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14 January 2020
The long-running fraud case CMC v Forster(1) illustrates the difficult task that the Channel Island courts sometimes have in comparing and distinguishing between developed principles of English law and foundational elements of the customary law of the islands, which borrows from French and other civilian law jurisdictions.
This Jersey fraud case has been ongoing for more than three years and, as this most recent interlocutory judgment reveals, is still dealing with attempts to limit discovery.
On the procedural front, the case demonstrates a detrimental aspect of the appeal procedure against interlocutory orders in Jersey. Under the Jersey court rules, those disaffected with the decision of the master of the Royal Court on interlocutory applications (including strike-out and summary judgment applications) can have a second bite of the cherry by a full de novo appeal rehearing in the Royal Court itself. This inevitably slows down the proceedings and increases costs.
The wider implications of the case are the interest that has been shown in the development of the legal argument in the strike-out and summary judgment applications in the third-party proceedings concerning two so-called 'hot potatoes' in Jersey law. The first is the question of the rights between wrongdoers to claim an indemnity or contribution outside the scope of the limited statutory scheme between joint tortfeasors. The second (and more fundamental) is the extent and nature of the doctrine of unjust enrichment under Jersey law.
The latter issue illustrates the difficult task that the Channel Island courts sometimes have in comparing and distinguishing between developed principles of English law and foundational elements of the customary law of the islands, which borrows from French and other civilian law jurisdictions.
The plaintiffs are Kenyan companies that import vehicles from overseas vehicle manufacturers and supply them to the East African market. They seek relief in respect of the defendants' participation in an alleged secret scheme under which funds properly due to the plaintiffs were diverted at the instruction of certain directors of the plaintiffs, in breach of a fiduciary duty owed by them to the plaintiffs and in breach of trust. Those directors were alleged to have been dishonestly assisted by the second and third defendants (ie, RBC Trust Company (International) Limited and the Regent Trust Company Limited), which provide fiduciary and corporate services in Jersey.
The scheme was allegedly funded by secret commissions paid by vehicle manufacturers that supplied vehicles to the second plaintiff. They were paid directly to bank accounts in Jersey operated by offshore companies and structures (allegedly operated by the second and third defendants) which were unconnected with either of the plaintiffs and without the knowledge or authorisation of the plaintiffs. Funds paid into the scheme were transferred between those entities, invested and over time substantially distributed to a small group of people, including the first defendant and some other directors of the plaintiff who were privy to the scheme.
The plaintiffs claim that the secret commissions paid into the scheme and their proceeds were the result of breaches of fiduciary duty and breaches of trust by directors of the plaintiffs, including the first defendant. The plaintiffs seek orders that the first defendant account to the plaintiffs for all sums that were paid into the scheme as a consequence of his breaches of fiduciary duty and breaches of trust. The plaintiffs also seek an order that he account to the plaintiffs for his profit from the scheme still in hand. The plaintiffs also seek orders for the second and third defendants to account to the plaintiffs for all sums paid into the scheme:
A number of other directors have been joined as third parties at the instance of the second and third defendants. The first defendant alleges that far from being a scheme that was unknown to the plaintiffs and therefore improperly to their prejudice, the plaintiffs actually set up the scheme in order to achieve the legitimate purpose of payments to directors and employees. The second and third defendants deny any wrongdoing and specifically do not admit the existence of the scheme. They say that they reasonably believed that the plaintiffs had been aware of and authorised a number of actions (including the payment and receipt of monies) and the various entities and bank accounts which are allegedly part of the scheme. The second and third defendants' also allege that the plaintiffs not only knew of the so-called scheme but in effect approved it as it was for the benefit of the plaintiffs and a way of securing the services of foreign employees.
From a substantive law perspective, the most significant interlocutory judgment in the case is arguably that of the master of the Royal Court of 9 November 2017.(2) The court refused to strike out the third-party claim of the second and third defendants against one of the former directors of the plaintiffs who had not been sued by the plaintiffs. The court held that it was clear from In re Esteem Settlement(3) that the law of unjust enrichment formed part of Jersey law. The question of the correct test for unjust enrichment was considered by reference to the earlier Jersey decision of Flynn v Reid,(4) in which the court considered Scottish law cases and approved of the approach in Mckenzie v Nutter,(5) in which Sheriff Principal Lockhart described the test as follows:
By reference to Dubai Aluminium Co Ltd v Salaam(6) and Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2),(7) the master of the Royal Court held that the second and third defendants had a prima facie case for a contribution and that their claim was arguable and may represent how the law of unjust enrichment might develop.
An earlier version of this article was published on LexisNexis on 31 October 2019.
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