Jersey: 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 Between 2007 and 2008 €34m was withdrawn from the companies' bank accounts and paid to the companies' UBO, who was also a director of both.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 –

  1. act honestly and in good faith with a view to the best interests of the company; and
  2. 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:

  1. Three years based on tort because either:

    1. as directors' duties in Jersey law were statutory, breach of them must ipso facto constitute the tort of breach of statutory duty to which Article 2 Law Reform (Miscellaneous Provisions) (Jersey) Law 1961 applied directly; or
    2. Article 2 Law Reform (Miscellaneous Provisions) (Jersey) Law 1961 applied to breaches of both Article 74(1)(a) and (b) directly or by analogy; or
    3. the statutory three year period applicable to breach of trust claims under Article 57 Trusts (Jersey) Law 1984 was applicable either directly or by analogy with a breach of a directors' fiduciary duty.

In default of either of those arguments succeeding, a period of ten years was applicable because no other period could be applied directly or by analogy.

Direct or analogous application of tortious prescription period

The court held that Article 57(2) Trusts (Jersey) Law 1984 had no direct application to actions for breach of director's duty. Neither was the court convinced that Article 57(2) could appropriately be applied by analogy.

The directors of a company are not by virtue of their office trustees of the company's property. The company is legally and beneficially he owner of its own property. Article 1 and 2 Trusts (Jersey) Law 1984 define the office of trustee strictly so as to preclude the direct application of Article 57 to directors (affirming Birt DB in Northwind Yachts at para 30). That is not to say that a direct may not become a constructive trustee (and subject to Article 57 by virtue of being a constructive trustee) of the company's property coming into his hands (see Article 33 Trusts (Jersey) Law 1984).

Notwithstanding that directors and trustees owed substantially similar duties, the court held that Article 57 Trusts (Jersey) Law 1984 could not be applied by analogy to directors. It was not necessarily wrong in principle to look to Article 57 as analogous but that in order to neatly shoehorn directors into Article 57 would involve closing one's eyes to parts of the interlocking, self contained prescription regime applicable to trustees. Looking closely at Article 57 reveals that the three year starting point at which the statutory three year period begins differed depending on a number of situations, to which there was no easy analogy with the position as between a company and its directors. Put another way, Article 57 is too specifically tailored to the position of trustees to make it easily analogous to the duties of a director to his company.

Conclusions

The English High Court has therefore held that an action for breach of either limb of Article 74(1) Companies (Jersey) Law 1991 is 10 years.

Comments

The decision in Caner is a finding of an English court and is not binding in Jersey as statement of Jersey law. However it is the first time that the issue of prescription against Jersey directors has been dealt with in any comprehensive way and were the issue to come before the Jersey court, the decision is likely to be persuasive.

The conclusion that the prescription period applicable to the tort of negligence does not apply directly or by analogy with Article 74(1)(b) on the basis that the duty is not tortious but quasi-contractual is likely to be a source of controversy. The working assumption of many practitioners is that Article 74(1)(b) is concerned with a director's reasonable care and skill, i.e. negligence. Negligence, in Jersey law, is a tort. There is no meaningful distinction in Jersey law between an equitable and customary law duty of care in the same way as exists in England. Indeed, the decision acknowledges that even in England the content of an equitable duty of care and common law duty and the remedies flowing from breach of those duties are practically identical.

The 10 years prescription period is subject to the Jersey doctrines of empêchement de fait, with the potential to extend the applicable prescription period longer than 10 years where there is an practical impediment to being able to commence a claim.

There is a widespread perception that a ten year prescription period for breaches of directors' duty is too long for an island where financial services is the dominant sector of the economy. I would not be surprised if the States of Jersey resolved any further controversy by bringing forward a statutory prescription regime for claims against company directors claims when the Companies (Jersey) Law 1991 is next amended.

www.bakerandpartners.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions