Isle of Man: Firm Foundations: Dalemont v Senatorov In The Isle Of Man

Last Updated: 1 October 2012
Article by Kevin O'Loughlin

Dalemont Limited v Alexander Gennadievich Senatorov and others1is a recent case in the Jersey Royal Court which criticised how the foundations legislation passed in Jersey in 2009 seemed to operate in practice. Essentially this was because 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. This article considers whether similar criticism could be made of the Isle of Man foundations legislation passed in 2011. We conclude that the statutory rights to information and documents available to the registered agent and council members under the Isle of Man foundations legislation make that unlikely.

The Plaintiff had obtained certain judgments in Russia against Mr Senatorov and sought to enforce them in Jersey. To do this, it had previously issued proceedings in the Jersey Royal Court against Mr Senatorov and certain other Defendants, including a Jersey foundation in which he had an interest. In due course, the Plaintiff obtained disclosure orders against the Defendants, including Mr Senatorov and the Jersey foundation, requiring them to disclose details of all his/its assets worldwide whether in his/its own name or not.

The Plaintiff contended that the Jersey foundation, among other Defendants, had failed to comply with the disclosure order and was in contempt of court.

As required by the Foundations (Jersey) Law 2009, one of the members of the council of the Jersey foundation was a Jersey regulated entity (the "qualified member"). Evidence on behalf of the Jersey foundation was given to the court by an employee of the qualified member. The foundation acknowledged that in was in breach of the disclosure order by failing to provide disclosure of documents which were not within its physical possession. It asserted that it did not hold these documents because the Jersey foundation's regulations did not require it to do so: the qualified member was responsible for the ongoing administration of the foundation in accordance with its charter and regulations and in practice this did not extend to the administration of any underlying entities or assets.

The court found that the Jersey foundation had indeed failed to comply with the disclosure order, saying:

As we understand it therefore, the consequence of the Foundations Law and the regulations which have been adopted in this particular case is that a foundation can be established with a council where the qualified member is in a minority, and where in practice the qualified member does not have any information regarding the Foundation's assets liabilities or business. This case demonstrates that the qualified member may apparently be reliant upon the co-operation of the other council members, resident in another jurisdiction, who so far have not provided the qualified member of the council in Jersey with the information which has been requested. As a result, legal proceedings which have been commenced in this Island and which include a requirement from the Court that the Jersey registered foundation produce a certain amount of information have resulted in the Foundation not providing that information because it is not in the Island and there is no basis upon which the qualified member can compel fellow council members to produce it. All this is said to be consistent with the Foundations Law. We do not have to resolve that particular matter today, but we do think that if the result of the Foundations Law and the charter and regulations actually adopted in this case is as the Second Defendant contends, then the relevant authorities might want to revisit with a degree of urgency the structure of the Foundations Law and the requirements that are imposed on qualified members, because the current position seems to us to be quite unacceptable. We are inclined to assume that both the Jersey Financial Services Commission and the Attorney General would also find the current position to be unacceptable because the service of statutory notices by either of those entities would be no more successful in ensuring the relevant information was produced than the order of this Court, and for the purposes of mutual legal assistance and law enforcement, it would seem that that too would be a strange result.

In essence, [the qualified member] admitted that the [Jersey foundation] is hamstrung. It cannot get access to the information. A council member has signed one of the Powers of Attorney and not told the qualified council member about it. It appears to us that one result of the way in which the affairs of the [Jersey foundation] have been structured is that it is in fact very difficult to prevent the underlying structures from being used for money laundering or indeed other criminal purposes.

Could similar criticisms be levelled against an Isle of Man foundation?

In essence, the Jersey court's criticism of the foundation seems to have been that "there is no basis upon which the qualified member can compel fellow council members to produce [information]".

The Foundations (Jersey) Law 2009 does not expressly give council members a right to obtain from the foundation or other council members information or documents relating to the foundation. On the contrary, Article 26 of the Jersey Law provides that except as specifically provided in the Law or a foundation's constitutional documents, a foundation is not required to provide any person with any information about the foundation.

Article 36 of the Jersey Law requires a foundation to keep certain documents at its business address (being the address of the qualified member). These include records that disclose, with reasonable accuracy, the foundation's financial position. The Jersey court has jurisdiction under Part 5 of the Foundations Law to order compliance with Article 36 and possibly to order other council members to disclose information and documents to the qualified member.

The Jersey court's criticism therefore seems to have been that the qualified member could not obtain disclosure of information and documents in relation to the foundation without an application to court for an order under the Foundations Law requiring such disclosure.

The Isle of Man's Foundations Act 2011 does not require an Isle of Man regulated council member. Instead, it requires that every foundation has an Isle of Man regulated registered agent. The Isle of Man Act requires a foundation, as in Jersey, to keep certain documents at its business address (being the address of the registered agent) or at such other place as the council determines including records that disclose, with reasonable accuracy, the foundation's financial position. The registered agent is given a statutory right to inspect and take copies of such records and the foundation is under a statutory duty to allow such inspection and copying. In addition, a council member is given a statutory right to full and accurate information about the assets of and administration of an Isle of Man foundation; and a council member might decline to be appointed if such right is disapplied by the foundation rules. These statutory rights do not appear to be available in Jersey, and in our view make similar criticism of the Isle of Man foundations legislation unlikely.

Footnote

1. [2012] JRC061A - judgment delivered 21 March 2012

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