Northern Trust Fiduciary Services (Guernsey) Ltd v Dejan Devic, Authorised Representative of the Republic of Serbia

JurisdictionJersey
CourtRoyal Court
JudgeJ. A. Clyde-Smith,Jurats Sparrow,Thomas
Date06 May 2019

[2019] JRC 78

ROYAL COURT

(Samedi)

Before:

J. A. Clyde-Smith, Esq., Commissioner, and Jurats Sparrow and Thomas.

In The Matter of the Representation of Northern Trust Fiduciary Services (Guernsey) Limited

and

In The Matter of the Banayou Trust

And In The Matter of Articles 51 and 53 of the Trusts (Jersey) Law 1984 (as Amended)

Between
Northern Trust Fiduciary Services (Guernsey) Limited
Representor
and
Dejan Devic, Authorised Representative of the Republic of Serbia
First Respondent
Violeta Stojanovska Petrovska, Authorised Representative the Republic of Macedonia
Second Respondent
Ankica Kolobaric, Authorised Representative of the State of Bosnia and Herzegovina
Third Respondent
Slavko Tesija, Authorised Representative of the Republic of Croatia
Fourth Respondent
Metka Prevc, Authorised Representative the Republic of Slovenia
Fifth Respondent

Advocate E. C. P. Mackereth for the Representor

Advocate E. B. Drummond appeared as amicus curiae

Authorities

Trusts (Jersey) Law 1984

Re S Settlement [2001] JRC 154

Republic of Croatia v Girocredit Bank [1996] 36 ILM 1520

S v Bedell Cristin Trustees Limited [2005] JRC 109

Lewin on Trusts

HSBC Trustee (CI) Limited v Siu Hing Kwong and others [2018] JRC 051A

Jersey Evening Post Ltd v Al Thani [2002] JLR 542

RBC Trustees (CI) Limited v Appleby [2007] JRC 211

Désastre of Blue Horizon Holidays Limited [1997] JLR 124

In the matter of M and Other Trusts [2012] JRC 127

Trust — The Representor seeks the Court's blessing to the distribution of the assets.

The Attorney General appeared in person (on the issue of the publication of this judgment)

THE COMMISSIONER:
1

The Representor seeks the Court's blessing to the distribution of the assets of the Banayou Trust to the Republic of Serbia, the Republic of Macedonia, the State of Bosnia and Herzegovina, the Republic of Croatia and the Republic of Slovenia.

Background
2

The Banayou Trust was declared on 15 th December, 1988, by NMB Trust Company Limited (“the Original Trustee”) at the request of the National Bank of Yugoslavia, an institution of the Former Socialist Federal Republic of Yugoslavia. The Declaration includes the following provisions:-

  • (i) The proper law is that of the Island of Jersey.

  • (ii) The only beneficiary is the National Bank of Yugoslavia, which has the power to appoint further beneficiaries.

  • (iii) The capital and income of the trust fund were to be applied in accordance with the instructions of the National Bank of Yugoslavia and at the end of the trust period of 100 years, the trust fund was to be transferred to the National Bank of Yugoslavia.

  • (iv) The initial property over which the declaration was made was an account with NMB Bank Amsterdam, although no account number was specified. The evidence is that the National Bank of Yugoslavia was the economic/real settlor.

3

Difficulties arose as a consequence of the dissolution of the Former Socialist Federal Republic of Yugoslavia which was under way by mid 1991, and without going into the detailed history, by 1992 it had ceased to exist and had been succeeded by the Federal Republic of Yugoslavia (comprising Serbia and Montenegro), the Republic of Macedonia, the State of Bosnia and Herzegovina, the Republic of Croatia and the Republic of Slovenia. We will refer to these five States as “the Successor States” which covered all of the geographical area of the Former Socialist Federal Republic of Yugoslavia. Although there continued to be an entity calling itself the National Bank of Yugoslavia, that entity appeared to represent the Federal Republic of Yugoslavia alone.

4

On 21 st June, 2001, the Successor States entered into an agreement known as “the Succession Agreement” which regulates the division of the assets of the Former Socialist Federal Republic of Yugoslavia between the Successor States. Article 6 of Annex C provided for the appointment by each Successor State of a representative to form a committee (“the Distributions Committee”) tasked with arranging the modalities for the initial distribution of the foreign financial assets and to prepare a definitive list of all Socialist Federal Republic of Yugoslavia external debt.

5

Directions as to the status of the National Bank of Yugoslavia and the identity of the beneficiaries of the Banayou Trust were first sought from the Court in 1998 and given on the 13 th January, 1999, from which point the trust has been administered under the directions of the Court. Those directions included an order that no distributions be made without the authority of the Court. The Original Trustee changed its name to ING Trust (Jersey) Limited before resigning in favour of the representor pursuant to permission given by the Court on the 25 th March, 2004. After a long, difficult and convoluted process the point has now been reached at which a proposal for the distribution of the trust assets, currently some £9.9 million, can be put to the Court for its blessing.

6

Private international law advice had been received by the Original Trustee on 25 th January, 2001, confirmed on 9 th June, 2003, and again on 12 th September, 2003, that the National Bank of Yugoslavia was an asset of the Former Socialist Federal Republic of Yugoslavia. Having been succeeded by the Successor States, they are prima facie the successor beneficiaries and are entitled to share the assets in the Banayou Trust in such equitable proportions as their authorised representatives may agree. There were, however, three residual issues which could impact on that analysis which on 25 th March, 2004, the Court directed be addressed by giving effect to a joint proposal from English counsel. We take those three issues in turn.

Provenance of the trust assets
7

The activities of the Banayou Trust have been complex, but the representation of the Original Trustee brought before the Court in 1998 gives this explanation:-

“Factual background of Trust Assets

  • 5. On 20th September 1988, NBY and certain other Yugoslavian banking institutions entered into various refinancing agreements. These were described as the New Financing Agreement (“NFA”), the Trade and Deposit Facility Agreement (“TDFA”) and the Alternative Participation Instrument (“API”). The agreements were, essentially, a scheme to “refinance” previous existing loans made to NBY in respect of which there had been defaults in repayments on the existing loans as a result of the weakness of the Yugoslavian economy.

  • 6. The NFA, TDFA and API allowed certain banking institutions around the world to inject liquidity into NBY, with the ultimate purpose being that NBY would then be able to maintain and ultimately repay the existing loans with interest.

  • 7. As pleaded above, on 15th December 1988 the Trustee received a written request from NBY to execute a declaration of trust in respect of funds transferred to NMB Curacao's account 2309/015/217 with NMB Bank Hamburg in favour of the Trustee together with other funds from time to time, and the declaration of trust forming the Banayou Trust was executed on the same day in accordance therewith. On the 16th December 1988 NMB transferred a sum of Deutschemarks to the Trustee to be held on the terms of the Banayou Trust. That purpose of the transfer was to enable the Trustee to purchase some of the loans made by external parties to NBY under the NFA, at a lower price than the “face value” of the loan. As the beneficiary of the Banayou Trust was NBY, the intention was to reduce the amount of borrowing owed to banking institutions outside of Yugoslavia.

  • 8. Further arrangements were made by the Trustee of the fund to buy back the debt of NBY to various banks under the NFA, TDFA and API. A number of complex transactions were entered into.

  • 9. In summary, as a result of the matters aforesaid, the fund of the Banayou Trust consisted of certain portions of the debt owed by the NBY to various banking institutions which were acquired by the Trustee, either by gift or purchase, in several tranches over a period of two years. Purchases of further debt under the NFA were enabled by revenue from portions of the loans already bought back. At present the trust fund assets are set out in a schedule attached to this Representation.”

8

As Advocate Drummond, amicus curiae, put it, if the National Bank of Yugoslavia was struggling to meet its debt obligations in full, the Banayou Trust provided a means to buy its own debt on the secondary market at a discount to face value.

9

This issue was to be addressed through the Bank of England and, in short, the Bank of England confirmed that it had no concerns relating to the provenance of the trust assets, a confirmation which satisfied the Attorney General. The Distributions Committee also confirmed that the source of the funds was “re-purchased Yugoslav debt to the London Club creditors”. The reference to the London Club is to some 100 external bank creditors of the Former Socialist Federal Republic of Yugoslavia, which also had debt with fifteen sovereign states known as the Paris Club.

The Paris and London Club Agreements
10

The concern here was whether the assets of the Banayou Trust were required to be dealt with under restructuring agreements entered into between the National Bank of Yugoslavia and the London and Paris Club members before the trust was created and in particular whether they might be creditors of the trust. Again, in short, both the Bank of England and the Distributions Committee confirmed that the assets of the trust did not require to be dealt with as part of the Paris or London Club agreements and that the trust assets did fall within the scope of the Succession Agreement.

Apportionment between the Successor States
11

The Successor States were invited to agree how the trust assets should be apportioned as between them. It is this issue that has taken years to resolve, but through the Distributions Committee...

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