Litigation is not always about money. Sometimes, it really is about the principle of the thing. Sometimes there are rights at stake which cannot be measured in financial terms. Usually, though, litigation is born of a financial loss and ultimately what matters is that the victor receives his spoils.
Provided the defeated litigant is adequately insured or has sufficient assets, there will not normally be a problem. Complications arise where his assets are exceeded by his liabilities or held otherwise than in cash or, worse, where he has taken deliberate steps to dispose of his property in anticipation of a judgment going against him, with an eye to frustrating attempts to enforce that judgment.
Where the defendant is a Guernsey company, liquidators or administrators can be appointed with a view to gathering in assets and paying a dividend to creditors. Where the defendant is an individual, or where for whatever reason liquidation or administration is not the preferred route, creditors must enter the peculiar realm of enforcement procedures under Guernsey’s customary law.
The most important thing to note about customary law enforcement procedures (and by enforcement we are referring to enforcement of money judgments and other debts) is that Guernsey law, like many other legal systems, distinguishes between two different types of property.
Movable property, or “meubles”, includes things such as bank balances, shares, E-type Jags and fishing boats. All of these things can be arrested by the Sheriff and sold at public auction. Thereafter, the creditor becomes entitled to the proceeds.
Where there are insufficient movable assets to satisfy all creditors, the debtor can be declared “en désastre”. At this stage, the assets which were arrested (or their proceeds of sale) are distributed directly to creditors in accordance with the priorities of their respective debts. As it is generally impossible to create charges over movable property in Guernsey (with notable exceptions for pledges (“nantissements” or “gages”) in respect of tangible assets and for statutory security interests over certain types of property such as shares), normally this means that all creditors share on a pro rata basis in the proceeds of a désastre. It is a relatively simple, quick and inexpensive procedure.
Désastre is not the same as bankruptcy, however. There is no discharge for the debtor whereby all debts are “forgiven”. There are no restrictions on the debtor acquiring property or conducting business after he has been declared en désastre. If he subsequently wins the football pools, there is nothing to stop his creditors putting him back en désastre again.
For completeness, it is worth noting that there is a form of bankruptcy procedure available in Guernsey, although few will ever have heard of it. It is known as an application for a declaration of insolvency and dates back to a law of 1929. For some reason this procedure has never been popular with either creditors or debtors and in reality it is almost never used.
Immovable property, or “immeubles”, is the other type of Guernsey property, and different procedures apply. The most obvious and by far and away the most important species of immovable property is land, although there are several more exotic members of the family. A kitchen table, for example, no matter how mobile it might be, is classified as an immeuble. So are various types of agricultural produce which are immovable property when they are planted but which become magically transformed into meubles on a date specified by statute (for grapes it is 1 September). Such are the arcane mysteries of Guernsey property law.
The significance of the distinction is that immeubles cannot be arrested by the Sheriff or divided amongst creditors. They can only be realised by a particular creditor taking the necessary steps to enforce his judgment against realty. The procedure, which is fraught with danger for the uninitiated, is known as “saisie”.
Saisie is, quite literally, the seizure of immovable property. The property becomes owned by (or “vested in”) the creditor. After this has occurred, the creditor can keep the property or sell it as he prefers, and if he sells it he is not obliged to account to the debtor for any difference between the proceeds of sale and the amount which is necessary to discharge the debt. This rather unappealing aspect of the procedure may not stand up to a future challenge brought on human rights grounds, but certainly it represents the current state of the law.
However, there are many dangers. If a creditor decides to enforce his judgment against the debtor’s immovable property, he loses the right to enforce against the debtor’s movable property forever. In contrast, the creditor can try to enforce against movable property as many times as he likes unless and until he embarks on saisie proceedings.
Another risk with the saisie procedure arises where more than one creditor wants to participate. This is because saisie proceedings can have only one winner. The property is offered to the creditors in turn, starting with the lowest ranking creditor. The creditor who ultimately elects to take the property takes it warts and all, and is obliged to pay off creditors who rank above him. Unless a creditor has a high ranking security or knows that there is considerable equity in the property, he will be unwilling to accept the risk that the property will not realise enough to let him pay off those higher ranking creditors.
A creditor who chooses not to take the property walks away with nothing. It is quite literally nothing because that creditor, by choosing to become involved in the saisie procedure, has lost his right to enforce against the debtor’s movable property for all time. A multi-party saisie is therefore an extremely high stakes situation because everybody there knows there are no prizes for second place.
The dramatic tension is increased by the manner in which the winner is selected. As part of the saisie procedure, the claims of all participating creditors are marshalled into rank order of priority. A list is drawn up. Secured debts come first, unsecured debts come last. There are sometimes one or two categories in between. Some debts are only partially secured, and so appear in different places in the list. Where debts have equal priority, there is a theory that they should be marshalled according to the order in which the creditors came forward to register their interests in the saisie. As with so many features of Guernsey customary law, this has not really been worked out in detail yet.
When the date comes around for the saisie procedure to be concluded, all participating creditors must attend court. One by one, in reverse order of priority, they are required to state whether or not they will take the property. If they choose to take the property, they must pay off everybody’s claim which has priority to their own within 15 days of the hearing (note that this will almost certainly not allow enough time for the property to be sold). Alternatively, they must renounce their claim forever. Clearly, unless a creditor knows he has the highest ranking security or that there is plenty of equity in the property, saisie proceedings are not for the faint-hearted.
What, though, of the crook who sees the writing on the wall and, quite deliberately, does all he can to put his assets into the name of his partner? Freezing orders can be obtained in order to stop this, but of course it is no good closing the stable door after the proverbial horse has bolted. If it is too late to get an injunction, and if it is not the sort of case where “tracing” is an option, all the creditor can do is try to get the relevant transfers reversed.
Where the debtor is a company, liquidators have statutory powers to investigate suspicious transfers and, subject to certain time limits, to invoke the court’s assistance in undoing their effect. In addition, whether the debtor is a corporation or an individual, the court has power at customary law to unwind fraudulent transactions, and not necessarily only in those cases where both parties were “in” on the scheme. What is needed is persuasive evidence that one of the debtor’s purposes in arranging the transaction was to put assets beyond the reach of creditors generally (though arguably this may be limited to creditors whose claims had already crystallized at the date of the transfer). The court would protect the position of innocent third parties, of course, but if the transaction can be unwound without prejudicing such persons’ interests (as would be the case where assets have been provided to a trustee to be held on trust for the debtor, for example) there is a powerful case for saying that it should be unwound. Customary law is flexible and pragmatic enough for “trust busting” and similar machinery to be developed in the right case. However, until the right case comes along creditors may be deterred by the uncertainty as to exactly what Guernsey law can achieve and how it will achieve it.
Importantly - and this is often overlooked - creditors are not always restricted to their remedies under Guernsey law. Where there is an international element, it may be possible to make use of foreign procedures, and in particular foreign insolvency procedures, in Guernsey.
Where the courts of the UK, Jersey or Isle of Man make a request for assistance in an insolvency case (which is widely defined), the Guernsey courts have a statutory duty to assist those courts. Furthermore, the Guernsey courts have been given specific authority to apply the law of the country requesting assistance in order to achieve that end. This can be advantageous because UK insolvency legislation can offer more wide-ranging powers, for example to retrieve assets which a debtor has attempted to put beyond creditors’ reach, and machinery for ensuring these powers can be enforced, than is the case in Guernsey.
Where the courts of other countries are involved, Guernsey will generally offer assistance as a matter of “comity” (meaning good relations), provided it is satisfied the foreign courts have jurisdiction over the debtor or his assets and there is no reason of public policy to decline to assist.
The number of ways our courts can help is limited only by the imagination and creativity of the Guernsey lawyer. A solution which has proved useful in several situations now is to appoint a foreign receiver and then apply to the Guernsey courts for recognition of the receiver’s right to take possession of Guernsey assets. This has proved possible even though there is no such thing as receivership in Guernsey law (except in relation to insolvent protected cell companies). The inability to appoint Guernsey receivers is perhaps the greatest failing in our general enforcement regime, so it can be a really useful technique to utilise foreign appointments in this way. The only conditions the Guernsey courts have generally insisted upon is that the receiver must have been appointed in a country with which the debtor had a “sufficient connection” and that the underlying claim is not of a penal or revenue nature.
The message to take away is that although Guernsey enforcement procedures are undeniably colourful, they do have their peculiarities and limitations and are not necessarily the only tools in the asset recovery kitbag. Certainly they should not be considered in isolation if there is an international aspect to the dispute. Where a debtor has connections with other jurisdictions, it is well worth investigating the types of orders that might be obtained there, and whether they might be put to good use here, before getting carried away with Guernsey’s own home-grown remedies.