Simon Thomas Partner – Baker & Partners, Jersey Charles Coleman Director – Gough Law, Isle of Man

1. Simon Thomas
Partner – Baker & Partners, Jersey
Charles Coleman
Director – Gough Law, Isle of Man
Offshore
directors –
Are they
untouchable?
Offshore Alert London
25 November 2015
Grange St. Pauls,
London

2. Professional Directors
Nominee Directors
Independent Directors
Definitions

3. Requisite criminal intent?
“dishonesty”?
Strict liability
Regulatory offences?
Offences under proceed of crime legislation?
Criminal law?

4. How active is the regulator?
How egregious are the actions of the director?
Available sanctions?
Unlikely effective remedy for loser.
Regulatory Sanctions?

5.  Statutory duties:
E.G. art 74(1) Companies (Jersey) Law
General duty to act honestly in good faith and with due care, diligence and skill
 Common law duties
Must act bona fide in the best interests of the Company
Must positively apply his mind to the question of what the Company’s interests are
Must exercise independent judgement and not fetter discretion
Must act in accordance with the powers given by articles.
 No “special rules”
The Basics: What are duties of director?

6.  Nothing legally wrong
 “So long as the director is left free to exercise his best judgment in the
interests of the company which he serves... but if he is put upon terms
that he is bound to act in the affairs of the company in accordance with
the directions of his patron, it is beyond doubt unlawful”
Bouting v. Association of Cinematograph [1963] 2 QB 626
 A director who acts without exercising any discretion at the
direction of a stranger to the company is “fixed with the stranger’s
knowledge of the nature of the transactions”
Selangor v United Rubber Estates [1968] 1 WLR 1555
“Nominee” Directors

7. Why pursue
directors?

8. “low hanging fruit”?
Fraud cases
Insolvent fraud
Enforceability issues against “fraudsters” and/or principal
characters
Insurance coverage
Minimum level of cover?
Why pursue directors?

9. Establish breach of fiduciary duty by directors
Pursue those who may have dishonesty assisted
that breach.
Stepping stone to other parties:
Dishonest assistance

10. Central Bank of Ecuador v.
Conticorp SA & others [2015]
UKPC 11
Case Study

11. The structure
Conticorp SA
Grupo Financiero Conticorp SA
Banco Continental
Banco Curacao
Interamerican Asset Management Fund
Limited “IAMF”

12. 2,500 Bahamanian $ per year
5 individuals authorised to give him “full
instructions”
Members of the family which controlled Conticorp
“never more than an instrument executing the
Respondents’ instructions”
Mr Taylor

13.  On instructions signed away portfolio of assets worth $190m in
transaction at undervalue
 Orchestrated by Conticorp to extract value from failing
subsidiary
 Taylor made no enquiries as to commercial benefit to company
of transaction.
 No independent judgment
 Fixed with knowledge of those instructing him.
The transactions

14. No reason to believe that the instructions he
received were dishonest
Impossible on the information that he was provided
with for him to conclude where the interests of the
Company lay
BUT made no reasonable enquiry.
Taylor’s defence

15.  Mr Taylor gave effect “blindly and ignorantly” to others’
instructions and this was so whether or not he was, in the
event fortunate enough to receive only instructions which
were in IAMF’s best interest
 It was his duty to understand IAMF’s affairs and apply his
own mind to its interests
 He took the risk, at the very least, that the instructions he
received and followed may not be proper
No different standard for offshore nominees

16. “Dishonesty”
Defendant must be conscious of those elements of the
transaction which make his participation transgress ordinary
standards of honest behaviour, but there is no requirement
that he should have thought about what those standards
were
Barlow Clowes v Eurotrust [2006]
Dishonest Assisters

17. Joint and several liability US$ 191m
Compound interest
Available where money obtained and retained by fraud by someone in
fiduciary position
Applies equally to those who assist the fiducuiary
Interest US$381m
Judgment

18.  Corporate Services Provider provides services to
fraudster
 Fraudster obtained funds from victim on trust
 CSP paid away funds
 Court found knowledge sufficient for dishonest assistance
 Judgment against CSP £4.5m and €8.4m
Nolan v Minerva [2014] - Jersey

19. Causes of action

20. Breach of fiduciary duty
Negligence
Causes of action

21.  Directors acting in interests of another company within
group/shareholders of another company
 Angelmist Properties Ltd v. Leonard [2015]
Transaction for benefit of another company in group is potentially in the
overall, albeit indirect interest of their company
But must still exercise appropriate care in the interests of the company
of which they are director. Cannot forego that Company’s interest
Conflict of interest

22. Possibility of exclusion clauses
Articles of association
Contracts of services
Only liable for “wilful default”
Negligence

23.  Failings of directors, included:
Signing minutes of meetings and reports prepared by professionals
appointed to manage fund without reading them
Signed financial statements, management representation letters and
side letters without making enquiries
Signed sham investment management and advisory agreements
without reading them
Failed to read a report which identified a related entity as investment
counterparty.
Weavering v Peterson - Caymans

24. Need to establish either
Intentional and conscious breach of duty, or
Reckless disregard by director for duty he owed
Re City Equitable Fire insurance [1925] Ch 407
“Wilful default”

25. Difficulties

26. Judgments proof
Lack of assets
Insurance agreements
Collusive agreement between defendant director & insurer?
Practical difficulties

27.  Reflective loss-type arguments
Proper Plaintiff in action for loss suffered by a wrong to the Company
will normally be the Company itself and not its shareholders
Impact for offshore trust structures?
Positive indications from some courts
Freeman v Ansbacher [2009] Jersey
Jefcoate v Spread Trustee Co Ltd [2014] Guernsey
Risk remains
Legal difficulties

28. Difficulty in proving “fraud” or “dishonesty”
Causation
“Honestly & reasonably” clauses
Ratification of conduct by shareholders
Apportionment of damages
Contributory negligence
Legal difficulties

29. Conclusions

30. Simon Thomas
Partner – Baker & Partners, Jersey
Charles Coleman
Director – Gough Law, Isle of Man
Offshore
directors –
Are they
untouchable?
Offshore Alert London
25 November 2015
Grange St. Pauls,
London