The Valetta Trust

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: The Bailiff:
• Judgment Date: 25 November 2011
• Neutral Citation: [2011] JRC 227
• Date: 25 November 2011

[2011] JRC 227

ROYAL COURT

(Samedi)

Before:

M. C. St. J. Birt, Esq., Bailiff, and Jurats Morgan and Fisher.

In the Matter of the Valetta Trust

Advocate L. J. Springate for the Representors and the new Trustees.

Advocate P. D. James for the Minor and unborn Beneficiaries.

Authorities

2007 Report by the Civil Justice Council “Improved Access to Justice – Funding Options and Proportionate Costs”.

Lord Justice Jackson – Review of Civil Litigation Costs.

Cook on Costs.

R (Factortame Limited and others) -v- Secretary of State for Transport, Local Government and the Regions (no.8) [2002] 3 WLR 1104.

Giles -v- Thompson [1993] 3 All ER 321.

Re Trepca Mines (no. 2) [1963] Ch 199.

Hill -v- Archbold [1968] 1 QB 686.

Arkin -v- Borchard Lines Limited (Nos. 2 and 3) [2005] 1 WLR 3055.

Gulf Azov Shipping Co Limited -v- Idisi [2004] EWCA Civ 292.

London and Regional (St George's Court) Limited -v- Ministry of Defence [2008] EWHC 526.

Morris-v Southark London Borough Council (Law Society intervening) [2011] 2 All ER at 240.

Campbells Cash and Carry Pty Limited -v- Fostif Pty Limited [2006] HCA 41.

Civil Justice Council ‘The future funding of litigation – alternative funding structures’ June 2007.

Sarum Hotel Limited -v- Select Agencies (Jersey) Limited [1987–88] JLR 343.

Pothier, Traité des Obligations.

Le Geyt, La Constitution, Les Lois et les Usages de Jersey’.

Matthews and Nicolle, The Jersey Law of Real Property.

Poingdestre, Lois et Coutumes de l'Île de Jersey.

Godfray, Seigneur -v- Filleul Recteur et autres (1855) 46 H 140; (1858) 8 CR 176.

Houard, Dictionnaire de Droit Normande.

Pothier, Traité des Champart.

Blackstone, Commentaries on the laws of England, 1st edition (1769) Book IV.

Trust — Beddoe application requiring the court to consider the issue of champerty under the law of Jersey.

The Bailiff:

1 This is a Beddoe application which requires the Court to consider the issue of champerty under the law of Jersey. For obvious reasons, we do not propose to say much about the proposed proceedings themselves; suffice it to say that the Court has authorised the new trustee to join the Representors as plaintiffs in the proceedings.

Background

2 It is not necessary to deal with the background of this matter in any detail. The Valetta Trust (“the Trust”) was established on 10th May, 2000. It is a conventional discretionary trust. The beneficiaries include the Representors, who are father and daughter. The trustee at all material times was Lincoln Receivables (Jersey) Limited (“Lincoln”).

3 The only material asset of the Trust was a minority shareholding in a company which in turn owned certain rights to a product. In 2003, Lincoln sold the Trust's shares in the company to itself as trustee of another trust which also held shares in the company. That other trust was for the benefit of the family of one of the co-investors in developing the product. The sale proceeds received by the Trust were subsequently distributed to the beneficiaries and accordingly the Trust has been dormant for some time.

4 However the Representors contend that the sale was at a gross undervalue which was known to Lincoln. The Representors therefore wish to institute proceedings against Lincoln for breach of trust and also against certain other persons who are said to have been knowingly involved in the sale at an undervalue.

5 As the Trust is a discretionary trust, it is appropriate that the trustee of the Trust be a co-plaintiff in the proceedings together with the Representors, so that any proceeds from the litigation are held as part of the trust fund. In the original application, which came before the Court on 16th June, the Representors requested the removal of Lincoln and its replacement by a new trustee. That has subsequently occurred with the agreement of Lincoln and accordingly there is now a new trustee.

6 The Representors cannot afford to bring proceedings and the Trust has no assets other than the claim against Lincoln. In these circumstances, the Representors have entered into an agreement (“the funding agreement”) with an entity known as the Harbour Litigation Investment Fund LP (“Harbour”). Under this agreement Harbour will fund the litigation in return for a share of the proceeds. The new trustee wishes to become party to that agreement so that it is also covered.

7 On being alerted at the initial hearing in June to the nature of the agreement, the Court requested that it be addressed by counsel on whether such an agreement is permissible under Jersey law as the Court did not feel that it would be appropriate to authorise the new trustee to enter into an agreement which was unenforceable under the law of Jersey on the grounds of champerty. The Court has subsequently been addressed on the law by Advocate Springate and the Court is grateful to her for her researches.

8 The effect of the funding agreement can be summarised as follows. Harbour agrees to provide the legal costs of the plaintiffs. It also agrees to meet any adverse costs orders made against the plaintiffs. In return, any damages recovered either by negotiation or by award from the Court are to be applied first in reimbursing Harbour for all the costs which were incurred. Thereafter the proceeds are split between the plaintiffs and Harbour with the proportion going to Harbour commencing with the greater of 25% of the proceeds or twice the legal costs of the plaintiffs, and increasing according to the length of time that the proceedings have taken, reaching a maximum of 50% or three times the legal costs of the plaintiffs, whichever is the greater. Under the agreement, control of the litigation rests with the plaintiffs although they must keep Harbour informed and they agree to conduct the litigation in accordance with the reasonable advice of their lawyers. Harbour has the right to terminate the agreement if satisfied that there has been a material adverse decline in the prospects of success. Harbour would in those circumstances remain liable for all costs incurred during the existence of the agreement and for adverse costs to the date of termination. We were informed by Advocate Springate that Harbour has an investment committee which includes a retired High Court judge and other distinguished lawyers and it assesses the merits of any proposed proceedings which are brought to Harbour for possible investment by way of funding.

9 At the conclusion of the hearing, the Court authorised the new trustee to enter into the funding agreement and we now give our reasons. In doing so we emphasise that we have not heard adversarial argument as there has been no-one arguing that the agreement is unenforceable. In relation to the champerty point, our sole role has been to consider whether there is a reasonable prospect of the funding agreement being held to be lawful. For the reasons set out hereafter, we have concluded, on the basis of the arguments presented to us, that the agreement should be regarded as enforceable and not contrary to public policy; at the very least there is a reasonable prospect of it being so regarded.

The law of champerty

10 Counsel's researches have not found any Jersey case on the law of champerty. For reasons set out below, we conclude that there is no material difference between the law of Jersey and the law of England on this topic and it is therefore convenient to start by reviewing English law.

11 In this task, we have been greatly assisted by some recent publications in England. We refer in particular to the 2007 Report by the Civil Justice Council entitled “Improved Access to Justice – Funding Options and Proportionate Costs”; the Preliminary Report and the Final Report by Lord Justice Jackson – Review of Civil Litigation Costs; and Cook on Costs, chapter 41 entitled “Third Party Funding”. From these reports and texts it is clear that there has been a considerable change of approach to the issue of third party funding in recent years. By third party funding is meant agreements whereby a third party, who has no connection with the dispute, provides financial support for the party to litigation on the basis that the third party will receive a percentage of the sums recovered if the action succeeds, but nothing if the action fails. Such agreements would historically have been regarded as champertous.

12 We must begin by explaining what we mean by champerty. It is closely related to the concept of maintenance. In R (Factortame Limited and others) -v- Secretary of State for Transport, Local Government and the Regions (no.8) [2002] 3 WLR 1104 at para 32, Lord Phillips of Worth Matravers MR approved the following two definitions of maintenance and champerty respectively:-

“A person is guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse .

‘Champerty occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit’” .

13 The history of these two concepts is important to an understanding of the present position. A convenient summary is to be found in the judgment of Steyn LJ in Giles -v- Thompson [1993] 3 All ER 321 at 328. From this it appears that one of the abuses which afflicted the medieval administration of justice was the practice of the assigning of doubtful or fraudulent claims to royal officials, nobles or other persons of wealth and influence who could in those times be expected to receive a very sympathetic hearing in the courts. The agreement often was that the assignee would maintain the action at his own expense and share the proceeds of a favourable outcome with the assignor. It was in those circumstances that the courts developed the doctrines of maintenance and champerty to prevent such abuses.

14 Gradually the conditions which led to the emergence of maintenance and champerty disappeared with the establishment of a sturdy independent...