Calling Time: English High Court Declares Limitation Period On Claims Against Directors Of Jersey Companies

On the 15th May 2017, the Chancery Division of the English High Court in O'Keef & Anor v Caner & Ors [2017] EWHC 1105 (Ch) held, as a matter of fact, that the appropriate prescription period for a claim against directors of a Jersey company for breach of their duties under Article 74 Companies (Jersey) Law 1991 was 10 years from the date of breach.

Background

The Claimants were joint liquidators of two Jersey companies. Between 2007 and 2008 €34m was withdrawn from the companies' bank accounts and paid to the companies' UBO, who was also a director of both. Those payments were not made in good faith or for a legitimate or commercial purpose and could not be properly treated as distributions. The joint liquidators brought claims against certain professional directors of the companies who allowed the payments to be made when the companies were effectively insolvent.

The duties relied on were those set out in Article 74(1) Companies (Jersey) Law 1991:

"A director, in exercising the director's powers and discharging the director's duties, shall -

act honestly and in good faith with a view to the best interests of the company; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances." The issue of what prescription period applies to a breach of the duties in Article 74 has been a running source of controversy in the Jersey authorities for over 10 years since the decisions of In Re Northwind Yachts Ltd 2005 JLR 137 and Alhamrani v Alhamrani 2007 JLR 44.

The Issue

As a preliminary issue the defendant directors contended that the claims were prescribed under Jersey law because the limitation period for such claims was 3 years (claims against directors being analogous to claims in tort or a breach of trust, for which the period is 3 years). The liquidators contended that the applicable prescription period was 10 years, being the default period applicable to actions personnelle mobiliére (personal actions) in Jersey law.

The Arguments

The competing arguments for the appropriate prescription period were analysed by looking at the different nature of the duties contained in Article 74, those that were fiduciary in character (Art 74(1)(a)) and those which could broadly be described as a duty of care and skill (but which were not fiduciary in character - (Art 74(1)(b)).

The competing possible prescription periods were:

Three years based on tort because either: as directors' duties in Jersey...