USAF Nominee No. 18 Limited & Ors v Watkin Jones & Son Limited

A merger of Jersey companies under Article 127G of the Companies (Jersey) Law 1991 operates by law. Where a corporate trustee merges with another company, the merged company succeeds to the trustee’s property, rights, obligations and trusteeship without a separate retirement, appointment, novation or assignment.

The law governing whether the merger transfers the relevant rights is the law of the companies’ place of incorporation, not the governing law of the underlying contract or the law of the situs of property. Whether security documentation creates an absolute assignment or a charge is a matter of construction of the instrument as a whole. A security assignment of receivables will not be absolute where the surrounding provisions show that the chargor retains control and the transaction operates as security only.

The claimants sought damages from a building contractor for allegedly defective cladding at Jennens Court, Birmingham, under a collateral warranty, in negligence and under the Defective Premises Act 1972.

Before the substantive trial, the court determined 17 preliminary issues concerning title to sue. The issues concerned the effect of a 2009 merger of Jersey corporate trustees, subsequent transfers of the lease and collateral warranty, and whether a 2016 security agreement assigned the claimants’ rights absolutely to Wells Fargo or merely charged them.

1. Trust element. Article 127G applied to the merger of corporate trustees. Following the merger, B3 became co-trustee with B1 in place of B2 by operation of Jersey law. B2’s property, rights and obligations, including the collateral warranty, and its trusteeship, vested in B3 without any separate transfer or appointment. The subsequent chain of title was therefore valid.
2. The applicable law for determining the effect of the merger was Jersey law. The issue concerned the status and attributes of the merging companies, not the construction or assignment of the collateral warranty or lease. National Bank of Greece and Athens v Metliss supported that approach.
3. There was consequently no impediment arising from the trust arrangements to C1 and C2 bringing the collateral warranty and Defective Premises Act claims, or to C3 bringing the negligence claim. The court did not need to decide the alternative issue concerning a trustee de son tort.
4. Security element. Whether an assignment was absolute or by way of charge depended on construction of the relevant agreement as a whole. Clause 2.1(c), read with the provisions governing collection of receivables, restrictions on dealing, control of accounts and release of security, did not create an absolute assignment of the collateral warranty or the claims. Those interests were charged by way of security only.
5. There was no absolute assignment of the lease. The registered legal title remained with C1 and C2, and the provisions concerning the assignor’s continuing rights and obligations were inconsistent with the suggested transfer of the equitable interest. The claimants therefore retained title to sue.
6. The court declined to decide hypothetical issues concerning the effect of section 6(3) of the Defective Premises Act 1972, later notice of assignment, or the consequences of an absolute equitable assignment. The preliminary issues were answered accordingly and the action was to proceed to trial on the substantive claims.

First-instance determination of preliminary issues in the High Court. The substantive claims were directed to proceed to trial.