CMC Holdings Ltd v Martin Henry Forster

JurisdictionJersey
CourtRoyal Court
JudgeMatthew John Thompson,Master Thompson
Judgment Date26 August 2016
Neutral Citation[2016] JRC 149
Date26 August 2016

[2016] JRC 149

ROYAL COURT

(Samedi)

Before:

Advocate Matthew John Thompson, Master of the Royal Court

Between
CMC Holdings Limited
First Plaintiff
CMC Motors Group Limited
Second Plaintiff
and
Martin Henry Forster
First Defendant
RBC Trust Company (International) Limited
Second Defendant
The Regent Trust Company Limited
Third Defendant

Advocate W. A. F. Redgrave for the First and Second Plaintiffs

Advocate D. V. Blackmore for the First Defendant.

Advocate J. P. Speck for the Second and Third Defendants.

Authorities

MacDoel Investments & Ors v Federal Republic of Brazil [2007] JLR 201.

Nolan v Minerva Trust [2014] (2) JLR 117.

Trusts (Jersey) Law 1984, as amended.

Stock v Pantrust [2015] JRC 268.

X Children v Minister for Health and Social Services [2011] JLR 772.

Bagus Investments Limited v Kastening [2010] JLR 355.

Williams v Central Bank of Nigeria [2014] AC 1189.

Peconic Industrial Development Limited v Lau Kwokfai 11 ITELR 844.

MacFirbhisigh v CI Executors [2015] JRC 233.

West v Lazards Bros & Co (Jersey) Ltd & Ors [1993] JLR 165.

Midland Bank and Day v Federated Pension Services [1994] JLR 276.

Royal Brunei Airlines v Tan [1995] 2 AC 389.

Cunningham v Cunningham [2009] JLR 227.

Three Rivers D.C. v Bank of England (No.3) [2003] 2 AC 1.

Public Services Committee v Maynard [1996] JLR 343.

In the matter of II [2016] JRC 116.

Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400.

Kilbey v Grafters Limited & Ors [2015] (1) JLR 1.

Unilever Plc v Proctor & Gamble Co [2001] I All E.R. 783.

Companies — civil procedure — reasons for refusing to order preliminary issue regarding litigation.

CONTENTS OF JUDGMENT

Paras

1.

Introduction

1–13

2.

The legal principles

14–19

3.

The applicable limitation periods

20–47

4.

Decision

48–72

THE MASTER:
Introduction
1

This judgment represents my detailed written reasons for refusing to order a preliminary issue on the question of whether or not the plaintiffs' claims are out of time. The application was advanced by the second and third defendants but was also supported by the first defendant.

2

The proceedings concern claims brought by the plaintiffs, who are Kenyan companies and whose business is the importation of motor vehicles into East Africa. The plaintiffs allege that between sometime in 1977 and 2011 some of the past directors of the companies, including the first defendant, participated in certain arrangements to receive secret commissions. The claim is summarised at paragraphs 1 to 6 of the Order of Justice as follows:-

“1 The Plaintiffs are long-established Kenyan companies. They import vehicles from overseas vehicle manufacturers and supply them to the East African market. The Second Plaintiff is a wholly owned subsidiary of the First Plaintiff.

2 The Plaintiffs seek relief in respect of the Defendants' participation in a secret scheme (“the Scheme”) which operated from 1977 to 2011. Under the Scheme, funds properly due to the Plaintiffs were diverted at the instruction of certain directors of the Plaintiffs, in breach of fiduciary duty and in breach of trust. The directors responsible included the First Defendant.

3 Those directors were dishonestly assisted by the Second and Third Defendants, who were at all material times fiduciary and corporate services providers in Jersey. In the alternative, the Second and Third Defendants are vicariously liable for the dishonest assistance rendered by their employees and agents in the directors' breaches of duty.

4 The Scheme was funded by secret commissions paid by vehicle manufacturers that supplied vehicles to the Second Plaintiff. They were paid directly to bank accounts in Jersey operated by entities unconnected with either of the Plaintiffs and without the knowledge or authorisation of the Plaintiffs. Funds paid into the Scheme were transferred between those entities, invested, and over time substantially distributed to a small group of people, including the First Defendant and other of the Plaintiffs' directors who were privy to the Scheme.

5 The secret commissions paid into the Scheme and their proceeds were the result of breaches of fiduciary duty and breaches of trust by directors of the Plaintiffs, including the First Defendant. The Plaintiffs seek orders that the First Defendant account to the Plaintiffs for all sums that were paid into the Scheme as a consequence of his breaches of fiduciary duty and breaches of trust. The Plaintiffs also seek an order that he account to the Plaintiffs for his profit from the Scheme still in his hands.

6 The Plaintiffs also seek orders that the Second and Third Defendants account to the Plaintiffs for all sums paid into the Scheme on the ground of their dishonest assistance in these breaches of fiduciary duty and/or breaches of trust, or in the alternative on the basis that they are vicariously liable for the dishonest assistance provided by their agents and employees.”

3

The Scheme was described as operating in two parts as set out at paragraphs 26 to 34 of the Order of Justice which plead as follows:-

“26 The Scheme received income from payments made to a number of companies incorporated in offshore jurisdictions, and a Jersey law trust. The companies and the Trust were outside the Cooper Motor Corporation group of companies of which CMCH is the holding company. The existence of the companies and the Trust was deliberately kept secret from the Plaintiffs, as were the payments. The companies and the Trust all had bank accounts in Jersey and held the secret commissions in pounds sterling.

27 The Scheme received payments in two phases. Phase one of the Scheme received payments from 1977 to the late 1990s, though the proceeds of those payments continued to be held in bank accounts in Jersey and distributed to individuals including Core Defaulting Directors and Non-Core Defaulting Directors of the Plaintiffs until 2011. Phase two of the Scheme received payments from the late 1990s and ceased to do so in 2007.

28 Phase one was established in 1977 by Jack Benzimra and thereafter operated principally under his direction until around 1996. Jack Benzimra was assisted from the outset by Richard Pirouet (of TBM and TBM's successor firms, and later RBC) and later by Richard Schindler and Alan Nutbrown of RBC. Jack Benzimra was also assisted from 18 December 1989 by Regent and its agents and employees, who included Richard Pirouet, Richard Schindler and Alan Nutbrown as is further particularised below.

29 It is to be inferred that Forster was aware of the Scheme and involved in its operation from at least 1978, by reason of the following facts:

  • (1) Forster was sales director of CMCH from 1978;

  • (2) Forster was Managing Director of CMCM from 1979; and

  • (3) Forster received payments from the Scheme from 1978 onwards.

30 Phase one involved a number of a number of companies incorporated by TBM in offshore jurisdictions. Services were provided to these companies by TBM and its successors including RBC. From 1989 the Trust was part of the Scheme and Regent provided its services as trustee. These entities are described below, in the order in which they were created:

(1) Corival Overseas Investments Inc. (“COI Panama”) — (1977–1984), a limited company with company number 12227 registered in Panama;

(2) Corival Overseas Investments Inc. (“COI Liberia”) — (1984–1998), a limited company registered in Liberia, replacing COI Panama in the Scheme from 1984;

(3) Fair Valley Investments Inc. (“FVI”) — (1981–1999), a limited company registered in Liberia; and

(4) The Fairvalley Trust (“the Trust”) — (1989–present), a discretionary trust governed by Jersey law.

31 In respect of phase one, relief is sought against all three defendants (as is more fully particularised below):

(1) against Forster, for breach of fiduciary duty and breach of trust; and

(2) against RBC and Regent, for their dishonest assistance in those breaches.

32 Phase two, which began in or around 1996, involved the use of two new companies to receive commission payments and make payments out to beneficiaries. Those companies were:

(1) Corival 1996 Limited (“C96”) — a Jersey limited company with company registration number 66771, incorporated on 12 November 1996 and dissolved in 16 June 2007;

(2) CMC Group Limited (“CMCG”) — a British Virgin Islands limited company with registration number 357826, incorporated on 22 December 1999 and dissolved in 2007.

33 C96 and CMCG were unconnected to the Plaintiffs and their existence was kept a secret from the Plaintiffs. The directors of C96 and CMCG were Forster, Kiereini, Jani and Njonjo. Forster held the senior position of authority.

34 In respect of phase two, relief is only sought against Forster, for his breaches of fiduciary duty and breaches of trust (as is more fully particularised below). Neither RBC nor Regent provided services to C96 or CMCG. No relief is sought against RBC or Regent in respect of commissions which were paid to C96 and CMCG and were not received by the Scheme in phase one.”

4

According to the plaintiffs, what led to them starting to become aware of the Scheme was a conversation between a Mr William Lay (“Mr Lay”) and the first defendant. In an affidavit sworn by Mr Lay in support of an intended application for Norwich Pharmacal disclosure based on MacDoel Investments & Ors v Federal Republic of Brazil [2007] JLR 201 dated 22 nd August, 2012, Mr Lay stated that he became Group Managing Director of the CMC Group on 1 st May, 2011. In his affidavit at paragraphs 10 to 12, Mr Lay deposed that in May 2011 he discovered material about the Scheme and was provided with certain information emanating from the first defendant about payments made to certain employees under the Scheme.

5

On 12 th July, 2013, voluntary disclosure of 29 files of documentation relating to the Scheme was provided to...

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1 firm's commentaries
  • Dishonest Or Fraudulent Breaches Of Duty Know No Limits
    • Jersey
    • Mondaq Jersey
    • 5 October 2016
    ...will be determined following a full trial (the application for the preliminary issue having failed) will remain to be seen. Footnotes [2016] JRC149 Following Nolan v Minerva Trust [2014] (2) JLR 117 [2014] AC 1189 Paragon Finance Plc v DB Thackerar & Co [1999] 1 All ER 400 In English la......

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