Northwind Yachts Ltd

JurisdictionJersey
CourtRoyal Court
JudgeBirt, Deputy Bailiff and Jurats Georgelin and Le Cornu
Judgment Date20 April 2005
Date20 April 2005
ROYAL COURT
Birt, Deputy Bailiff and Jurats Georgelin and Le Cornu

A. Clarke for the representor;

M. Renouf for the respondent.

Cases cited:

(1) Barrett v. Duckett, [1995] 1 BCLC 243; [1995] BCC 362, applied.

(2) Bristol & W. Bldg. Socy. v. Mothew, [1998] Ch. 1; [1996] 4 All E.R. 698, referred to.

(3) Esteem Settlement, In re, 2002 JLR 53, applied.

(4) Fargro Ltd. v. Godfroy, [1986] 1 W.L.R. 1134; [1986] 3 All E.R. 279, applied.

(5) Ferguson v. Wallbridge, [1935] 3 D.L.R. 66, referred to.

(6) Gwembe Valley Dev. Co. Ltd. v. Koshy (No. 3), [2004] 1 BCLC 131, distinguished.

Legislation construed:

Companies (Jersey) Law 1991, art. 141: The relevant terms of this article are set out at para. 2.

art. 143: The relevant terms of this article are set out at para. 2.

Trusts (Jersey) Law 1984, art. 1: The relevant terms of this article are set out at para. 30.

art. 2: The relevant terms of this article are set out at para. 30.

art. 53, as amended by the Trusts (Amendment No. 3) (Jersey) Law 1996, art. 9: The relevant terms of this article are set out at para. 26.

Companies—minority shareholders—unfair prejudice—no derivative action, under Companies (Jersey) Law 1991, art. 143(2)(c), if adequate alternative remedy available—liquidation may be adequate alternative remedy if company dormant—derivative action may be revived if shareholder against whom action proposed fails to fulfil promise to help fund liquidation

Companies—directors—breach of fiduciary duty—prescription—3-year limitation period in Trusts (Jersey) Law 1984, art. 53 for action against trustee for breach of trust not applicable to action against company director for breach of fiduciary duty—probably 10-year limit for action for breach of contractual or fiduciary duty

The representor applied for an order under art. 143(2)(c) of the Companies (Jersey) Law 1991 authorizing him to bring a derivative action in a company's name.

The parties were the directors and equal beneficial owners of a company which was not successful and ceased operating in 1999. By the time the present proceedings were instituted, it had no assets, except for any claim against either of the parties, nor creditors, other than the parties themselves, and had been dormant for several years.

The representor alleged that the company had suffered losses as a result of a number of breaches by the respondent of his fiduciary duty as a director of the company. The respondent denied the allegations and opposed any action against him by the company. He applied instead for it be put into liquidation and undertook to make funds available to the liquidator on an equal basis with the representor for the investigation of any claims. As the company could not act without the agreement of both parties, the representor sought an order authorizing him to bring proceedings against the respondent on the company's behalf. The respondent claimed that if authority were given, he would then seek to bring a similar derivative action against the representor.

The representor submitted that (a) an order should be granted under art. 143(2)(c) of the Companies (Jersey) Law 1991, authorizing him to bring an action in the company's name, as the company could not otherwise recover its claim because the action was opposed by the respondent; (b) the liquidation of the company would not be an adequate alternative remedy because of the costs involved; and (c) the application was not prescribed, as the time limit for an action against a company director for breach of fiduciary duty was 10 years.

The respondent submitted in reply that (a) the liquidation of the company would be an adequate alternative remedy and an order under art. 143(2)(c) authorizing a derivative action would therefore be inappropriate; (b) the application under art. 141 was in any case not well founded; and (c) the application was also prescribed, as the three-year time limit in art. 53 of the Trusts (Jersey) Law 1984 applied to the action for breach of fiduciary duty against a company director.

Held, staying the application:

(1) The representor would not be authorized under art. 143 of the Companies (Jersey) Law 1991 to bring a derivative action against the respondent, since liquidation of the company—which was no longer a going concern and had no assets other than the possible claims against the parties—would be an adequate alternative remedy. The liquidator, representing the company, would be the best person to investigate those claims on its behalf and to take action if necessary. It would be highly unsatisfactory if both parties were to bring simultaneous derivative actions against each other. As the company had no assets, however, it was important to ensure that sufficient funds were made available to the liquidator for the investigation of the claims. Although the respondent had undertaken to make funds available on an equal basis with the representor, the present application would be stayed, pending the winding up of the company, so that it could be revived by the representor if adequate funding were not in fact provided ( paras. 17-20).

(2) Whilst it was not necessary to decide the matter, had liquidation not provided an adequate alternative remedy to the relief sought, the representor's application under art. 141 of the Companies (Jersey) Law 1991 would have been well founded. A full trial of allegations of unfairly prejudicial conduct would, in certain circumstances, be required before a representation seeking relief under art. 143 could be held to be well founded. If the relief sought were, however, merely authority under art. 143(2)(c) to bring a derivative action concerning alleged unfair prejudice, a full trial of those issues would be unnecessary to determine that the application was well founded and that the representor could therefore bring a derivative action raising the same issues on behalf of the company. Consideration of the pleaded allegations of unfairly prejudicial conduct and the supporting affidavit evidence would suffice to determine whether or not an application for authority to bring a derivative action was well founded ( paras. 22-24).

(3) Nor would the representor's application have been prescribed under art. 53 of the Trusts (Jersey) Law 1984. That three-year limitation period applied only to actions against a "trustee," who holds or has vested in him trust property, for a "breach of trust," being a breach of a duty imposed on him either by that Law or by the terms of a trust. As a company's property is not vested in its directors and as the 1984 Law concerns conventional trusts rather than the fiduciary obligations owed by company directors, the limitation period under art. 53 would not have applied to the present application regarding the alleged breaches of fiduciary duty by the respondent. The limitation period for an action against a company director for a breach of duty, whether contractual or fiduciary, would probably be 10 years ( paras. 30-33).

(4) It was unhelpful that the respondent's counsel had produced a copy of a reported judgment which appeared to have been printed from a website and did not contain the page numbers of the original report. Any version of a reported judgment produced to the court should contain the page numbers of the original report so that citations might be properly referenced ( para. 11).

1 BIRT, DEPUTY BAILIFF: This is an application by the representor (Mr. Guenier) for an order under art. 143 of the Companies (Jersey) Law 1991 that he be authorized to bring civil proceedings against the respondent (Mr. Fuller) on behalf of a Jersey company called Northwind Yachts Limited ("the Company").

2 The relevant articles of the Companies Law are as follows:

Article 141:

"Power for member to apply to court

(1) A member of a company may apply to the court for an order under Article 143 on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

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