defendant had structured his affairs such that his property assets are held in a complex structure, headed by a Jersey foundation, of which he is a founder and sole beneficiary.
In order to enforce the judgment against the defendant’s assets the plaintiff sought, in Jersey, a declaration that either the assets held in the foundation are the property of the defendant or that the transfer of assets from the third defendant, Riggels Enterprises (which belongs to the defendant) to the foundation was done to prejudice creditors and should be set aside.
The main issue concerning foundations was a March 2012 ruling concerning failures on the part of the QM of the foundation to provide adequate disclosure of the foundation’s assets. The Deputy Bailiff expressed concern that the foundations law appeared to permit a situation in which the regulated service provider – the QM – may be so removed from the running of the foundation that it is unaware what assets the foundation has and what is being done with those assets. Consequently, the QM may be unable to comply with court orders to provide documentation on such issues.
Senior partner Stephen Baker and consultant William Redgrave of Jersey firm Baker & Partners acted for the plaintiff; the first and third defendants were represented by Ogier partner Matthew Thompson; while the second and fourth defendants, Helios Investments Foundation and Jintalex Holdings, were advised by Walkers’ partner Paul Nicholls.
Baker & Partners’ Redgrave says the Jersey law obliges the QM to keep, at its premises, records that disclose, with reasonable accuracy, the foundation’s financial position. ‘Therefore, the problem may be not so much with the law as the operation of this particular foundation and indeed the enforcement of the law,’ he says.
The main case itself has yet to come to trial but it is possible that Jersey foundations will attract further scrutiny as a result of the arguments put forward. ‘Foundations are different from both companies and trusts, and there is, so far, no judicial analysis of the nature of any interest a beneficiary has in a foundation and how that is affected by the circumstances in which the foundation was established and the degree of control the beneficiary has,’ says Redgrave.
The main challenge for Baker & Partners was seeking to ascertain a true and complete picture of the assets within the structure. The firm had to bring a series of court applications, as a result of which the defendants were criticised and penalised by the court for inadequate disclosure. According to Redgrave, bringing contempt proceedings and seeking unless orders with debarring sanctions were weapons that were successfully wielded to make the defendants provide disclosure.
Currently, there is not a great deal of foundation-related litigation coming before the Jersey courts, but that is arguably because they are still in their infancy, according to Steven Chiddicks, a senior associate at Jersey litigation law firm Sinels Advocates. ‘However, given that council members of foundations have duties and liabilities to act in good faith and with care, diligence and skill, and that there may be substantial investments going into foundations, it may not be too long before the Jersey courts have to consider foundation-related issues,’ he says.
Because the Dalemont litigation centred on the practical difficulties of complying with a court order for disclosure in particular circumstances, as opposed to a case of substance on foundations themselves, Guernsey’s litigators are not expecting the advent of foundations on the island to produce a raft of disputes. In addition, Guernsey’s legislation contains detailed guidance for the parties to resolve any issues arising without recourse to court apart from perhaps more formal guidance in the form of directions.
‘If anything, I would envisage hostile litigation in respect of Guernsey foundations as being relatively limited, particularly as privacy is a key driver for many of the families choosing foundations,’ says Calnan.
Similarly, in the IOM, Simcocks associate Kevin O’Loughlin says that the statutory rights to information and documents, which are available to the registered agent and council members under IOM foundations legislation, make it unlikely that similar criticisms could be levelled against an IOM foundation.
And while Jersey’s Royal Court shows that it will not shy away from criticising the operation of Jersey legislation, Guernsey is hoping that its new law has taken on board the pioneers’ experience to further ensure its leading role within the offshore club. LB
julian.matteucci@legalease.co.uk