Dispute Resolution Review (4th Edition) - Jersey

I Introduction to Dispute Resolution Framework

Jersey is a common law jurisdiction, whose legal system draws on both the common law of England and the ancient customary law of Normandy. In areas such as the law of torts, trusts and criminal law, the court draws heavily on English law (particularly where Jersey law closely mirrors English statute) whereas in cases involving disputes over land and contract law, it draws on Norman customary law principles, which have been adapted and developed to deal with modern day disputes.

The Royal Court is the principal court of Jersey and has the following divisions:

a Héritage (dealing with property issues);

b Family;

c Probate; and

d Samedi (which deals with all other matters including criminal).

The nature of the dispute determines in which division the matter will be heard, but in general, large commercial disputes are heard in the Samedi division. The Bailiff is the President of the Royal Court who determines questions of law, whereas questions of fact are decided by a permanent panel of Jurats, who are a type of lay judge.2

In large commercial cases, the general rule is that all court proceedings are conducted in public, unless otherwise ordered by the court or on the application of one or other of the parties. If a party wants a hearing conducted in private, the court has to be satisfied that the need for confidentiality outweighs the public interest in access to open justice. In certain circumstances, judgments may be anonymised, as in matrimonial disputes or cases involving the welfare of children.

Appeals from decisions of the Royal Court are made to the Court of Appeal of Jersey, and from there to the Judicial Committee of the Privy Council. Any decisions of the Privy Council are final and binding on all the courts below. This is unusual as Jersey law does not recognise the concept of stare decisis in the same way as the courts in England and may depart from earlier decisions (although they will not do so unless the matter is plainly wrong). The Privy Council will generally only hear cases that involve a point of law or that are of general public importance.

In addition to the formal court processes, the Jersey Employment Tribunal has been established to hear disputes arising under the jurisdiction granted to them by the relevant legislation. It comprises a legally qualified chairperson who sits with two lay members with appropriate experience. It is possible to appeal a decision made by the Tribunal to the Royal Court, but on a point of law alone. There is no right to appeal any decision made by the Royal Court, and its decision is final.

II The Year in Review

i Representation of R in the matter of the S Trust

In this case, the Royal Court upheld and confirmed the pre-existing Jersey law position on voluntary dispositions by donors that are sought to be set aside on the grounds of mistake. The Royal Court clearly and firmly rejected the notion that it should adopt principles of English law as set out in the recent case of Pitt v. Holt,4 and instead preferred the approach developed in Re the A Trust and refined in Re the Lochmore Trust.5

The representor had been advised inter alia that gifts she wished to make into the Trust would have no adverse inheritance tax (IHT) consequences, and she was not advised of the risk for the principal beneficiaries, being US-resident – that the potential effect of US tax rules would be to impose a tax charge of up to 100 per cent of the value of the distribution. In fact, this advice was wrong, and an immediate charge to IHT arose in the sum of £1,943,689, including interest. That liability was met by the representor. In seeking to have the Trust set aside on the grounds of mistake, the representor's evidence was that, had she realised the true position, she would not have made the transfers into the Trust.

The Royal Court carried out a comprehensive analysis of the recent English decision of Pitt v. Holt (which had been roundly critical of earlier Jersey authority) and found itself troubled by the weight or preference apparently given to the interests of the English tax authorities. While in no way condoning tax evasion, the Royal Court made it clear that it was still open in Jersey for its citizens to enter into 'lawful and transparent arrangements' that will minimise the tax payable by them.

The Royal Court confirmed the original test for mistake in Jersey as set out initially in Re the A Trust6 and as defined in Re Lochmore:

a was there a mistake on the part of the donor/settlor?

b would the donor/settlor not have entered into the transaction 'but for' the mistake?

c was the mistake of so serious a character to render it unjust on the part of the donee to retain the property?

In light of the above test, the Royal Court confirmed that decision and stated that the transaction is voidable at the instance of the donor, rather than void. The donor may therefore elect to affirm the transaction, or seek to set it aside. When a donor makes a genuine and serious mistake then the gift can be reversed whether the mistake 'was as to the effect of the gift or merely as to its consequences, including any financial, usually tax, consequences'. The Royal Court was not convinced by the English position whereby the fact that the transaction gives rise to unforeseen fiscal liabilities is not sufficient to bring the mistake jurisdiction into play.

The test is now fundamentally different to that in England and it is clear that the Jersey courts will not follow English precedent where it is satisfied that the English court's decisions were either wrong or conflicted with existing Jersey authority. As the Royal Court stated, 'As this case shows, there may now be advantage in choosing one jurisdiction over another, where this is possible, to litigate a matter of this kind'.

ii In the Matter of the Valetta Trust 7

Until this extremely recent case, the legality and enforceability of funding agreements in Jersey had been untested. The case involved a Beddoe application that required the Court to consider the issue of champerty under the law of Jersey, and it was until very recently uncertain as to whether third party funding agreements in Jersey were unlawful on the grounds of champerty and maintenance. The Valetta Trust was a conventional discretionary trust and the only material asset of the Trust was a minority shareholding in a company that in turn owned certain rights to a product. The former trustee ('Lincoln') had sold the Trust's shares in the company to itself as trustee of another trust that also held shares in the company. The representors (the current trustees) contended that the sale was at a gross undervalue, which was known to Lincoln, and they wished to institute proceedings against Lincoln for breach of trust and against others who were said to have been knowingly involved in the sale at an undervalue.

The representors could not afford to bring proceedings as the Trust had no assets other than the claim against Lincoln. In the circumstances, the representors entered into a funding agreement with an entity known as the Harbour Litigation Investment Fund LP ('Harbour'), and under this agreement Harbour were to fund the litigation in return for a share of the proceeds. The trustee wished to become a party to that agreement and, upon the Court being alerted to the nature of the agreement in June 2011, the Court requested that counsel address the Court as to whether or not such an agreement was 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 noted that this was the first ever Jersey case on the law of champerty. It concluded that there was no material difference between the law of Jersey and the law of England in this area and thus carried out an analysis of English law. The Court concluded that English law in this area had shifted in recent years, and in particular that there had been a sea change in public policy in recent years. The main shift in public policy in England was to now recognise that it is desirable in order to facilitate access to justice that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation.

The Court further carried out an analysis of Jersey customary law in this area. It concluded that an agreement that provides for a share of the proceeds of litigation may be held to be unenforceable on the grounds of champerty if it is contrary to public policy. The Court however concluded that the reasons for the sea change in the approach of the English courts as to the requirements of public policy are equally applicable in Jersey.

The Court concluded that the key test was whether the third party funding agreement in question had any tendency to corrupt or adversely affect the purity of justice. It held that in Jersey the importance of access to justice was, as in England, extremely important, and previous 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.

The only test was whether the relevant third party agreement had any tendency to corrupt the purity of justice. The power of each third party funding agreement is to be determined on its own facts to determine whether it was lawful. Key issues were whether the key contract regarding the proceedings remained with the plaintiffs and not with the third party funder, whether the plaintiffs would still retain a substantial portion of the damages if successful and whether the defendants would be protected in respect of all of their costs if the plaintiff's claim failed.

The Court, however, was at pains to emphasise that this judgment applies only to third party funding agreements. It...