O'Keefe & Anor (In Their Capacity As Joint Liquidators of Level One Residential (Jersey) Ltd and Special Opportunity Holdings Ltd) v Caner & Ors

The court decided a preliminary issue governed by Jersey law: the applicable prescriptive (limitation) period for claims by joint liquidators against directors for breaches of the duties in Article 74(1)(a) and (b) of the Companies (Jersey) Law 1991. The judge held that the default 10-year prescription for personal actions (action personnelle mobilière) applies to both limbs of Article 74.

The court rejected arguments that a 3-year period applied either (a) directly because the statutory duties are torts or because Article 57 of the Trusts (Jersey) Law 1984 applied, or (b) by analogy to the 3-year tort or trust periods. The reasoning emphasised the distinct legal nature of fiduciary duties and of equitable remedies, the specific wording and scope of Article 57, and the desirability of legal coherence in prescription rules for director claims. The judge relied on Jersey authorities (including Esteem, Northwind and Alhamrani), considered expert evidence on Jersey law, and applied the Esteem test for analogous application of prescription periods.

This judgment determined, at first instance, a preliminary issue brought by the joint liquidators of two Jersey companies concerning whether their s.212 Insolvency Act 1986 claims against the companies' directors were time-barred under Jersey law. The liquidators alleged that payments totalling many millions were made by the companies to the ultimate beneficial owner and his companies and that the directors had caused or permitted unlawful payments constituting misfeasance and breaches of the duties in Article 74(1)(a) and (b) of the Companies (Jersey) Law 1991. The preliminary issue was whether those claims were prescribed under Jersey prescription law.

Nature of the application: applications by joint liquidators under section 212 Insolvency Act 1986 seeking declarations and orders for repayment in respect of payments alleged to be made in breach of directors' duties.

Issues framed by the court:

• Which prescription period under Jersey law applies to breaches of Article 74(1)(a) (the duty to act honestly and in good faith) and Article 74(1)(b) (the duty to exercise care, diligence and skill) — a 10-year default period for personal actions or a 3-year period (as for tort or breach of trust) either directly or by analogy?
• Whether statutory duties when actionable are ipso facto torts for prescription purposes.
• Whether Article 57 of the Trusts (Jersey) Law 1984 or the Jersey tort period applies directly or by analogy to director breaches.

Reasoning and conclusion: After considering expert evidence on Jersey law and authorities, the judge concluded that (i) the content and sources of Jersey law make prescription a matter of local customary law and statute and that the default 10-year period established in Esteem applies to personal actions unless another period directly applies or is, by analogy, clearly more appropriate; (ii) breach of fiduciary duty under Article 74(1)(a) is an equitable fiduciary obligation and is not properly characterised as a tort merely because it is in statutory form; (iii) Article 57(Trusts Law 1984) is directed to conventional trusts and trustees and cannot directly apply to directors qua directors; (iv) the 3-year tort period does not apply directly merely because the duty is statutory or because of arguments that the duty is tortious in nature; and (v) by analogy the 3-year trust or tort periods are not "clearly more applicable" than the 10-year default, having regard to the statutory text of Article 57, the different starting points and long-stop provisions in trust law, and considerations of coherence across director claims. Accordingly the court found the prescriptive period for both Article 74(1)(a) and (b) causes of action to be 10 years. The judge noted an amendment seeking to plead a constructive trust against the first respondent but did not decide issues raised by that amendment in this judgment.

This first-instance court determined that the applicable prescriptive period under Jersey law for both causes of action under Article 74(1)(a) and (b) of the Companies (Jersey) Law 1991 is ten years. The court rejected submissions that a three-year period (either as a tort or under Article 57 of the Trusts (Jersey) Law 1984) applied directly or by analogy, on grounds of statutory construction, the distinctive legal nature of fiduciary duties and equitable remedies, and considerations of coherence in limitation rules for director claims.