Offshore disputes: Big fish, small pond

Carlyle, Tchenguiz and Crociani are cases repeatedly cited by the leading players in Jersey and Guernsey as shorthand for big disputes and big fees. These cases just keep on giving: all three are now subject to further appeals or related proceedings, prolonging their life in litigation terms. Elsewhere, the mood among local dispute resolution and insolvency lawyers is generally upbeat. Although less high-profile litigation might not deliver the big headlines, there is enough going on below the radar for revenues to remain healthy.

‘Insolvency-related disputes are still a significant source of work globally,’ says Jeremy Wessels, Mourant’s head of litigation and dispute resolution. ‘Other areas where we have seen increased activity include trust-related litigation, regulatory, debt restructuring, cross-border enforcement and go-private transactions.’ Mourant remains the biggest Channel Islands firm for disputes with 25 lawyers in Jersey (five partners and 20 other fee-earners) and 23 (six and 17 respectively) in Guernsey.

The Carlyle case has certainly been a litigator’s dream. It involved a six-month trial, notable as the largest and the longest in Guernsey’s history, and the culmination of more than seven years of litigation. In September 2017, The Carlyle Group, Carlyle Investment Management and TCG Holdings (Carlyle Group) – which were all represented by Simon Davies, global head of dispute resolution at Ogier – won a civil case tried by Jersey’s Lieutenant-Bailiff, Hazel Marshall QC.

The successful defence involved claims that led to total investment losses exceeding £1bn as a result of the financial crisis. Babbé partner Ian Swan represented four US-based directors, while Collas Crill partner Gareth Bell represented three other directors. Every director was exonerated by the judgment. Wessels acted for the plaintiffs: Carlyle Capital Corporation (CCC), a Guernsey investment fund, as well as for the liquidators, Grant Thornton.

Davies, who has been instructed on the case from the outset, says: ‘Since the Carlyle judgment that vindicated our clients, we have been working on the appeal. This is listed to be determined in an eight-day hearing. In all, more than 187 claims (with a combined value approaching $2bn) were pursued against The Carlyle Group companies, and its seven executive and non-executive directors. The Royal Court’s judgment dismissed all claims considered at trial against each of them.’

‘Insolvency-related disputes are still a significant source of work globally.’
Jeremy Wessels, Mourant

One focus of the appeal is that the directors and the investment manager of CCC were either negligent or grossly negligent by not selling residential mortgage-backed securities before it went into liquidation.

‘We are about to represent the directors of CCC in the appeal,’ says Swan. ‘As Guernsey’s biggest-ever civil trial it garnered world-wide publicity due to the high profile of the defendant directors.’

Christian Hay, global head of litigation at Collas Crill, adds: ‘As the largest trial Guernsey has ever seen, it was challenging for everyone concerned, including the court. And it is still keeping us busy. A good few of our team have been engaged: the directors successfully defended the action at first instance, and the liquidators have raised an appeal which is going to a hearing before the Guernsey Court of Appeal.’

Elsewhere the Tchenguiz brothers, Robert and Vincent, have kept countless lawyers occupied with their complex affairs, both onshore and offshore, for many years. In April, The Privy Council delivered its judgment in Investec v Glenalla, the latest instalment of an eight-year dispute related to Robert Tchenguiz’s discretionary trust (TDT) – Investec won against Tchenguiz. Babbé acted for the trustees of TDT, who had further appealed a Guernsey Court of Appeal ruling of 2015 to the Privy Council. Carey Olsen appeared for the joint liquidators, Grant Thornton.

Anti-offshore narrative

Beyond Carlyle and Tchenguiz, what else have Guernsey litigators been up to? The litigation team at Babbé has four partners and four associates. ‘We have been involved in a spread of trusts, funds and corporate litigation; insolvency and regulatory work have grown particularly strongly,’ says Swan. ‘We have seen a rise in work emanating from the US and from East Asia, while maintaining a steady flow of instructions from other areas, including the UK, South America, Canada and the Middle East. The trend has been for greater globalisation of sources of work.’

‘The trend has been for greater globalisation of sources of work.’
Ian Swan, Babbé

Collas Crill has increased its Guernsey disputes team from nine to 12 over the past year. The lion’s share of the firm’s growth is in litigation, according to Hay. ‘The hires in Cayman and both Guernsey and Jersey have pushed those numbers up. Increasingly, we are working with institutional clients in both the non-contentious and semi-contentious advisory space. Litigation is still one of our key strengths; it counts for 40% to 45% of the group’s revenue.’

In Guernsey, he points to contentious trusts as ‘having seen a boom in number and value. The drivers for that originate with the global downturn combined with the populist anti-offshore narrative. This means that people are changing trustees, changing where their assets are based and those changes lead to cock-ups, which lead to claims. On top of that, there is the explosion in regulation and compliance, which drives disputes in the trust industry as trustees fall foul of regulations and give their beneficiaries something to hang claims on.’

Ogier is also boosting its Guernsey litigator numbers, from ten to 12, by January. ‘Across the group we have seen a real resurgence in trust disputes – and in the Channel Islands in particular there has been regulatory work arising out of investigations by local regulators, and sanctions-related work in both Jersey and Guernsey,’ confirms Davies. ‘London law firms and intermediaries are the main source [of work] for our Channel Island teams, but they also win instructions from regional UK firms and from mainland Europe.’

‘Trust disputes originate with the global downturn combined with the populist anti-offshore narrative. People are changing where their assets are based, which leads to cock-ups, which leads to claims.’
Christian Hay, Collas Crill

Walkers’ St Peter Port office, comprised of two partners and two associates, was launched in 2016. ‘The Channel Islands will continue to be relevant for the offshore world, particularly in litigation,’ says Neil Lupton, Cayman partner in Walkers’ global insolvency and dispute resolution group. ‘Although the local litigation market has been quieter than in Cayman and BVI, it is still active and relevant to our global clients.’

Jersey’s answer to Carlyle and Tchenguiz is Crociani – one of the island’s largest-ever breach of trust cases involving a bitter family dispute, which is described by one observer as ‘an endless bun fight for the lawyers’.

The case was brought by Cristiana Crociani and her daughters against the trustees and former trustees of two related trust structures. Five years after the dispute began, the 2017 trial lasted three months with the litigation giving rise to numerous judgments on Jersey trusts law and procedure. Meanwhile a Van Gogh painting, owned by the Crocianis, recently turned up in Miami together with other family artwork, leading to a protracted argument over their value and freezing orders being imposed.

And there is no end in sight here either. ‘There are three major cases that are knocking around the jurisdictions and for us, in Jersey, Crociani is it,’ says David Cadin, managing partner at Bedell Cristin. ‘Our team acts for the plaintiffs; we won the case and we are still winning. There are numerous inquiries as to compensation, including the valuation of artworks and continuing hearings and appeals. On a human level, and on a legal level, it is a fascinating story.’

Bedell has four litigation partners in Jersey and four other fee-earners, down slightly on a year ago; in Guernsey, the numbers are two and three respectively. ‘We keep our teams trim and appropriately sized for the work involved,’ says Cadin. ‘If you engage another firm, you are likely to find a large team on your case, and you will get the bills that match; if you engage with us, you are going to get what you need for the litigation. Crociani is a good example. Our world view is: you don’t need a cast of thousands to do this stuff, you just simply do it better.’

William Redgrave leads the Baker & Partners team on Crociani, representing BNP Paribas Jersey Trust Corporation. ‘The trial finished last year and the appeal judgment came out in July,’ he says. ‘We were successful in halving our liability.

‘We keep our teams trim and appropriately sized for the work involved. You don’t need a cast of thousands to do this stuff, you just simply do it better.’
David Cadin, Bedell Cristin

There are a lot of parties, a lot of money is involved. There is the possibility of appeals to the Privy Council. It is a very big case, producing a lot of interesting judgments on matters of trust law. I sometimes have the impression that in the world of the Chancery Bar in London they talk about little else.’

In addition to Bedell and Baker, Collas Crill is acting for Appleby Mauritius (owned by Appleby until 2016, now Estera) in Crociani while Jersey litigation boutique, Dickinson Gleeson, is representing the new trustee. ‘Our Jersey team is still heavily involved in Crociani-related matters – not only in Jersey, but also advising on connected proceedings in other jurisdictions,’ says Hay.

This case aside, Mourant is acting for a key creditor in the long-running Z Trusts litigation. ‘The Jersey court is, for the first time, developing a jurisdiction for the administration of insolvent trusts,’ says Wessels. ‘In the most recent case, the court dealt with the question of the priority of creditors. This is critical for a trust with hundreds of millions of pounds of creditors.’

Getting the balance right

In overall terms, after a strong year, Cadin’s enthusiasm is tempered by an objective critique of the broader market: ‘You can get caught out if there is a downturn in litigation and you don’t get the next big case. If you have tooled up too much then you are carrying a lot of cost without the work, and that’s not us. We are at a time in the cycle where we see the financial services lawyers, the restructuring people – they are on the up and the ascendency; litigation is slightly quieter.’

With four partners and 13 other fee-earners, Baker & Partners focuses exclusively on dispute resolution in Jersey. Redgrave identifies the trend towards big-value claims with freezing orders and disclosure orders attached. He summarises the firm’s current practice: ‘We’ve been bringing a lot of applications to freeze assets, in Jersey and worldwide, usually in litigation involving foreign parties: either the trust, the company or the bank account are in Jersey, so that’s where the freezing and disclosure orders need to be made. One was against a Russian company, which is headquartered in Jersey. That was very successful – we identified and froze assets abroad in excess of the sum claimed, and then it settled cheaply and quickly. Of course they don’t always work out that way. Overseas clients sometimes approach Jersey rather sceptically, thinking: “This is where people put assets to keep them safe, we don’t think we are going to get any justice here.” But they are wrong to think that.’

‘There is more litigation in the Caribbean than in Jersey and Guernsey, probably a result of the greater number of companies and partnerships incorporated there.’
Jan Golaszewski, Carey Olsen

Jan Golaszewski, head of Carey Olsen’s dispute resolution and litigation team in Cayman, says: ‘In the Channel Islands, my impression is that you get very big cases like Carlyle, which we were conflicted out on, and Tchenguiz which we are heavily involved in – very large pieces of litigation for any jurisdiction, onshore or offshore, plus a steady stream of smaller pieces.

There are more litigation matters in the Caribbean than in Jersey and Guernsey, probably a result of the greater number of companies and partnerships incorporated in those jurisdictions.’

He says that BVI has several hundred thousand companies, Cayman has close to 100,000, whereas in Jersey and Guernsey it is nearer to 30,000 and 20,000 respectively. ‘Then there is the nature of investors into Caribbean jurisdictions – they are probably more litigious than those who invest through Jersey and Guernsey.’ With the second-largest dispute resolution team across the Channel Islands, Carey’s group of 38 litigators remains stable: Guernsey 16 (five partners; 11 other fee-earners) and Jersey 22 (six partners; 16 other fee-earners).

Hay provides a geographic comparison from the Collas Crill figures. ‘Our Cayman growth is probably close to 40%; Guernsey around 12% and Jersey just behind that.’

As in Guernsey, the firm’s Jersey office has expanded in the last year from eight to 12 litigators (six partners and six other fee-earners). But in common with other local firms, prominent lateral partner hires did not feature. ‘This year’s Guernsey litigation revenue split is 45% contentious trusts, 22% risk and regulatory, 18% corporate disputes and around 15% on insolvency,’ he says. ‘The revenue split in Jersey is similar.’

Redgrave is more sanguine than some about the outlook for Baker. ‘High-value, good-quality work coming to our firm is increasing, and that will continue,’ he says. ‘There do not seem to be reasons for it to stop happening. There is lots of litigation to do here and, compared to England, fewer firms in the marketplace doing it.’ LB