Investigating and prosecuting serious and complex fraud is about staying ahead of the game. Most serious frauds will have an international element, whether in the substantive action or in asset recovery. It has therefore become increasingly important for fraud lawyers to have knowlege of offshore centres laws and procedures in freezing and tracing assets as well as possible substantive remedies.
Jersey has a legal system which provides proactive criminal and civil international co-operation in cases of suspected fraud. Jersey however has its own systems of law which do not always mirror the English position. This guide by Baker & Partners gives you a practical overview of the legislation and procedure of the Jersey legal system. It provides practical advice to identify the most appropriate solutions to any scenario arising out of fraud, asset recovery, the enforcement of foreign judgments and insolvency. It thus provides legal practioners with an invaluable overview of the Jersey perspective on fraud claims in an easy format. Allowing you to stay ahead of the game.
A generic offence of fraud has long existed in the common law of Jersey and continues to be charged in appropriate circumstances. To establish this generic offence of criminal fraud it is necessary to show that the defendant deliberately made a false representation with the intention of causing thereby—and with the result in fact of causing thereby—actual prejudice to someone and actual benefit to himself or somebody else.
It is additionally the case that the usual range of specific fraudulent activity is criminalised by Jersey common law and continues to be charged in appropriate circumstances. Fraudulent conversion, obtaining by false pretences, false accounting and forgery are all prime examples of this.
Quite apart from this comprehensive range of common law offences, various statutes are in place to provide investor protection. The Banking Business (Jersey) Law 1991, for example, criminalises unregistered deposit-taking business and fraudulent inducements to invest money. Fraudulent inducement is also criminalised by the Investors (Prevention of Fraud) (Jersey) Law 1967. Heavy penalties are consequent upon conviction (up to 7 years imprisonment and/or an unlimited fine).
The provision of false or misleading information under the Collective Investment Funds (Jersey) Law 1988 is criminalised and punished by up to5 years imprisonment and/or an unlimited fine.
By way of further example, offences relating to insider dealing, market manipulation and providing misleading information, in respect of financial matters are created and made punishable by the Financial Services (Jersey) Law 1998.
As to money laundering, the full range of offences is in place by virtue of the Proceeds of Crime (Jersey) Law 1999, the Drug Trafficking Offences (Jersey) Law 1988 and the Terrorism (Jersey) Law 2002. It is of course the money laundering offence which gives territorial jurisdiction so that the locus of the predicate offending is immaterial to the charging of the money laundering and the freezing of assets within the jurisdiction.
Confiscation orders are available under the legislation and are widely made following conviction. In cases with an overseas component, the Jersey authorities work closely and constructively with the governments and agencies of other countries in the locating, securing, managing and ultimate disposition of assets.
Local legislation gives wide powers to the Jersey authorities to co-operate with other governments and their agencies in the investigation and prosecution of crime and the recovery of the proceeds thereof. The provision of information and evidence and the securing of assets held in the island are all enabled by the Investigation of Fraud (Jersey) Law 1991 and the Criminal Justice (International Co-operation) (Jersey) Law 2001.
Local legislation also enables the enforcement in Jersey of overseas forfeiture orders/confiscation orders.
The relevant authorities in Jersey are authorised to enter into asset sharing agreements with other governments when there has been anything in the nature of a combined operation resulting in the confiscation or forfeiture of assets.
As to the initiation of a criminal prosecution, initial complaints are characteristically made to the States of Jersey Police or to the Law Officers' Department. Depending on the subject matter, the complaint may come to the attention of those authorities by another route, for example a complaint made to the Jersey Financial Services Commission. The complaint is ideally made through the intermediary of a local lawyer although nothing prevents a direct approach to the relevant authority by the complainant.
Following such investigation as is required by the nature of the complaint, it is for the Attorney General to decide whether to bring a prosecution and like the prosecuting authorities in the United Kingdom, his decision is taken by reference to transparent published guidelines. The Jersey guidelines are to be found at the following website:
Proceedings are brought in the name of the Attorney General and are prosecuted by a Crown Advocate, an appointee of the Attorney General assigned to the case either from within his Department or from the private sector.
It is a feature of Jersey law that common law offences are tried by a jury and statutory offences are tried by a standing panel of lay Justices ('Jurats'), an office well known within European jurisprudence.
In either case an appeal against conviction and sentence is available and is invariably heard by the Jersey Court of Appeal, a tribunal made up predominantly of eminent lawyers from the various United Kingdom internal jurisdictions.
As to requests for international co-operation in the matter of investigation, evidence and the pursuit of criminal assets, the approach is also made in the first instance to the Attorney General, whose contact details are in the Helpful Addresses section to this booklet.
The time taken to bring prosecutions and requests to a conclusion will depend on the nature of the case and the levels of resistance encountered on the part of those who are the subject of the proceedings in question. What can be said with certainty is that the Jersey authorities continue to have an outstanding record of attention to the matters addressed here, be it domestically or internationally. Their history of co-operation with responsible partner jurisdictions is second to none, has been recognized by reporting international bodies such as IMF and FATF and continues to be a matter in which they take great pride.
Jersey law provides civil remedies at all possible stages of a fraud claim. Interlocutory injunctions are available with 24 hours' notice to the court. The Jersey Royal Court applies English principles in granting these injunctions and therefore the American Cyanamid principles must be met before an injunction is granted in Jersey. However, unlike the English courts, Jersey allows an injunction to be granted in aid of foreign proceedings even if the only proceedings in Jersey are for the injunction itself. It further allows leave to serve out of the jurisdiction if the defendant is outside the territory and the only Jersey process is that of the injunction. Wide disclosure orders are also available as ancillary orders to injunctions and the Royal Court may order worldwide disclosure orders against the defendant, even if they are not Jersey resident.
Banks and financial institutions are made parties cited to the injunctions in Jersey and are only bound by the injunction by service of the proceedings upon them. Similarly wide disclosure orders may also be made against the parties cited as ancillary orders to the injunction.
If there is insufficient information to obtain an interlocutory injunction, an Order of Justice can be served against a third party financial service provider who has been 'mixed up' in the wrongdoing, under the Norwich Pharmacal jurisdiction. This is dealt with in more detail below. This will enable information to be ordered from a third party, allowing sufficient information to gain the injunction against the defendant and the party cited.
A caveat (or 'opposition') is available which is a Mareva injunction on the sale of Jersey real property. It is available to creditors with a liquidated claim when there is a risk of Jersey real property being sold.
Each of these injunctions are granted by the Bailiff or the Deputy Bailiff of the Royal Court and must be applied for by way of an Order of Justice with an affidavit in support which must comply with the duty of full and frank disclosure.
As regards substantive remedies available in Jersey, Jersey law recognises the concept of a constructive trust as established in Re Esteem1. The Royal Court in Re Esteem also held that a beneficiary of a constructive trust has an equitable proprietary interest in the assets which are subject to that trust. The Royal Court further held that in Jersey, as in English law, when property is obtained by fraud, equity imposes a constructive trust over that property for the benefit of the victim of the fraud, meaning that they have an equitable proprietary interest in that property.
Jersey also recognises concepts of accessory liability. A claim can be made against a third party if they have been guilty of dishonest assistance or unconscionable receipt of property, both causes of action establishing a liability to account as if the accessory was a constructive trustee for the benefit of the victim of the fraud to claim directly against the third party who has received the funds or assisted in the breach of trust with the requisite knowledge.2
Jersey goes further than English law in that it allows a claim in restitution based on 'unjust enrichment'. This does not require an element of fault on the part of the recipient (unlike the English law). It means that where property in respect of which a person has an equitable proprietary interest is received by an innocent volunteer, the beneficiary has a personal claim in resitution against the recipient even where the recipient is not guilty of any fault in their receipt or handling of the property. This is however only a personal claim, no constructive trust is established between the beneficiary and the innocent recipient. Thus, the beneficiary can only succeed to the extent that the recipient remains unjustly enriched. A defence of change of position is therefore available.
There is a civil confiscation regime in aid of international civil recovery actions over assets which are the subject of a foreign civil judgment determining it to be the proceeds of unlawful conduct. This allows a foreign government to apply to the Jersey Attorney General to make applications to the Royal Court to freeze and eventually confiscate the assets in question. This is also dealt with in more detail below.
The Royal Court has consistently recognised its responsibility to assist in the prevention, detection and remedying of fraud. Hence, in actions involving civil remedies for fraud it has gone further than English law, recognising its position and responsibility as a major financial centre. It continues to do so and in future is likely to be one of the most progressive jurisdictions for civil claims, particularly in light of its yet undeveloped tracing laws and its more advanced restitutionary claims.
Local Rules on Tracing of Assets
In the judgment of Re Esteem3 the Royal Court found that Jersey principles of tracing form part of the law of Jersey in relation to proprietary claims. In a proprietary action, the Royal Court stated that generally the principles to be applied in Jersey tracing should, as a starting point be those of English law but that the Royal Court were free to depart from such principles if there is a better alternative.
Jersey currently departs from England in the following ways;
- Distinction between common law and equitable rules of tracing
- The Royal Court expressed the preliminary view that there was little reason to follow England in preserving such a technical distinction in Jersey law. Accordingly, it is likely that English rules of equitable tracing will be applicable in Jersey law.
The 'first in first out rule'
Jersey also declined to follow the English rule that where an innocent volunteer mixes stolen trust funds with his own money in a current bank account the first in, first out rule should be used to identify the source of withdrawn funds. Rather, the Royal Court held that as a general rule, moneys to be traced through a mixed bank account (whether current or deposit) should be dealt with by application of the apportionment method.
Improvements to property
In the example in which stolen funds are followed into the hands of an innocent recipient who uses them to improve property that he already owns the Jersey tracing rules allows the victim to trace the value inherent in his money into the increase in the property's value.
Recognition and Enforcement of Foreign Decisions
Foreign judgments are not automatically enforceable in Jersey. The registering and subsequent enforcement of a foreign judgment in Jersey is governed by the Judgments (Reciprocal Enforcement) (Jersey) law 1960 ("the 1960 Law"). According to Part 2, Article 3 of the 1960 Law, any judgment of a superior court of a country to which Part 2 of the Law extends (emphasis added) shall be a judgment which is capable of registration (and enforcement) provided that it meets the criteria specified in Article 3(2) of the 1960 Law. The foreign judgment must be final and conclusive as between the parties (notwithstanding that it may be subject to appeal) and it must relate to payment of a sum of money which is not a sum payable in respect of taxes, fines or other penalty.
Article 3 (1) specifies that the States will by Act direct the countries to which Part 2 of the 1960 Law extends and applies. The Judgments (Reciprocal Enforcement) (Jersey) Act 1973 extends the 1960 Law to the judgments of the courts of England and Wales, Scotland, Northern Ireland, the Isle of Man and Guernsey.
A judgment registered under the 1960 Law will be of the same force and effect as if the judgment had been a judgment originally given in the Royal Court on the date of registration. The other side may however apply to set aside the judgment in a variety of circumstances. The judgment must be set aside if the Royal Court is satisfied that the foreign court didn't have jurisdiction to make the order in the circumstances of the case or that the judgment debtor did not (although duly served) receive notice of the proceedings in sufficient time to enable the judgment debtor to defend the proceedings and did not appear. 4
There are other ways to give effect to a foreign judgment in Jersey other than the route available under the 1960 Law.5 The Royal Court retains an 'inherent jurisdiction' to enforce a foreign judgment allied with principles of comity (judicial politeness between jurisdictions).
Article 8 of the 1960 Law appears to 'oust' any inherent jurisdiction of the Royal Court. Article 8 however is limited to the recovery of a sum payable under a judgment to which Part 2 of the Law applies.
Accordingly, the court's inherent jurisdiction as regards any foreign judgment which Part 2 of the Law does not apply remains.
The recent judgment of The Brunei Investment Agency and Bandone Sdn Bhd v Fidelis Nominees Ltd (and Others)  JRC 152 comprehensively establishes the wide remit of the Royal Court's inherent jurisdiction to enforce a foreign judgment. In this case, principles of comity and the English common law principles were said to apply to Jersey but with the variation that the Royal Court also had a discretion to enforce a non-monetary judgment. Very little guidance is given in Brunei on the factors which a court should take into account in considering this issue. The caution with which the discretion is to be exercised in the incremental evolution of the English common law in Jersey militated against any definition of criteria.
Article 9 of the Civil Asset Recovery (International Co-operation) (Jersey) Law 2007 provides for the Royal Court to register an external civil asset recovery order if the following criteria apply:
- the order is in force at the time of registration and not subject to appeal;
- if the respondent did not appear in the proceedings, the Royal Court is satisfied that he or she received notice of the proceedings in sufficient time to enable him or her to defend them, and
- enforcing the order in Jersey would not be contrary to the interests of justice.
The Arbitration (Jersey) Law 1998 also makes provision for the enforcement of foreign arbitration awards.
Anti-Money Laundering Law
The overall theme of Jersey's Anti-Money Laundering/Countering the Financing of Terrorism ("AML/CFT") regime is that it establishes standards which match international standards issued by the Financial Action Task Force on money laundering (the "FATF"). The framework also has regard to the standards promoted by the Basel Committee on Banking Supervision, International Organisation of Securities Commissions and the International Association of Insurance Supervisors. Whilst Jersey is not a member of the EU, the AML/CFT regime takes account of the requirements of European Union legislation to counter money laundering and the financing of terrorism and its application of standards set by the FATF. Accordingly, it follows the risk based approach, an approach which is a recurring theme throughout the legislation, regulatory requirements and guidance.
Jersey's AML/CFT regime is underpinned by all crimes legislation under the Proceeds of Crime (Jersey) Law 1999 ("the PoC legislation"). In addition to this, there is specific legislation dealing with both drug trafficking and terrorist financing under the Drug Trafficking Offences (Jersey) Law 1988 and the Terrorism (Jersey) Law 2002. Given it is focused on all crimes, it is the PoC legislation which is most widely referred to with respect to money laundering offences.
The offences under the PoC legislation are assisting another to retain the benefit of criminal conduct, the acquisition, possession or use of proceeds of criminal conduct and concealing or transferring proceeds of criminal conduct, each of which carries a term of imprisonment for a term not exceeding 14 years or a fine or both. There is no listing of predicate offences under the legislation but confiscation orders may be made for any offence in Jersey for which a person is liable on conviction to imprisonment for a term of one or more years.
Fiscal offences, both domestic and foreign, would qualify for a confiscation order to be made under Jersey's common law offence of fraud, the prison term available being in excess of one year. There is also an offence of failing to disclose knowledge or suspicion of money laundering under which a person is liable to imprisonment for a term not exceeding 5 years or to a fine or to both. Special failure to report provisions apply to financial services businesses and these cover both businesses regulated by the Jersey Financial Services Commission ("the Commission"), essentially banks; trust companies; investment, funds and money services businesses; and insurance companies and also other businesses termed as DNFBPs (Designated Non-Financial Business Professionals) such as lawyers, accountants, estate agents and high value goods dealers. There are also 'tipping-off' provisions which make it an offence for a person to disclose to any other person information or any other matter that is likely to prejudice an investigation or a proposed investigation.
Jersey also operates, in line with international standards, a financial intellgence unit known as the Joint Financial Crimes Unit ("JFCU") which is an active member of the Egmont Group. The JFCU is responsible for receiving SARs and investigating money laundering or terrorist financing under the legislation referred to earlier. In 2009 the JFCU received approximately 1,500 SARs and received nearly 1,000 requests for assistance. The majority of SARs are submitted by banks and trust companies under the PoC legislation. Given the international nature of Jersey's finance industry the JFCU often acts as a conduit for information with other jurisdictions' financial intelligence units.
Financial services businesses are also required, by secondary legislation issued under the PoC legislation, to have implemented measures to prevent and detect money laundering including identification procedures, record keeping procedures, internal reporting procedures and training procedures. Specific emphasis has been placed in the legislation on the ongoing obligations to keep client due diligence information up to date and for monitoring of relationships to occur. Limited exceptions and simplified due diligence measures are available in certain circumstances. Enhanced due diligence is required in the case of Politically Exposed Persons and where there is a higher risk of money laundering based on the risk assessment undertaken. Legislation has also been supplemented by the Commission in the form of a handbook entitled the Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism. The handbook refers to the various statutory provisions, provides the regulatory requirements expected of financial services businesses by the Commission and contains guidance notes.
There is no statutory duty of confidentiality upon banks in Jersey. Jersey follows the English common law principles as set out in the authority of Tournier v National Provincial and Union Bank of England  1KB 461. This case is authority for the principle that a banker owes his customer a duty not to disclose information to third parties. A breach of this duty could give rise to an action in damages if loss is caused to the customer by disclosure of information.
A breach of the duty or an anticipated breach could also give rise to injunctive proceedings, to prevent the bank from disclosing information or further information.
There are four general exceptions to this duty of confidentiality, which are set out in Tournier. These are; (i) compulsion by law (ii) duty to the public to disclose (iii) that the interests of the bank require disclosure and (iv) that disclosure is permitted with consent of the customer.
There are several laws in Jersey which may be applicable in given circumstances to require disclosure by a bank/trust company of information on its customer. The Jersey Financial Services Commission for example, has the ability to require banks or financial services businesses to provide it with information pursuant to its functions.
The Jersey Attorney General has the power to issue a notice to a bank under the Criminal Justice (International Co-operation) (Jersey) Law 2001 which requires disclosure of information. The procedure for such a notice is as follows. A foreign territory sends a letter of request to the Jersey Attorney General seeking his assistance in gathering information in order to assist a criminal prosecution or investigation. The Attorney General would then decide whether to issue a notice to assist. Once the information has been obtained, the Attorney General would decide whether and in what circumstances the information should be transmitted to the requesting foreign territory.
The Attorney General has historically sought undertakings from foreign territories that the information disclosed is only to be used in criminal proceedings. The information has expressly not been disclosed for use in any civil investigations for example by foreign revenues. It is open of course for any new Attorney General to take a different view on letters of requests from foreign territories.
If there are civil proceedings underway overseas courts may request that the Jersey Royal Court take and obtain evidence from a bank/trust company under the Service of Process and Taking of Evidence (Jersey) Law 1960.
The most likely route for foreign revenue authorities to take in investigating civil tax matters is to rely upon a tax information exchange agreement ("TIEA") if one has been signed and is in force. There are now several TIEAs in force with Jersey. Regulations provide the relevant procedures for the obtaining and provision of tax information to a third country pursuant to each TIEA.
Specific Laws and Remedies to be Used
There are no specific laws and remedies which have to be used in asset tracing or fraud actions. This booklet deals with the relevant Jersey laws and remedies which can be used in appropriate circumstances. Which law and remedy should be applied is entirely dependent on the facts of the particular case.
In Jersey, asset tracing and fraud claims often involve trust and corporate structures which are managed or controlled from Jersey. Accordingly, the Trusts (Jersey) Law 1984 (as amended) is applicable to claims made against trustees. If there is a claim against trustees there are different prescription periods to be observed and one should be cautious of these. In the case of non-fraudulent breaches of trust the period is three years from the date of knowledge of the breach6. In the case of fraud by a trustee however, the claim is not limited by any time period.7 Both of these periods are statutory in the case of a trustee, pursuant to the Trusts (Jersey) Law 1984. Other cases will have different prescription periods however and it should be noted that not all fraud claims have unlimited prescription periods. The accessory liability claim of knowing receipt for example is likely in Jersey to have a prescription period of ten years, although this has not been conclusively determined.8
Trustees under a Jersey law governed trust are usually exempted by way of the trust deed from liability for all acts save for gross negligence, wilful misconduct and fraud. Trustees in Jersey are now almost always directors of trust companies. The trustee is therefore a corporate trustee in the majority of cases. This usually assists with claims as trust companies are required to have adequate PII in place (with run off cover for directors). If however a trust company does not have sufficient assets or PII to cover any claim then directors of the corporate trustee cannot be held personally liable for such claims. It used to be the case that the directors personally guaranteed the liabilities of the corporate trustee but this provision was repealed in the 2006 amendments to the Trusts (Jersey) Law 1984. Nor can any 'dog leg' claim be made against such directors under common law.9
Non Conviction based Forfeiture
The civil confiscation regime in Jersey is governed by the Civil Asset Recovery (International Co-operation) (Jersey) Law 2007 ("the 2007 Law"). The 2007 Law allows a foreign government to apply to the Attorney General to act on its behalf to register a civil asset recovery order in the Jersey Royal Court. Following registration of such an order the Attorney General can apply to the Jersey Royal Court for certain property in Jersey, specified in the civil asset recovery order, to become vested in the Viscount. The specified property can then be returned to the foreign government. The 2007 Law also provides for property restraining orders over property in Jersey which is the subject of external civil asset recovery proceedings, which are ongoing but not yet concluded.
The 2007 Law deals with the registration and enforcement of external civil asset recovery orders. This is defined as an order made by a court or tribunal (authorised to make such orders) in civil proceedings which specifies that property specified in the order is tainted property or specifies an amount of money to be money to be forfeited or recovered in lieu of tainted property (Article 1(1)).
Once the order is registered it can, pursuant to Article 10 of the 2007 Law be enforced by the property in question being vested in, managed, dealt with and realised by the Viscount. Before doing so however, the Royal Court will give persons with any interest in the property a reasonable opportunity to make representations to the court.
Any money which is obtained by the Viscount under Article 10 is paid into a Civil Asset Recovery Fund, pursuant to Article 11 of the 2007 Law. Monies are then applied by a Minister under any asset sharing agreement with the relevant government. Certain other costs come out of the Fund, including the Attorney General's legal costs, and the costs of administering the Fund, including the Viscount's costs.
There are also provisions within the 2007 Law for the receipt of evidence and for property restraint orders.
Essentially, the 2007 Law allows property which is judged through non-criminal proceedings to be the proceeds of unlawful conduct and which is traced to Jersey can be frozen and eventually vested in the Viscount. The Law thus allows another mechanism for the proceeds of crime to be returned to a foreign country without the need for further lengthy court proceedings in Jersey. Even without a criminal conviction, the property can be returned to the government as long as it is specified in the civil asset recovery order as being 'tainted'.
Rules on Disclosure
As in England, the parties to a substantive action taking place in Jersey are obliged to disclose those documents in their control which are material to the issues in the action. Jersey has no statute or rule of court to govern the test for disclosure and therefore the appropriate test in a civil action remains the test used at English common law.10 Specific discovery applications may take place at any time during the action. Privilege applies to such disclosure in the same way as it applies in England. Pre-action disclosure is generally not allowed in Jersey save for the circumstances outlined below.
As stated previously, Jersey is able to issue injunctions in aid of foreign proceedings as well as Jersey substantive proceedings. Disclosure orders may be obtained as ancillary orders to such injunctions. The Royal Court may order worldwide disclosure ancillary to an interlocutory injunction11. An Anton Pillar order may be made where the plaintiff has a strong prima facie case and can show that the defendant has vital material and is likely to destroy that material to defeat the ends of justice and that there are no alternative remedies available. Gagging orders may also be made although this is an 'exceptional order' requiring convincing evidence to justify it.
There are also ancillary remedies available for disclosure against third parties – usually banks or financial service providers who are somehow mixed up in the wrongdoing. The Jersey Royal Court has consistently recognized and applied the Norwich Pharmacal principle (as applied in England) namely, "that if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrongdoing he incurs no personal liability but he comes under a duty to assist the person who has been wronged by giving him the full information and disclosing the identity of the wrongdoers."12 Jersey has also recognised the Bankers Trust principle as applied in England, namely that the Court may order disclosure of information against a bank or a third party where the plaintiff is seeking to trace funds which might be dissipated as a result of delay and there is strong evidence that the plaintiff has been fraudulently deprived of these funds.13
In the authority of Macdoel and others v Federal Republic of Brazil 2007 JLR 201 the Jersey Court of Appeal subsumed an application made pursuant to the Bankers Trust jurisdiction under the Norwich Pharmacal principles, stating that the central question must be "whether justice requires the disclosure to be ordered".14 The Court of Appeal also clarified that the extent to which the Jersey Royal Court must be satisfied that (i) the plaintiffs were the victims of wrongdoing and (ii) that the defendants had been mixed up in alleged wrongdoing is less than a prima facie case. The Court of Appeal approved the use of the test in Arab Monetary Fund15, namely whether there is a 'real prospect' that the information will assist in the process of bringing a claim to pursue the wrongdoers.
It therefore appears that in Jersey the Bankers Trust type case is now to be dealt with by application under the Norwich Pharmacal jurisdiction. These applications are made by Order of Justice making the bank or financial service provider the Defendant to the action.
There is also specific Jersey legislation allowing the Royal Court to order a party to litigation to inspect and take copies of entries in the records of a bank or financial institution where that institution holds records in relation to a Defendant.16 Such applications are made inter parties and must be supported by affidavit. Use of Information Obtained
Using documents recovered pursuant to Jersey proceedings for the purpose of other proceedings (for example in another jurisdiction) requires the express permission of the Jersey Royal Court. Such permission can and should be sought when the disclosure is obtained. Using documents for the purpose of other proceedings without the permission of the Jersey Court may amount to a contempt of court.
Company Law Relevant to Asset Tracing and Recovery
The most usual corporate structure in Jersey is a company wholly owned by a trust with a corporate trustee. That corporate trustee will then provide trustees to the trust and directors to the wholly owned company. Thus, although different duties are owed by the corporate trustee with their trustee and their company director's roles in mind, in practice the directors of the company and the trustees will be the same people. This may well lead to difficulties if there are losses sustained directly by the company rather than the trust. A beneficiary to a trust (or indeed a third party) may find it difficult to sue the directors of the company directly because the directors owed the beneficiary no duties and because of the 'reflective loss principle' which applies in Jersey; namely that the proper plaintiff for the losses of a company is the company, not its shareholders. With this problem in mind, the Jersey Royal Court has clarified that in the circumstances of a discretionary trust owning a company, the reflective loss principle will not apply allowing beneficiaries of a trust to sue the trustees for breach of trust involving losses of a company wholly owned by the trust.17
With reference to an action brought by a minority shareholder directly (without the complication of a trust), Jersey law does allow a derivative action to be brought in certain circumstances. A minority shareholder can bring an action in their own names if the defendants held and controlled the majority of the shares and would not permit an action to be brought in the company's name. This exception applies in Jersey18 as in England.
For this exception to apply the following have to be shown;
(1) the defendants must hold and control the majority of the shares;
(2) the act complained of must amount to a fraud (see below re definition of fraud);
(3) the fraud must be practised on the company and not the minority shareholders themselves
(4) no other remedy must be available, and
(5) the minority shareholder must be bringing the action in order to protect the company (because the fraud has acted to the detriment of the company and also the detriment of the minority shareholders).
In this context the meaning of 'fraud' is not confined to common law deceit but has a wider equitable meaning, namely unconscionable behaviour.
Piercing the Corporate Veil
It is possible in Jersey to pierce the veil of a company. The Royal Court will apply English principles when determining whether in fact the corporate veil of a company may be pierced.19 The Royal Court however have declined to pierce the veil of a trust – distinguishing a trust from a company, because of its lack of separate legal personality. There are other arguments which can be made against the trust structure which may have similar consequences to piercing the veil. If the trust is a sham in that the settlor never in fact gave up control of the assets to the trustees (and this was done with the trustees' knowledge and acceptance) then the trust will be invalid and the assets will revert to the settlor. Equally, if the settlor has abused their position, assumed effective control over the trust and misused it (eg by hiding assets from creditors or by laundering stolen funds) the Royal Court will, after proof of the facts, ensure that the beneficiaries do not benefit from the misuse. Rights of Creditors in National Insolvency Proceedings
Jersey has two principal forms of insolvency procedure – creditors' windings up and désastre. Other forms of insolvency do exist, based on Norman customary law given Jersey's constitutional, legal and cultural background, but these procedures are invoked comparatively rarely in comparison to the two main forms of insolvency.
Creditors' winding up
Rather confusingly, a creditor is not entitled to initiate a creditors' winding up but rather it is for the directors of a company to resolve to call a shareholders' meeting to pass a special resolution to place it in to liquidation. The process of winding up is, in broad, terms, very similar to that of a creditors' winding up in English law.
In summary, creditors have the following rights:
- To be notified of a creditors' meeting which has to take place not less than 14 days after the shareholders' meeting (in addition a notice must be placed in the Jersey Gazette not less than 10 days before the creditors' meeting);
- During the period before the creditors' meeting furnish creditors free of charge with such information concerning the company's affairs as they may reasonably require;
- To receive a copy of the statement of affairs of the company, which must be verified on affidavit by some or all of the directors;
- To vote on the appointment of a liquidator (such vote by creditors to prevail over any nomination by the company if it is a different person);
- In the creditors' meeting, to appoint a liquidation committee consisting of not more than five persons to exercise the functions conferred on it by or under the companies law. Although the company may also appoint five persons, creditors may resolve that all or any of the persons so appointed by the company ought not to be members of the committee. The Courts can also have input in to this process should a dispute arise. Although there is no established Jersey case law concerning the operation of a liquidation committee, it is likely the Jersey couts would have due regard to the UK insolvency legislation; and
- To remove a liquidator at any time and appoint a replacement if there is a vacancy.
- Critically, from the perspective of pursuing recoveries using civil remedies (the Attorney-General being the only party who is permitted to bring criminal proceedings in Jersey), the winding up of a company under Jersey company law bars the right to take any other proceedings in bankruptcy except the right of a creditor or the company to make an application for a désastre.
The liquidator, once appointed, has a wide range of powers, including undertaking investigations into the affairs of a company. If, after such investigation, it appears to the liquidator that an offence has been commited, whether a transaction at undervalue, a preference payment, wrongful trading or fraudulent trading, the liquidator may apply to court for various remedies against the relevant parties depending on the offence committed. The liquidator is also obliged to make a report to the Attorney-General if it appears to him that the company or a director has committed a criminal offence or that a disqualification order should be sought as a result of his conduct.
Jersey company law and the rules governing bankruptcies (désastres) - whether personal or corporate – have been aligned so that the outcome in each process for creditors is the same. A key difference is that unlike creditors' windings up an application for a declaration may be made by a creditor of the debtor with a claim against the debtor of not less than £3,000.
However, although a public officeholder, the Viscount's role is not similar in some key respects to that of the Official Receiver in the UK. A désastre is normally required to be self-funding in that his fees and any costs incurred have to be met from the company's assets. Therefore if there are not any assets to realise or there is uncertainty as to whether there are sufficient to meet his fees and costs (for example if the affairs of a company are complex but a creditor believes there are assets), a creditor making such an application will have to indemnify the Viscount and pay funds up front in order to secure his agreement to act. The provision of funding does not entitle a declaring creditor to direct or otherwise have any control over the insolvency proceedings. The Viscount operates independently of such funding.
Documentation obtained under both a creditors' winding up and désastre is not generally available to creditors. Accordingly, it is not appropriate to use these mechanisms in order to obtain disclosure of evidence, especially for use in other proceedings, whether in Jersey or another jurisdiction. Any information obtained must only be used for the purposes of informing the creditor of his rights in relation to the insolvency.
The Viscount in désastre procedings and any liquidator appointed under a creditors' winding up have the same duties as any other person to report suspicions under Jersey's all crimes anti-money laundering regime under the Proceeds of Crime (Jersey) Law 1999.
Just and equitable windings up
Jersey, as a common law jurisdiction, also has provisions whereby a company may be wound up on just and equitable grounds. However, an application to the court under these provisions may only be made by the company, a director, a member of the company, the Minister for Economic Development ("the Minister") or the Commission. It is not open to creditors to make such an application. There is also a provision for winding up companies on the grounds that it is expedient in the public interest to do so. An application under this provision can only be made by the Minister or the Commission.
Therefore, in the case of businesses regulated by the Commission it is likely that creditors or those alleging fraud, would have to engage with the Commission in order to convince it to exercise its powers to wind up a company. However, the Court has a wide discretion to give directions as to the manner in which the winding-up is to be conducted and make such orders as it sees fit to ensure that the winding-up is conducted in an orderly manner.
Jersey has both statutory and common law provisions relating to the provision of assistance approach to foreign courts in insolvency proceedings. The key determinant as to which route is chosen is based on whether a country is a "relevant country or territory" as defined in secondary legislation pursuant to Article 49 of the Bankruptcy (Désastre) Jersey Law 1990. There are currently five such countries being Australia, Finland, Guernsey, the Isle of Man and the United Kingdom. However, in broad terms the Court adopts a similar approach to both types of application. The Viscount's Department (see earlier for reference to the Viscount's role) should be contacted in the first instance for all applications as the Court is likely to want to seek his views on the nature and content of the application.
The application will be by way of a Representation supported by a Letter of Request from the court which appointed the Trustee in bankruptcy, an affidavit and a copy of the appointment document. That will go the Viscount first who will check the application and confirm that he is content with it. The burden on a representor not from a "relevant country" is greater. The application will need to be decided on the basis of comity which would require the applicant to show that the requesting jurisdiction shows reciprocity to Jersey for the purposes of any possible future request from the Island's courts.
In cases of fraud, the orders sought may well extend beyond those usually sought in non-contentious scenarios, i.e. the application is not simply one of recognition but where specific orders are requested in furtherance of the representor's investigations. The types of orders which can be sought are similar to those covered in Section 2 – Civil Remedies but include freezing orders, disclosure of assets/documents, examination of witnesses, gagging orders and requests to use documents in non-Jersey based proceedings. Local advice should always be sought in advance of any application containing orders of this nature.
Orders for disclosure of documents should be as specific as possible in order to avoid the Court having to reduce the scope of any relief. The same principles apply in the case of examination of witnesses.
Jersey also issues requests to foreign courts for assistance.
1 2002 JLR 53
2 Bagus Investments v Kastening  JRC 144.
3 2002 JLR 53
4 For the purposes of the Law, the foreign court will only be deemed to have jurisdiction if the judgment debtor submitted to the jurisdiction of the foreign court by agreement or appearance.
5 The Deputy Bailiff states in the IMK Family Trust  JRC 136:
"We consider that 'enforcement' of a foreign judgment means the situation where the judgment creditor comes to this Court and requests that this Court give effect to the judgment in Jersey, either by registration (in the case of judgments covered by the [Judgments (Reciprocal Enforcement) (Jersey) Law 1960] or by giving a judgment in identical form to the foreign judgment without reconsidering the merits, which can then be enforced against the debtor here in Jersey in the same way as any other Jersey judgment
6 Article 57 (2)
7 Article 57(1)
8 Bagus Investments Ltd v Kastening 5th August 2010, 2010 JRC 144
9 Alhamrani v Alhamrani 2007 JLR 44
10 Compagne Financiere v Peruvian Guano Co  11 QBD 55.
11 Africa Edge Sarl v Incat and Others 10 October 2008 and approved by the Jersey Court of Appeal (although note this is a post-judgment enforcement case)
12 Norwich Pharmacal Co and Others v Customs and Excise Commissioners  AC 133
13 Per Lord Denning in Bankers Trust Co v Shapira  1 WLR 1274
14 Per Jones JA, Macdoel and others v Federal Republic of Brazil 2007 JLR 201.
15 Arab Monetary Fund v Hashim (No 5) (1992) 2 All ER
16 Bankers' Books Evidence (Jersey) Law 1986
17 Freeman v Ansbacher, 9th January 2009
18 See Khan v Leisure Ent [1997 JLR 313], Eves and Eves v St Brelade's Bay Hotel [1995 JLR Notes - 8] and Gamlestaden [1998 JLR Notes 6b].
19 Re Esteem 2003 JLR 188.
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.