Jersey Unreported Judgments
You are here: BAILII >> Databases >> Jersey Unreported Judgments >> In the matter of the Valetta Trust [2011] JRC 227 (25 November 2011)
URL: http://www.bailii.org/je/cases/UR/2011/2011_227.html
Cite as: [2011] JRC 227
|
|
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
Jersey Unreported Judgments |
||
|
You are here: BAILII >> Databases >> Jersey Unreported Judgments >> In the matter of the Valetta Trust [2011] JRC 227 (25 November 2011) URL: http://www.bailii.org/je/cases/UR/2011/2011_227.html Cite as: [2011] JRC 227 |
||
[New search] [Help]
Trust - Beddoe application requiring the court to consider the issue of champerty under the law of Jersey.
[2011]JRC227
|
Before : |
M. C. St. J. Birt, Esq., Bailiff, and Jurats Morgan and Fisher. |
IN THE MATTER OF THE VALETTA TRUST
Advocate L. J. Springate for the Representors and the new Trustees.
Advocate P. D. James for the Minor and unborn Beneficiaries.
judgment
the bailiff:
1. This is a Beddoe application which requires the Court to consider the issue of champerty under the law of Jersey. For obvious reasons, we do not propose to say much about the proposed proceedings themselves; suffice it to say that the Court has authorised the new trustee to join the Representors as plaintiffs in the proceedings.
Background
2. It is not necessary to deal with the background of this matter in any detail. The Valetta Trust ("the Trust") was established on 10th May, 2000. It is a conventional discretionary trust. The beneficiaries include the Representors, who are father and daughter. The trustee at all material times was Lincoln Receivables (Jersey) Limited ("Lincoln").
3. The only material asset of the Trust was a minority shareholding in a company which in turn owned certain rights to a product. In 2003, Lincoln sold the Trust's shares in the company to itself as trustee of another trust which also held shares in the company. That other trust was for the benefit of the family of one of the co-investors in developing the product. The sale proceeds received by the Trust were subsequently distributed to the beneficiaries and accordingly the Trust has been dormant for some time.
4. However the Representors contend that the sale was at a gross undervalue which was known to Lincoln. The Representors therefore wish to institute proceedings against Lincoln for breach of trust and also against certain other persons who are said to have been knowingly involved in the sale at an undervalue.
5. As the Trust is a discretionary trust, it is appropriate that the trustee of the Trust be a co-plaintiff in the proceedings together with the Representors, so that any proceeds from the litigation are held as part of the trust fund. In the original application, which came before the Court on 16th June, the Representors requested the removal of Lincoln and its replacement by a new trustee. That has subsequently occurred with the agreement of Lincoln and accordingly there is now a new trustee.
6. The Representors cannot afford to bring proceedings and the Trust has no assets other than the claim against Lincoln. In these circumstances, the Representors have entered into an agreement ("the funding agreement") with an entity known as the Harbour Litigation Investment Fund LP ("Harbour"). Under this agreement Harbour will fund the litigation in return for a share of the proceeds. The new trustee wishes to become party to that agreement so that it is also covered.
7. On being alerted at the initial hearing in June to the nature of the agreement, the Court requested that it be addressed by counsel on whether such an agreement is permissible under Jersey law as the Court did not feel that it would be appropriate to authorise the new trustee to enter into an agreement which was unenforceable under the law of Jersey on the grounds of champerty. The Court has subsequently been addressed on the law by Advocate Springate and the Court is grateful to her for her researches.
8. The effect of the funding agreement can be summarised as follows. Harbour agrees to provide the legal costs of the plaintiffs. It also agrees to meet any adverse costs orders made against the plaintiffs. In return, any damages recovered either by negotiation or by award from the Court are to be applied first in reimbursing Harbour for all the costs which were incurred. Thereafter the proceeds are split between the plaintiffs and Harbour with the proportion going to Harbour commencing with the greater of 25% of the proceeds or twice the legal costs of the plaintiffs, and increasing according to the length of time that the proceedings have taken, reaching a maximum of 50% or three times the legal costs of the plaintiffs, whichever is the greater. Under the agreement, control of the litigation rests with the plaintiffs although they must keep Harbour informed and they agree to conduct the litigation in accordance with the reasonable advice of their lawyers. Harbour has the right to terminate the agreement if satisfied that there has been a material adverse decline in the prospects of success. Harbour would in those circumstances remain liable for all costs incurred during the existence of the agreement and for adverse costs to the date of termination. We were informed by Advocate Springate that Harbour has an investment committee which includes a retired High Court judge and other distinguished lawyers and it assesses the merits of any proposed proceedings which are brought to Harbour for possible investment by way of funding.
9. At the conclusion of the hearing, the Court authorised the new trustee to enter into the funding agreement and we now give our reasons. In doing so we emphasise that we have not heard adversarial argument as there has been no-one arguing that the agreement is unenforceable. In relation to the champerty point, our sole role has been to consider whether there is a reasonable prospect of the funding agreement being held to be lawful. For the reasons set out hereafter, we have concluded, on the basis of the arguments presented to us, that the agreement should be regarded as enforceable and not contrary to public policy; at the very least there is a reasonable prospect of it being so regarded.
The law of champerty
10. Counsel's researches have not found any Jersey case on the law of champerty. For reasons set out below, we conclude that there is no material difference between the law of Jersey and the law of England on this topic and it is therefore convenient to start by reviewing English law.
11. In this task, we have been greatly assisted by some recent publications in England. We refer in particular to the 2007 Report by the Civil Justice Council entitled "Improved Access to Justice - Funding Options and Proportionate Costs"; the Preliminary Report and the Final Report by Lord Justice Jackson - Review of Civil Litigation Costs; and Cook on Costs, chapter 41 entitled "Third Party Funding". From these reports and texts it is clear that there has been a considerable change of approach to the issue of third party funding in recent years. By third party funding is meant agreements whereby a third party, who has no connection with the dispute, provides financial support for the party to litigation on the basis that the third party will receive a percentage of the sums recovered if the action succeeds, but nothing if the action fails. Such agreements would historically have been regarded as champertous.
12. We must begin by explaining what we mean by champerty. It is closely related to the concept of maintenance. In R (Factortame Limited and others)-v-Secretary of State for Transport, Local Government and the Regions (no.8) [2002] 3 WLR 1104 at para 32, Lord Phillips of Worth Matravers MR approved the following two definitions of maintenance and champerty respectively:-
13. The history of these two concepts is important to an understanding of the present position. A convenient summary is to be found in the judgment of Steyn LJ in Giles-v-Thompson [1993] 3 All ER 321 at 328. From this it appears that one of the abuses which afflicted the medieval administration of justice was the practice of the assigning of doubtful or fraudulent claims to royal officials, nobles or other persons of wealth and influence who could in those times be expected to receive a very sympathetic hearing in the courts. The agreement often was that the assignee would maintain the action at his own expense and share the proceeds of a favourable outcome with the assignor. It was in those circumstances that the courts developed the doctrines of maintenance and champerty to prevent such abuses.
14. Gradually the conditions which led to the emergence of maintenance and champerty disappeared with the establishment of a sturdy independent judiciary, but nevertheless in 1963 Lord Denning MR in Re Trepca Mines (no. 2) [1963] Ch 199 at 219 explained that the reason the common law still condemned champerty was
15. Maintenance and champerty were both criminal offences and torts until the Criminal Law Act 1967 abolished them as such. However, that statute specifically preserved any rule of law as to cases in which a contract was to be treated as contrary to public policy or otherwise illegal. The common law restriction on maintenance and champerty therefore remained as a rule of public policy.
16. However public policy changes. As Danckwerts LJ said in Hill-v-Archbold [1968] 1 QB 686 at 697:-
This observation was approved by Lord Phillips of Worth Matravers MR in Factortame at para 32 where he observed:-
17. In Giles-v-Thompson, it was made clear that the applicable public policy was the need (per Lord Mustill in the House of Lords [1993] 3 All ER 350 at 360). The Court must therefore consider whether the funding agreement (per Steyn LJ in the Court of Appeal at 333).
18. A number of the recent English cases have been concerned with whether a third party funder of an unsuccessful party should be ordered to pay the costs of the other side. In the course of so doing the court has often had to consider whether the particular agreement was champertous.
19. In Arkin-v-Borchard Lines Limited (Nos. 2 and 3) [2005] 1 WLR 3055, a professional funding company, MPC, agreed to fund the cost of expert evidence for a plaintiff for a contingent fee of 25% of the first £5M damages recovered and 23% thereafter. MPC took no part in making decisions on the conduct of the litigation and made no attempt to control it. The plaintiff's lawyers were acting on a conditional fee agreement. The action failed completely and, the plaintiff being impecunious, the defendants applied for an order that MPC should pay their costs. The judge at first instance dismissed the application, holding that litigation support by professional funders furthered the important public policy objective of facilitating access to justice, and that the court ought not to discourage such support, provided it was not champertous, by making adverse costs orders against them. On appeal, the Court of Appeal agreed that there was a strong public interest in enabling access to justice. It quoted with approval an observation of Lord Phillips in Gulf Azov Shipping Co Limited-v-Idisi [2004] EWCA Civ 292 at para 54:-
20. However the Court of Appeal went on to say that this must be balanced against the rule that costs follows the event. It did not think it right that a funder who purchases a stake in an action for a commercial motive should be protected from all liability for the costs of the opposing party if the funded party failed in the action. It held that, where a funding agreement was champertous, a funder would be likely to render himself liable for all the opposing parties costs should the claim fail. However, it held that the agreement in that case was not champertous because it was the plaintiff who remained in control of conduct of the litigation. It therefore considered that the right course was to order a professional funder, who finances part of a plaintiff's costs of litigation, to be potentially liable for the costs of the opposing party to the extent of the funding provided. The key aspect of the decision for our purposes was that the agreement in that case was found not to be champertous despite the fact that the funder would be entitled to a substantial proportion of any damages recovered.
21. In Factortame impecunious Spanish trawler owners had obtained judgment against the British Government for damages for breaches of their fishing rights, but they could not afford to proceed with the assessment of damages. Accountants agreed to provide litigation support in the form of handling documents and programming services, as well as undertaking to pay the fees of expert witnesses, in exchange for 8% of any amount recovered. The Court of Appeal held that the agreement was not champertous. We would refer to the following observation at para 36:-
And at paragraph 44:-
22. The court asked itself whether the agreement put at risk the purity of justice. It analysed the agreement and found that it ensured that the plaintiffs continued to enjoy access to justice and did this without putting justice in jeopardy. The agreement was therefore not champertous.
23. A number of other cases are mentioned in Chapter 41 of Cook on Costs but we propose to mention only a further two. In London and Regional (St George's Court) Limited-v-Ministry of Defence [2008] EWHC 526 (TCC) Coulson J summarised the present state of the authorities at para 103 (omitting the authorities quoted) as follows:-
24. The most recent case which touches upon this topic is Morris-v-Southark London Borough Council (Law Society intervening) [2011] 2 All ER at 240. That case was concerned with a conditional fee arrangement whereby the solicitors not only had the usual uplift in their fee permitted under the relevant English statute in the event of success but they also agreed to indemnify the plaintiff against an adverse costs order should the case be lost. The question arose as to whether this indemnity made the agreement champertous as it was not specifically permitted under the legislation. The court drew a clear distinction between agreements with those who conducted litigation and third party funding. In relation to the former, it emphasised that the reach of the law of champerty should not be curtailed by the courts as it was a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests could conflict with their duties to the court. But in relation to third party funding the court confirmed that the modern approach, where there was an allegation of champerty in relation to an agreement, was to look at the agreement in the round and decide whether it would undermine the purity of justice, or would corrupt public justice, on a case by case basis.
25. In Australia, the leading case is Campbells Cash and Carry Pty Limited-v-Fostif Pty Limited [2006] HCA 41. In that case, a firm of accountants wrote to tobacco retailers seeking their authority to act on their behalf to recover licence fees paid which had subsequently found to be unconstitutional. The accountants offered to fund the litigation and to protect the retailers from adverse costs in the event that they lost the claim. In return the accountants would take one third of any recovery. The accountants instructed solicitors and were very much in control of the litigation. The Australian High Court held that the arrangements facilitated access to justice and were not contrary to public policy. Since then, third party funding agreements have become common in Australia (see the Civil Justice Council Report referred to in the next paragraph).
26. The position has also been considered in two authoritative reports. In June 2007 the Civil Justice Council in a paper entitled "The future funding of litigation - alternative funding structures" made a series of recommendations to the Lord Chancellor to improve access to justice. It summarised the English position at paragraph 127 of the Report as follows:-
It recommended at paragraph 55 that third party funding should be encouraged subject to certain conditions.
27. The subject was also considered by Lord Justice Jackson in his "Review of Civil Litigation Costs". In his preliminary report at Chapter 15 on third party funding, he said this at paragraph 1.1:-
28. In his final report in December 2009 he said this at paragraph 1.2 of Chapter 11:-
29. The report went on to say in Section 4 of Chapter 11 that third party funders should be liable in full to adverse costs without the limitations suggested in Arkin. It summarised the position at paragraph 4.6:-
30. From our review of all the material put before us, we have come to the clear conclusion that English law would not regard the funding agreement in this case as champertous. Whilst it undoubtedly provides Harbour with a share of the proceeds, it is calculated to ensure compliance with the principles derived from the English and Australian cases and in our judgment cannot be said in any way to corrupt the purity of justice. On the contrary, it facilitates access by plaintiffs who would otherwise be unable to bring the proceedings because of a lack of resources. Importantly, the agreement provides that control of the proceedings will remain with the plaintiffs and their lawyers; the sole right of Harbour will be to be kept informed. Secondly, it does not prejudice any potential defendants by leaving them unable to recover any costs orders (in the event of the failure of the proceedings) against the unsuccessful plaintiffs because the agreement provides that Harbour will satisfy any adverse costs order against the plaintiffs.
31. All in all, far from this agreement being contrary to the purity of justice, it fulfils the important role of facilitating access to justice without endangering the purity of that process.
Champerty in Jersey Law
32. As we mentioned earlier, there is no judicial authority in Jersey in relation to champerty. However, we have no doubt that Jersey law is to like effect as English law and an agreement which provides for a share of the proceeds of litigation may be held to be unenforceable on the ground of champerty if it is contrary to public policy. However, the reasons for the sea change in the approach of the English and Australian courts as to the requirements of public policy are equally applicable in Jersey. We say that for the following reasons:-
(i) Jersey law undoubtedly recognises the ability of the court to hold an agreement to be unenforceable if it is contrary to public policy. See Sarum Hotel Limited-v-Select agencies (Jersey) Limited [1987-88] JLR 343 at 353 per Tomes DB.
(ii) This is consistent with Pothier who is often regarded as a helpful guide to the law of Jersey in relation to matters of contract. Thus his Traité des Obligations Part 1, Chapter 1, first section, paragraph 43 provides:-
(iii) Le Geyt, 'La Constitution, Les Lois et les Usages de Jersey' Tome 1 page 188 in a chapter headed 'Des choses litigieuse' discusses, amongst other things, the problem of powerful people taking over litigation and states at page 190:-
Thus the historical concerns which gave rise to the need for the doctrines of maintenance and champerty in England also applied in Jersey.
(iv) It seems to us that the underlying public policy in Jersey in relation to the purity of justice was and remains identical to that in England.
(v) For the reasons set out in the English cases referred to above, public policy must be kept under review and we have no doubt that today, the importance of access to justice is extremely important and the concerns about powerful people corrupting the process of justice by acquiring an interest in litigation have faded away because of the independence of the judiciary. We therefore find that the public policy reasons which have led England and Australia to allow third party funding subject to certain safeguards are equally applicable in Jersey.
33. Advocate Springate very properly referred us to the passage in the Code of 1771 which is as follows:-
The question arises as to whether this prevents a funding agreement of the type entered into in the present case.
34. In our judgment it does not. For the reasons set out in Matthews and Nicolle:- the Jersey Law of Real Property, Chapter 3 at paras 3.6 - 3.11, we are satisfied that the prohibition referred to in the Code refers only to matters actually in the process of being litigated. We say that for the following reasons:-
(i) The most natural meaning of 'en litige' is 'in litigation'. That suggests that the litigation must be occurring at the time of the relevant agreement.
(ii) That view is supported by the following passage from Le Geyt in the section we have already referred to:-
It is true that he says something inconsistent later on the same page when he says:-
However he was writing when the 1635 Ordinance of the Star Chamber referred to earlier was in force and the wording of that is of course wider than the wording in the Code.
(iii) Poingdestre takes a narrower view because he says in his Lois et Coutumes de l'Île de Jersey page 253:-
As Matthews and Nicolle point out, the clear inference to be drawn from this passage is that the transfer of a debt or other claim is lawful at any moment up to the institution of legal proceedings.
(iv) The case of Godfray, Seigneur-v-Filleul Recteur et autres (1855) 46 H 140; (1858) 8 CR 176, referred to a paragraph 3.11 of Matthews and Nicolle, suggests that the Full Court on that occasion interpreted the expression 'choses en litige' as covering only matters where an action had actually been commenced.
(v) The Court can take judicial notice that claims are regularly assigned in advance of litigation and the assignees then institutes action to recover the debt. It would seem highly undesirable now to hold that this is prohibited merely because the claim is or might be disputed.
(vi) We think the effect of the provision in the Code is not dissimilar to the prohibition on the right to assign a bare right to litigate in England and Wales.
35. For the sake of completeness we should also mention that Advocate Springate alerted us to the concept of "champart" under Norman Law and referred us in particular to Houard, Dictionnaire de Droit Normande, to Pothier, Traité des Champart, Part 20 Article Préliminaire, Articles 1 -2 (1821) and to Blackstone, Commentaries on the laws of England, 1st edition (1769) Book IV Chapter 10 at 134. We are satisfied from these that "champart" has a specific and limited meaning and refers to a division of profits as being part of the crop on a parcel of land. It has nothing to do with champerty.
Conclusion
36. For the reasons set out at paras 30 and 31 above, we are satisfied that the public policy considerations point strongly in favour of upholding the validity of the funding agreement in this case. In our judgment, it does not have any tendency to corrupt or adversely affect the purity of justice. The control of the proceedings remains with the plaintiffs, they will still retain a substantial proportion of the damages if successful and the defendants are protected in respect of costs if the claim fails. On the other hand, the agreement facilitates access to justice by plaintiffs who would not otherwise be able to afford to bring the litigation in question. For these reasons we authorised the trustee to become party to the funding agreement.
37. We would emphasise that what we have said in this judgment applies only to third party funding agreements. As the English Court of Appeal made clear in Morris (para 24 above) the public policy considerations are very different in relation to agreements between a party to litigation and those conducting the litigation in his behalf. Although there has been a minor relaxation in England as a result of the statute which permits conditional fee agreements, the requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests could conflict with their duties to the court remains otherwise in force. In Jersey, no statutory relaxation of this principle has been introduced and in our judgment it remains in full vigour.