11 August 2020

Summary

Deemster Corlett in an extempore judgment delivered on 21 May 2020 in Oliver v Fedelta, a case concerning equitable mistake by settlors, said that he was quite convinced that Isle of Man law should follow Pitt v Holt [1].

Background

The claimants had made transfers into trust based on a mistaken belief, induced by their UK tax advisors, as to the IhT position. The claimants applied to the IoM High Court to set aside the transfers on the grounds of equitable mistake.

Kevin O’Loughlin of Simcocks acted for the trustee. No relief being sought against the trustee personally in the proceedings, as no allegation of any impropriety was made, the trustee adopted a neutral position.

It was agreed that the trustee’s advocate would act as “devil’s advocate”, to assist the court by putting legal arguments against the case advanced by the claimants.

Equitable mistake

The court has an equitable jurisdiction to set aside (or rescind) a transaction on the grounds of mistake (“equitable mistake”).

In Clarkson v Barclays Private Bank and Trust (Isle of Man) Limited [2], which was decided in 2006, Deemster Kerruish applied the 19th century English Court of Appeal case Ogilvie v Allen [3] and decided that a transaction could be set aside if the mistake was so serious as to render it unjust for the donee to retain the property. Deemster Kerruish held that the “best measure” whether the mistake was sufficiently serious was if the transfer would not have been made “but for” the mistake (in other words the mistake was the cause of the transfer).

In 2013, in the Supreme Court decision in Pitt v Holt [4], the UK courts caught up with the Isle of Man court in applying Ogilvie v Allen. However the UK courts in Pitt v Holt rejected the “but for” test as posing a test which “is a great deal too relaxed for the donor who seeks to recover his gift” [5]. The Supreme Court decided the gravity of the mistake was to be assessed in terms of unconscionableness (or injustice or unfairness, the Supreme Court regarded these terms as interchangeable).

Whether to follow Pitt v Holt was considered by the Isle of Man High Court in AB v CD [6], however the court did not have to decide whether to reject the “but for” test, as the unconscionableness requirement was satisfied anyway.

In Oliver, the “devil’s advocate” argued that the court should not follow the Clarkson “but for” test, and that the court should apply Pitt v Holt. At the hearing, the claimants were content for the court to apply Pitt v Holt, as they were confident they could satisfy the court that the requirements of that case were met.

Deemster Corlett, having heard evidence on behalf of the claimants, was satisfied that it was a perfectly proper case for the court to set aside the transfers into trust.

Deemster Corlett also stated that he was quite convinced that Isle of Man law should follow Pitt v Holt. This brings some welcome clarity, and must at least be regarded as a rejection of the “but for” test as the measure of the seriousness of the mistake, and a return to the test of injustice or unconscionableness.

Other aspects

It is not clear whether Deemster Corlett’s statement that Isle of Man law should follow Pitt v Holt encompasses the totality of the Supreme Court’s judgment.

For example, in Pitt v Holt the Supreme Court approved a reformulation of the principle in Hastings-Bass in terms of inadequate deliberation by a fiduciary that is sufficiently serious as to amount to a breach of fiduciary duty. Deemster Doyle in AB v CD stated that he was not deciding whether to follow the Supreme Court in that regard and that it “may be a big if” whether the court would do so. The Hastings-Bass principle was not relevant in Oliver, as there was no trustee decision making process in issue, hence Deemster Corlett’s comment may well not encompass the Hastings-Bass aspect of Pitt v Holt.

The Oliver case was also interesting in demonstrated the technological capabilities of the Isle of Man court. The claimants’ appeared by live video link so that the hearing could proceed despite the Covid-19 measures then in place. This may be the future of litigation in the Isle of Man.

Author: Kevin O’Loughlin

[1] Pitt v Holt, Futter v Futter [2013] UKSC 26; [2013] 2 AC 108

[2] 2005 – 06 MLR 493 (followed in McBurney v McBurney (re Betsam Trust) 2008 MLR 201

[3] (1897) 13 TLR 399, CA; sub nom Ogilvie v Allen (1899) 15 TLR 294, HL(E)

[4] Pitt v Holt, Futter v Futter [2013] UKSC 26; [2013] 2 AC 108

[5] The “but for” measure was rejected by Lloyd LJ in the Court of Appeal (paragraph 208 of judgment at [2012] Ch 132, at 198) and the Supreme Court did not differ from that rejection (paragraph 121 at [2013] 2 AC 108, at 155).

[6] Judgment of 30 June 2016

11 August 2020

Simcocks Advocates ran its annual Partnership with Schools initiative for the fourth time this year, featuring an essay competition for sixth form students interested in a career in law.  Young advocates at the company visited high schools on the Island during February to launch the competition.

Students from QEII, Ramsey Grammar, Castle Rushen, St Ninian’s and King William’s College entered the writing competition, responding to one of the following questions:

1. The IOM prison places significant emphasis on rehabilitation of offenders. Should prisons be for punishment or for rehabilitation? Why?
2. Should a divorce application be based on blame?

The essays have been read and marked and we are pleased to announce that the winner is Finlo Smith from Ramsey Grammar School, who wrote a very sophisticated essay on the prison system.  Finlo has been presented with his £500 voucher prize, and has been offered a work experience placement at the company when appropriate.

One of the advocates who presented at the schools and marked the essays is Emily Johnson, who won a writing competition herself last year, being awarded the George Johnson Law Prize.  Emily spoke about her involvement in the Partnership with Schools initiative:

“I really enjoyed reading the students’ essays, which all displayed a great deal of consideration and research.  Congratulations to Finlo on his excellent essay, and we look forward to working with you some time in the future.”

Chief Executive Phil Games commented:

“We were delighted to receive a good response to the initiative this year, despite the current crisis.  The standard of writing and ideas generated gives me great hope about the future generation of Manx advocates.”

24 July 2020

The new Simcocks Community Stage on the roof of Castletown Civic Hall was launched on Thursday 23 July with music from Brown Sugar on a mercifully dry evening.

Barracks Square in Castletown was filled with the sounds of live rock, pop and Irish music, as crowds danced and basked in deckchairs, toe tapping and singing along with the well-loved local duo, Claire and Derek.

Simcocks Advocates has sponsored this new stage as part of its 70^th anniversary celebrations.  The local law firm wanted to contribute towards the community where Howard Simcocks held weekly surgeries for many years, and where the company had an office for decades.  The new venue for live music is meaningful for Simcocks also, because Howard was very much involved in local choirs and music, particularly in the south of the Island.

The stage was officially opened by Simcocks CEO, Phil Games, and Chairman of Castletown Commissioners, David Parnell, after which Simcocks staff and clients enjoyed food and drink at The Secret Pizza Company, and mingled with locals enjoying the music in the square.

Phil Games commented on the event:

“We’re delighted to have the opportunity to make this contribution to the local community.  The evening proved that this stage is a very positive addition to the town, making Barracks Square an excellent location for outdoor events.  I’m sure it will get a lot of use over the years, and I look forward to seeing it being enjoyed by the town.”

Disclosure is not just a formality and should be controlled by the advocate

Simcocks recently obtained the dismissal of a claim not on the merits but because of defects in disclosure by their legally represented opponents.

Advocates Emily Johnson and Chris Brooks, who together acted in this matter at Simcocks, discuss what disclosure obligations parties have, how disclosure should be presented and the important role of the Advocate – both in handling your disclosure exercise and in attacking that handled by your opponent.

What is disclosure?

Disclosure is a fundamental part of most litigation claims. It is the process whereby the parties compile the documents that are relevant to the litigation, whether they help or hinder their case, and provide their opponent with the opportunity to inspect these documents. Usually, this is done by putting together a list of documents setting out which documents you hold and sending it to your opponent. This is known as standard disclosure.

Your opponent then has the opportunity to request copies of the documents they wish to see, or, in particularly large cases, to arrange to inspect the documents held by their opponent.

In ascertaining what amounted to non-compliance, the court was of course required to consider the basic principles of standard disclosure and this serves as a timely reminder to clients of the basic disclosure obligations and what the court does and does not deem acceptable as to how documents are provided to the other side.

What happened?

The dispute centred around a building contract with a value of approximately £1 million. The Claimant was one of several professional companies involved in the build and was aware that the Defendants had employed a professional project administrator to administer the work on their behalf. In order to resolve the dispute, the Claimant argued, and the court agreed, that it was essential the parties had access to all of the project documentation, such as plans, minutes of meetings and the contracts relied upon, relevant to this particular phase of the build, to establish the scope of the contract in the first place and the extent to which the project developed whilst it was being undertaken.

The Defendants were supposed to provide a list of documents in February 2019. A list was provided but it was very short and appeared incomplete. We requested copies of the documents to check this and the documents were provided via dropbox, not sub divided or otherwise grouped. On reviewing the documents, it became apparent that a large proportion were only extracts of larger documents or drafts of documents, such as contracts, which ought to have been signed and retained.

Following discussions around disclosure, a directions hearing was held on 10 May 2019 and the court ordered that the Defendants were to provide a replacement list of documents within 28 days. A further attempt at disclosure and inspection was made during this 28 day period, but the situation remained unsatisfactory so on 8 July 2019 the Court made an Order that unless the disclosure failings were resolved, the Defendant’s counterclaim would be struck out.

An updated list was provided and in excess of eight Lever Arch folders of documents received by way of disclosure within the period stipulated in the Unless Order. However, upon review, it became apparent that the documents were not in any satisfactory order, incomplete in some cases and that there were material documents, such as the signed contracts under which the works were undertaken, omitted from the documentation.

Therefore, the Court enforced the Unless Order and struck out the Defendant’s Counterclaim, granting the Claimant judgment.

What clients need to disclose

An often overlooked provision is the extension of the disclosure process to documents which a litigant has a right to possess or take copies of, which can extend far further than first envisaged.  The Court reaffirmed that :-

“there was a right to possession where a third party is in possession of documents as an agent for a litigant. In that regard it seemed to me that the professional advisers in terms of the contract administrator (Mr Beardon) and clerk of works (Mr Mullen) were certainly acting as agents for the Defendants” (paragraph 18). 

Clients should therefore note that it is essential that each party gives sufficient thought to what the issues in the claim are and what documents are available.  This includes all documents that are in the possession power or control of the party and that might mean that a party has to approach professionals or other third parties to ensure that all relevant documents are collected so that all material disclosure can be provided.

The court made it clear (paragraph 44) that this extends to situations where the professional involved requires a fee to be paid: –

“There is one exception in terms of the Defendants’ argument that they have produced everything. That relates to the file held by Mullen Consulting Ltd (“the Mullen File”) and the explanation that Mullen Consulting will not release the papers unless a fee of several thousand pounds is paid. The Second Defendant’s evidence was that the Defendants had retained copies of all the relevant matters that would be on the Mullen File in any event and had disclosed them. As set out below I am afraid that I find such is not the case and, bearing in mind the involvement of Mr Mullen in the project at the time of the Claimant’s involvement and during the relevant part of the project thereafter, the full content of the file is an important omission”.

Presentation

Furthermore, the court emphasised that, particularly in complex or document heavy claims, disclosure must be presented in an appropriately ordered manner.  It is also the fundamental requirement for a “person giving disclosure to do so in a logical and ordered way. I accept Mr Brooks’ submission that it is not enough for a party to litigation to give to the other party “the keys to the warehouse” (paragraph 20).

Indeed, this was one of the main criticisms levied at the Defendants in this case; they hadn’t disclosed several key documents, but even those which had been disclosed were disclosed in such a chaotic manner that it was impossible to place them into context.  This submission was accepted by the court and His Honour reiterated that “diligence in compilation of an accurate and comprehensive list is fundamental”.

Role of the Advocate

His Honour also took the opportunity to reiterate that disclosure is not merely a formality and that it is rarely adequate where a party has undertaken the exercise alone, without the oversight of an advocate:

“…the court stated that it expected the parties’ advocates to deal professionally with any request for disclosure. I indicated my view that really the Defendants’ advocate should have prepared the list. Expanding on that point, it seems to me that where legal representation is present, although a client may prepare a draft list, advising on finalising the list is really a job for the advocate, particularly in a case where the documentation is complex and the sources of documents are multiple”. (paragraph 8)

As mentioned above, it should also be realised that if there are documents relevant to your case in the possession of a third party, who you have a right to get the document from,  you will still need to obtain them and properly disclose them to your opponent.  Your advocate will be able to advise you on this and it is important that legal advice is taken at an early stage about this.

A good relationship between advocate and client is also essential when reviewing an opponent’s list of documents. It is important that client and advocate work in a collaborative manner to ensure the adequacy of the disclosure provided by their opponent on both a factual and legal level:

• Clients will have in many cases lived and breathed their claim for months, if not years, and will have an unparalleled knowledge of the factual background to the dispute.
• Advocates will be able to advise on whether the legal requirements for disclosure have been satisfied and help identify potentially harmful documents to the case. It takes an expert eye to focus on these documents amidst potentially mountainous levels of innocuous documentation, making a review of incoming disclosure by an advocate an essential exercise.

Summary points to note

In conclusion, therefore:

• Preparation of a list of documents is not a formality and must be subject to a clear and coherent thought process which identifies the key issues in the claim;
• Any relevant documents must be obtained. If there are documents which are in the possession of a third party, but which can be requested by you then they must be obtained, even if payment is requested;
• An accurate and comprehensive list of documents is vital in any claim;
• Ultimately, the responsibility for preparation of the list lies with the advocate and the advocate should ensure they have sufficient oversight to manage the client’s disclosure obligations properly.
• If disclosure is not undertaken properly, the court will take steps to impose sanctions proportionate to the defects upon the defaulting party and your case might be struck out.

A link to a full copy of His Honour’s judgment is available here.

If you have an ongoing or anticipated dispute, and would like to know more about disclosure or you are concerned that an opponent might not disclose documents to you, please contact Simcocks today on 01624 690300 or Chris directly.

Author

Chris Brooks heads up the Litigation & Dispute Resolution team at Simcocks.

July 2020

Foundations have been around for many centuries particularly in European civil law jurisdiction. There are currently several hundred thousand foundations in Europe, most being philanthropic and more than half of which have been established since the 1950’s.

There are over 50,000 Private Foundations in Europe which together hold more than 200 billion Euros.

The use of Foundations is principally for private wealth management and charitable purposes and to a lesser extent they are used in commercial transactions.

Private Wealth Management

Many wealthy families establish Foundations as an alternative to a family trust.

The advantages of a Foundation over a Trust are:

• The client may be more familiar with civil than common law jurisdictions and thus understands a foundation better than a trust
• The Foundation is a separate legal entity and the assets are beneficially owned by the Foundation whereas with a Trust, it is not a separate legal entity and the trustee owns the assets beneficially for the beneficiaries.
• A Foundation can enter into contracts and relationships in its own right whereas a Trust must enter into those arrangements through the trustee.
• A Foundation can continue indefinitely whereas in many countries a trust must end within a period of 80years to 150 years.
• A Foundation can sue in its own right whereas a Trust can only sue through the trustee.
• There is no requirement to put any assets in the Foundation at the outset whereas with a Trust it is generally a requirement that assets be settled into the Trust, even a nominal sum.
• With a Foundation it is possible to have a mixture of interests for beneficiaries, non-charitable purposes and charitable purposes whereas with a Trust there can be no mixture. This means it is possible to create a Foundation for a non-charitable purpose, such as to hold the shares of a company and to add beneficiaries at a later date.
• With a Foundation, a certificate of establishment is produced by the Foundations Registrar to show that it exists. No details of the Founder, Donor, Beneficiaries or specific assets held are published. This can be important for contractual and banking relationships. A Trust is a private arrangement and no such certificate of its existence can be issued by a government body.

Similarities of Foundations and Trusts

• Both Foundations and Trusts in the Isle of Man can ignore the forced heirship laws of other jurisdictions which are not enforceable in the Isle of Man
• Both involve a transfer of the assets from the beneficial owner to the Foundation or Trust which generally remove the assets from the estate of the beneficial owner. This is useful for estate planning.
• The Settlor of a Trust and Founder of a Foundation can include provisions to appoint and remove Trustees or Council Members.

Charitable Foundations

Charitable foundations operate in a similar way to a charitable trust.

Ownership of assets for a purpose

A foundation can be the equivalent of a purpose trust and can have as its objects the ownership of assets.

A foundation might for example be used to hold assets off the balance sheet of a borrowing company whilst a loan is in place so the assets are better secured for the lender.

Examples of circumstances where a Foundation might be used

First Scenario

Client lives in a country where there are forced heirship laws and he wishes to leave his estate to his family in proportions which differ from those laws.

• Client creates a Foundation in the Isle of Man of which the Client and his family are beneficiaries. There is no public information regarding the identity of the Founder/Donor or the Beneficiaries.
• IOM Trustee Service Provider (TSP) acts as the Council Member
• The Client, as Founder, has the power during his lifetime to change the Foundation Rules and to appoint and remove the Council Member.
• Client transfers the shares of his private company and other assets to the Foundation which is now the legal owner of those shares/assets and which shares/assets are no longer part of his estate.
• When the Client dies, the Council Member ensures the Client’s family receive the benefit from the Foundation. The Rules of the Foundation can set out precisely how the Founder wants his family to benefit.
• Any challenge to the ownership under say forced heirship laws of another country can be defended by the Council Member as the Isle of Man legislation specifically states that laws of other jurisdictions, such as forced heirship, are not recognised in the Isle of Man.
• The Founder may pass onto one of his family or to a family advisor or to a third party professional, the right to change the rules of the Foundation to suit any changes in his family’s circumstances and to appoint and remove Council Members.

Second Scenario

Client has created and owns a successful international business which on his death he does not wish to have sold but he wishes it to continue for the benefit of his family and those who have helped to make the business successful.

• Client creates a Foundation in the Isle of Man the purpose of which is to hold the shares of certain companies which own the successful business with the following provisions:
  • To ensure that the companies are managed in accordance with guidelines set out in the Rules of the Foundation
  • The profits of the business pass to the Isle of Man Foundation.
  • The profits of the businesses are applied for re-investment into the businesses and/ part distributed to a Family Trust (set up by the Client with the assistance of IOM TSP) which is a beneficiary of the Foundation.
• The Isle of Man Foundation can continue indefinitely and a succession plan is introduced to ensure that the businesses continue into the future with dynastic benefit for family members and future managers/employees of the business.
• The Client can decide whether to put the shares of the business into the Foundation before or after his death. In some circumstances it is better to do so before so there can be no issues over the estate/forced heirship laws etc.

Third Scenario

Client wishes to create a philanthropic structure and possibly at same time provide for family members.

• Client creates a Foundation in the Isle of Man the purpose of which is to provide monies for certain philanthropic purposes as set out in the Rules and if required certain family members.
• The Client is the Founder and chooses to be one of the Council Members with some friends and associates. Client can have one or more Council Members which can, but does not have to include an IOM TSP. An IOM TSP would be the Registered Agent in any event as every Foundation requires a Registered Agent.
• Only the Client’s funds are to be transferred to the Foundation and the Client does not want the Foundation to be registered as a Charity in the Isle of Man and accordingly the Rules are designed to achieve this, which means all the business of the Foundation is private.
• The Foundation can continue indefinitely.

Fourth Scenario

A Foundation can be used instead of a Private Trust Company (PTCs) to be the trustee of a family trust. They can be described as “PTFs”.

The advantages of using a Foundation are:

• Typical PTCs required a purpose trust to be created to hold the shares of the PTC. In a PTF there are no shares and therefore no need to have a purpose trust structure.
• The Rules can be structured more flexibly

The PTF would enter into an administration agreement with an IOM TSP for the provision of trust administration.

Establishment of a Foundation

A foundation is established by an application to the Registrar of foundations by a class 4 (corporate services) licence holder with a fee of £100.

The Client will usually be the Founder who instructs the IOM TSP to make the application which is in the form of an Instrument, a short document, setting out the name of the Foundation, the objects for which the Foundation is formed, the name and address of the Council Member (s) and the Registered Address of the Foundation.

The Foundation is typically incorporated within a couple of days from filing the Instrument.

Only the Registered Agent signs the Instrument and so the Foundation can be created quickly. The Founder and Council Members sign the Rules but not the Instrument.

The Foundation Rules

The Foundation Rules must contain:

• provision for the establishment and proceedings of, and changes to, the council;
• provision for the appointment, retirement and remuneration of the registered agent;
• rules in relation to the office of any enforcer;
• provision for accounts
• rules in relation to any initial and further dedications of assets;

The Foundation Rules, redacted to remove the name of individuals referred to in the Rules such as beneficiaries and specific assets held by the Foundation are registered with the Registrar of Foundations.

Enforcer

If one of the objects of a foundation is to carry out a specified non-charitable purpose, the foundation must have an enforcer in respect of that object. Any other foundation may, but is not obliged to, have an enforcer (charitable objects are enforced by the Attorney General). The enforcer has a duty to take reasonable steps to ensure the council carries out its functions, and may require the council to account to him. The enforcer must be identified in the foundation rules, which must provide for his retirement and remuneration. The founder can be the enforcer.

Funding the Foundation

Assets are added to the foundation by dedication. A foundation need not have an initial dedication of assets, and assets can be dedicated to the foundation after it is established in which case the details of the dedication must be specified in the foundation rules. A “dedicator” is a person, other than the founder (can be the same person as the founder), who dedicates assets to the foundation. A dedicator is a “person with sufficient interest” (see below) but otherwise has no statutory role in the foundation.

The Foundation’s Council

A foundation acts through its council. The council must have at least one member who, if an individual, must be at least 18, however the council member does not need to be resident or regulated in the Isle of Man and a company may be a member of the council.

Council decisions are to be taken by resolutions at a meeting of the council, or consented to in writing or electronic communication by all (or a majority of, if so provided in the foundation rules) the council members.

Registered agent

A foundation must have a registered agent. This activity is within class 4 of the Regulated Activities Order 2009.

Information rights

Unless the foundation rules provide otherwise, a foundation must provide a “person with sufficient interest” in the foundation with a wide range of information as soon as practical after he requests it. The foundation rules can prohibit the provision of information; it would appear that such prohibition need not be general but may relate to particular persons or classes of persons. If such a prohibition applies, the person requesting the information may apply to Court to obtain the information in certain circumstances.

Persons with sufficient interest

These are the persons with standing to obtain information from a foundation or, if the foundation rules prohibit such, to apply to Court for that information, or to apply to Court to enforce the foundation instrument and rules. The definition of the expression “person with sufficient interest” includes the foundation, the founder, a dedicator, a council member, an enforcer, a beneficiary, and the Attorney General (in respect of charitable objects). It also includes a person who the High Court determines to be a person with sufficient interest, if the Court considers that the person’s interest in the foundation is sufficiently close that the person ought to be treated as a person with sufficient interest.

Application to Court for directions

The High Court has jurisdiction under the Act to give directions in relation to various matters, including the interpretation of a foundation’s instrument and rules, as to the manner in which the foundation should be administered, and as to the rights of beneficiaries. This is similar to the High Court’s jurisdiction in relation to trusts.

Administration

The foundation must keep proper books and records at an address (within or outside the Isle of Man) as the council decides, and notify the registered agent of that address (if not the business address).

A foundation must keep reliable accounting records sufficient to enable the financial position of the foundation to be determined with reasonable accuracy at any time; and allow financial statements to be prepared. If financial statements are prepared there are certain requirements as to what they must include (balance sheet, etc).

An annual return to the Registrar is required, and a foundation must notify the Registrar of amendments to the foundation instrument.

Transfer of Foundations to and from the Isle of Man (Continuance)

Foreign foundations, being a legal person established and recognised as a foundation under the laws of another jurisdiction can continue as a foundation under the law of the Isle of Man and similarly Isle of Man foundations can migrate to other jurisdictions.

Conflict of laws

All questions that arise in respect of a foundation or the dedication of assets to a foundation are required by the Act to be determined solely under Isle of Man law, and there are provisions in relation to foreign heirship and similar rights.

Isle of Man tax

A foundation is a “corporate taxpayer” for the purposes of the Income Tax Act 1970.

Simcocks Advocates Limited (“Simcocks”) has for many years assisted clients in preserving their wealth to ensure that it benefits the Client and those chosen by the Client to benefit in the future. Foundations now form part of the solutions which Simcocks can provide to its clients through Juristrust Limited a wholly owned subsidiary of Simcocks, licenced by the Isle of Man Financial Services Authority to undertake trust and corporate service business.

Author: Phil Games

Contact Us:

If you wish to establish a Foundation or require further information please contact Phil Games by telephone on 01624 690300 or by email at pgames@simcocks.com

June 2020

28 April 2020

The global pandemic of COVID-19 is preventing individuals from travelling to sign documents, or being in close proximity with other individuals when signing documents. Consequently, individuals / companies may wish to use electronic signatures as an alternative to the traditional ‘wet-ink’ signatures when signing documents.

What is an electronic signature?

An electronic signature can be described as ‘data in an electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign.’[1] There are several different forms of electronic signatures including clicking an ‘I Agree’ button on a website, or transferring an image of a signature onto a document. Digital signatures are a form of electronic signatures.

Can an electronic signature be valid?

Whether an electronic signature is capable of being a valid method of execution for a contract falls to the laws of contract. Generally, the Isle of Man follows the same principles to contract law as England and Wales:

• Simple contracts – contracts (with no statutory requirements) can be entered into informally. For example, a contract can be made orally with no form of signature and provided it has all the essential elements of a contract, will be valid. Although it is not necessary, it is common for parties to choose to record their contract by writing and so as long as the parties agree to the use of electronic signatures, this would be perfectly valid.
• Contracts with statutory requirements – some contracts are governed by legislation which requires certain criteria to be fulfilled to make it valid. For example, it may be a requirement for a contract to be made in writing. Recent English case law has confirmed that an electronic signature would fulfil the requirement to be in writing because typing, printing, photography etc, are all deemed to constitute writing.
• Deeds – some contracts must be (or are preferred to be) signed as a deed. A deed must be made in writing to be valid. As outlined above, an electronic signature would constitute writing, so executing a deed by electronic signature would, in principle, be valid.

Are electronic signatures recognised in the Isle of Man?

Following the above, it would seem that documents (whether to be signed under hand or as a deed) are capable of being made electronically in the Isle of Man. This is confirmed in the Electronic Transactions Act 2000 which recognises electronic signatures as a form written communication if the following is met:

• a method is used to identify the individual signing electronically;
• having regard to all the relevant factors, the method is as reliable as is appropriate for that particular document; and
• the other party(ies) to the document consent to the method of electronic signature. “Consent” includes consent which can reasonably inferred from the conduct of the person concerned.

Are there any documents which cannot be validly signed electronically?

The Electronic Transactions (General) Regulations 2017 (“Regulations”) provides that certain documents are deemed ‘excluded transactions’ and would be rendered invalid if it took place by electronic communication. These exclusions include (but are not limited to):

• a marriage – the register of marriage cannot be signed electronically;
• a conveyance or creation of an interest in land – this would include a deed of conveyance for unregistered land, or a transfer for registered land;
• a mortgage or charge of land – this would include a conditional bond & security;
• a testamentary disposition – this would include a last will & testament and any codicils;
• a power of attorney – this would include granting a power under an enduring power of attorney or a general power of attorney and would also include any document containing a power of attorney within the document (ie, most security agreements); and
• security by a company over its undertaking, property or revenue – this type of security would include (but is not limited to) a legal charge, debenture, share charge, assignment of rental income.

Are there any changes because of the Covid-19 crisis?

The Emergency Powers (Coronavirus) (Electronic Transmission of Information – Enterprises) Regulations 2020 (the “Emergency Regulations”) came into force as on 23^rd April 2020 and will apply during the coronavirus period.  The Emergency Regulations provide an alternative method of signing documents which will need to be registered at the Isle of Man Companies Registry (“Companies Registry”):

• If the document needs to be signed by one signatory – instead of signing in the normal way, the signatory can instead transfer an imagine onto the document electronically, or use a verified 3^rd party digital or electronic signature software to sign electronically;
• If the document needs to be signed by more than one signatory – the first signatory can sign electronically (either by transferring an image or using a verified digital signature software as explained above), then must send the document electronically to the second signatory who must sign in the same manner. The last signatory who is required to sign the document must then send the document to the Companies Registry by email; and
• If the document requires a witness – the signatory and the witness can establish electronic communication between themselves, providing they are able to see and hear each other.

This means that during the coronavirus period, it will be possible for Isle of Man companies to sign charges electronically, provided that they need to be registered at the Companies Registry.

The Emergency Regulations also provide that records must be kept of any document which has been signed electronically (by either a signatory or a witness) for a period of 2 years.

Is an electronic signature reliable?

It is important to remember that an electronic signature may have potential issues with reliability. For example, it would be difficult to know for certain whether the individual who is transferring a scanned copy of a signature to a document is in fact the individual whose signature it is. Therefore, this form of signature may not be appropriate for highly valuable / important transactions and instead a digital signature may be more appropriate. Leading providers in digital signatures such as DocuSign and Adobe Sign use technology which can detect whether a signature is authentic and whether the signature has changed after it has been placed. This creates a more reliable and trustworthy form of electronic signature which is far less susceptible to abuse or forgery.

Summary

Generally, electronic signatures are a valid method of signing documents in the Isle of Man, except for those documents deemed ‘excluded transactions’. However, the implementation of the Emergency Regulations now provides authorisation for some of these ‘excluded transactions’ to be signed electronically, giving greater flexibility when a signatory is unable to sign in the usual way. Despite this, however, it is important to note that the Emergency Regulations apply only to those documents which need to be registered at the Company’s Registry and is not a general authorisation for any document which is deemed an ‘excluded transaction’ to be signed electronically.

Contact Us:

For further information please contact Alex Spencer by telephone on +44 1624 690300 or by email at aspencer@simcocks.com

The above material is of a general nature only. It does not constitute legal advice nor does the distribution or receipt of this material create a client-advocate relationship. Readers should seek specific advice in relation to any decision or course of action.

[1] Article 3(10) Electronic Identification Regulation (EU/910/2014)

24 April 2020

When an individual is required to sign certain documents (usually as a deed), there is a requirement for there to be a witness to the signing process. These documents include (but are not limited to) the following:

• A power of attorney;
• A conveyance or transfer of land;
• A mortgage;
• A guarantee; and
• A will (there is a legal requirement for two witnesses for this document).

Does the witness sign the document?

Yes. The individual who is party to the document will sign first. The witness will then sign the document as well and note down their details (usually full name, address and occupation) underneath or next to their signature.

What is the purpose of the witness?

The purpose of the witness is to oversee the signing process and if necessary, provide evidence that the document was signed correctly and without duress. The witness will provide their details in case they need to be contacted in future about the execution of the document.

Who can be a witness?

Generally, there is no legal requirement for a witness to any document to be independent i.e. not a relative or connected to the matter (although, a party to the document cannot be a witness to another party’s signature). Given the purpose of the need for a witness (as explained above) it would be best practice to avoid having a witness who was related or connected in any way, as an independent witness would be more likely to give unbiased evidence.

It is also important to consider any requirements which may specifically apply to the type of document that is being signed. In the case of a will, a witness cannot be a beneficiary, because then their interest in the will would be deemed invalid. Similarly, it shouldn’t be a spouse of a beneficiary.

We would therefore advise that a witness should be over the age of 18 and be independent. Independent witnesses can include neighbours, colleagues, or professional individuals such as accountants and advocates.

Despite the above, it may not be inappropriate for a family member to act as a witness for certain deeds, such as where a person is retiring as a trustee of a trust and a deed is required to be executed.  In this situation, if a family member is only available to witness the deed, this should not present a problem as it will be clear from other communications from the retiring trustee that he or she has expressed a wish to retire from the trust.

Can an individual witness the signature over skype?

Generally no, a witness must be physically present. The witness must physically see the individual signing the document, which means that the document would be rendered invalid if the witness was present over videolink eg. Skype, Facetime or Zoom.

However, the Emergency Powers (Coronavirus) (Electronic Transmission of Information – Enterprises) Regulations 2020 (the “Emergency Regulations”), which came into force as on 23^rd April 2020 and which will apply during the coronavirus period, provides an alternative method of witnessing documents which need to be registered at the Isle of Man Companies Registry. For these documents only, the Emergency Regulations allows electronic communication between a signatory and a witness, providing they are both able to see and hear each other.

Can an individual witness an electronic signature?

If an individual is required to sign a deed electronically, the formalities of the deed must still be adhered to i.e. there must be a witness. The witness must be physically present and observe the individual affixing his electronic signature, and both must affix their signatures at the same computer terminal. The Emergency Regulations may apply for those documents which need to be registered at the Companies Registry.

However, there are certain documents (excluded transactions) which cannot be signed electronically. In these situations, even if the witness was physically present and affixed the electronic signature too, the document would still be invalid.

Do companies require a witness when executing documents?

No. Depending on the type of company, a deed can be signed in the following way:

• For a company incorporated under the 1931-2004 Companies Acts – any two directors or one director and the company secretary;
• For a company incorporated under the Companies Act 2006 – any one director

For each, there is no legal requirement for a witness.

Covid-19

Given the current climate with the Covid-19 crisis, if an individual requires a witness when signing, we believe that asking a neighbour to be witness would be the most practical option. This avoids the potential problems of having a non-independent witness, if a member of the same household was to be asked and it was inappropriate to do so.

When the individual and the witness are signing the document, together with adhering to the general social distancing rules of staying two metres apart, we would recommend that each individual who is required to sign the document wears protective equipment such as gloves and mask and has their own pen.

Contact Us:

For further information please contact Alex Spencer  by telephone on +44 1624 690300 or by email at aspencer@simcocks.com

The above material is of a general nature only. It does not constitute legal advice nor does the distribution or receipt of this material create a client-advocate relationship. Readers should seek specific advice in relation to any decision or course of action.

19 March 2020

We know that this is a worrying time for everyone.  We would like to reassure you that we are here to help you with your legal matters.  We are endeavouring to minimise the number of face to face meetings, and so please contact the switchboard on 01624 690300,  enquiries@simcocks.com or your usual contact should you require assistance.

At Simcocks the wellbeing of our staff, our clients and all the people we work alongside is of paramount importance to us.  Therefore, we have implemented remote working for those staff members needing to isolate or to practice social distancing.  We are dedicated to providing legal services to any clients needing to do the same, and will do whatever we can to ensure that we can efficiently look after your needs.

We will keep you updated on any changes.

20 February 2020

In the Isle of Man, the Bribery Act (the “Act”) was enacted in 2013 and is primarily based upon the UK’s Bribery Act 2010 (the “UK Act”).

Part 2 of the Act lists the different offences that can be committed, which includes a) bribing another person b) being bribed c) bribery a foreign public official and d) a failure of an organisation to prevent bribery.

Focusing on the failure of an organisation to prevent bribery offence, this occurs when a person associated with a relevant commercial organisation bribes another person with the intention of obtaining or retaining business for that commercial organisation or with the intention of obtaining or retaining an advantage in the conduct of business for that commercial organisation.

A relevant commercial organisation is defined as a body or partnership incorporated in the Isle of Man doing business anywhere else, or a body or partnership incorporated anywhere, but doing business on the Isle of Man. An associated person means a person who performs a service for or on behalf of the commercial organisation and could include an employee, agent or subsidiary.

Prosecution for committing this offence can only be brought by, or with the consent of, the Attorney General and the penalties can be severe.

This offence is also the same in the UK’s Act.

SFO v Airbus SEO

The recent case of SFO v Airbus SE[1] is an example of a relevant organisation having failed to prevent bribery and being liable under that offence.

On 31 January 2020, a simultaneous decision was made by the UK, France and the USA in respect of their joint investigation into Airbus SE (“Airbus”), one of the largest manufacturers of commercial aircraft in the world, relating to bribery offences. Airbus entered into agreements with each country and agreed to pay a total financial payment of €3.6 billion with nearly €1 billion of that amount being paid to the UK. This marks the highest ever penalty imposed upon a company for settling bribery offences.

The UK aspect of the case involved the Serious Fraud Office (“SFO”) investigating Airbus and associated persons with Airbus, who had offered significant sums of money to third parties in order to secure the purchase of aircraft. The offences were committed in Malaysia, Sri Lanka, Indonesia, Taiwan and Ghana and specific details include payments being made to relatives of Government officials and payments being made to the purchasing company’s directors as ‘sponsorship for a sports team’. All bribes were intended to obtain or retain business for Airbus.

Airbus admitted five counts of failing to prevent bribery in contravention of the UK’s Act and agreed to enter into a deferred prosecution agreement with the SFO agreeing to pay the heavy fines.

Anti-Bribery Policies

Under the Act (and the UK Act), the relevant commercial organisation has a defence if they can provide that they had adequate procedures in place which aimed to prevent associated persons from bribery conduct.

The Isle of Man’s Department of Home Affairs has provided guidance[2] (based on the UK’s guidance published by the Ministry of Justice) as to what amounts to ‘adequate procedures’. The procedures should be:

1. Proportionate – Organisations should adopt procedures and policies which are proportionate to the risks of bribery that it faces. This will be different for each organisation and a policy for one organisation may not be appropriate for another. This will require an initial assessment of risk of bribery which would depend on the scale, nature and complexity of the organisation’s activities.

In the Airbus case, there was a high risk of bribery as the company used third parties in numerous countries to negotiate aircraft sales.

2. Top-level commitment – a compliance culture within an organisation comes from the top, meaning that if directors and senior managers of an organisation want their staff to comply with anti-bribery procedures, they should be involved in designing and implementing the procedures, as well as understanding the importance of them and why they should be followed. This will make it clear throughout the business that bribery will not be tolerated.

The Airbus case demonstrates that without this top level commitment, there is a higher risk of bribery occurring. Airbus had set up committees and sub-committees which were responsible for, inter alia, reviewing the use of agents and payments made to agents and to third parties, as well as conducting compliance risk assessments and ensuring compliance with Airbus’ written policies. It transpired that some committee members (which included very senior officers of the company), were aware of the bribery which was taking place. There was no ‘compliance culture’ embedded within Airbus, but instead there was a culture which permitted bribery.

3. Risk assessment – an organisation should carry out a risk assessment to determine the potential exposure to bribery risks, internal and external. Internal risks can include a lack of training or a bonus culture. External risks can be categorised into country, sectoral, transaction, business opportunity and business partnership. Once an organisation knows the risks, these can be mitigated.

In the Airbus case, there were clearly high external risks as the associated persons were dealing in some countries with high levels of corruption and the market they were dealing in was large scale infrastructure which carries high risks. Further, when an aircraft was sold, Airbus would pay the agent a commission based on a percentage of the value of the sale of the aircraft which encouraged risk taking.

4. Due diligence – if an organisation is likely to use third parties / representatives, it will be necessary to carry out checks on such persons, such as on their background and experience. If there are red flags, then it is better for the organisation to be aware of them at the start of the employment / engagement so they can be mitigated.
5. Communication – it is vital that staff know and understand the procedures which are in place within the organisation. This also communicating the policies to associated persons, ie. agents, representatives, not just staff within the office. The training should be proportionate to the risks of bribery.
6. Monitoring and review – bribery risks may change time to time, so an organisation should review their procedures to to ensure they remain appropriate and up-to-date. An organisation with a high risk of bribery may require a system set up to detect bribery. Another example to monitor effectiveness could be to provide a staff survey to obtain feedback on the policies. It may be appropriate for an outside organisation to verify whether the procedures are effective in meeting their aims.

Summary

The Airbus case is a sharp reminder that it is essential for all organisations to have appropriate and effective anti-bribery procedures in place to prevent bribery. This is of upmost importance as it acts as the organisation’s defence. If an organisation does not have such procedures, then under the corporate offence of failing to prevent bribery, an employer will be liable to criminal prosecution for the action of employees, agents, subsidiaries etc which have been involved in bribery, whether or not they were aware of it.

Although Airbus avoided prosecution by entering into deferred prosecution agreements, it is undoubtedly a huge financial loss for the company, as well as a huge dent to their reputation. Therefore, organisations are encouraged to ensure their policies are and remain adequate in order to avoid these serious consequences.

[1] Director of the Serious Fraud Office v Airbus SE [2020], Case No: U20200108

[2] Department of Home Affairs, ‘The Bribery Act 2013 Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing’, 2013

15 January 2020

English High Court Confirms Mediation Can Be Condition Precedent To Litigation

In Ohpen Operations UK Limited v Invesco Fund Managers Limited [2019 EWHC 2246] the English High Court recently held that mediation was a condition precedent to the commencement of litigation and therefore stayed the proceedings to enable mediation to take place.

Background

Invesco Fund Managers Limited (“Invesco”) entered into an agreement with Ohpen Operations UK Limited (“Ohpen”) under which Ohpen was to develop a digital online platform through which Invesco’s customers could buy and sell investments (“the Agreement”).  It was agreed that between the effective date of the Agreement and the launch of the platform, the parties would enter into a development and implementation phase and that Ohpen would then operate the platform post-launch.

Delays occurred and the agreed launch date was not met. Invesco issued a notice of termination on the grounds of material breach and/or repudiatory breach by Ohpen. Ohpen disputed that it had breached the Agreement and regarded the purported termination as Invesco’s repudiatory breach of the Agreement. Accordingly, the dispute centred on which party was in material and/or repudiatory breach of the Agreement.

The parties attended a “without prejudice” settlement meeting to resolve the dispute without any success.

Application for a Stay

Pursuant to the Agreement, if a dispute arose during the development and implementation phase, and if no resolution arose following negotiations between the parties, the dispute was to be referred to mediation under the Model Mediation Procedure of the Centre of Dispute Resolution (CEDR). The Agreement further provided that “if a Dispute is not resolved in accordance with the Dispute Procedure, then such a Dispute can be submitted by either party to the exclusive jurisdiction of the English Courts”.

As a result, following the commencement of litigation proceedings Invesco issued an application to court seeking a declaration that the court would not exercise jurisdiction over the claim filed by Ohpen and an order for a stay pending compliance with the agreed dispute resolution procedure.

Judgment

The Court held that mediation was an enforceable condition precedent to litigation and accordingly stayed the litigation proceedings pending mediation.

In reaching this decision, the court considered some of the relevant authorities and summarised the key principles when a party seeks to enforce an alternative dispute resolution provision:

1. The parties’ agreement must create an enforceable obligation that requires them to engage in alternative dispute resolution.
2. The relevant obligation must be expressed clearly as a condition precedent to court proceedings or arbitration.
3. The relevant alternative dispute resolution process does not have to be formal, but must be sufficiently certain by reference to objective criteria (including clear machinery to appoint a mediator or determine any other necessary step without the requirement for further agreement between the parties).
4. The Court has discretion to stay proceedings that have been commenced in breach of an enforceable dispute resolution agreement: the court will have regard to the public policy interest in upholding the parties’ agreement and furthering the overriding objective in encouraging the parties to resolve disputes.

Applying these principles to the facts of the case, the court held that mediation was a mandatory requirement. Only if the dispute was not resolved following the prescribed procedures could a party submit the dispute to the exclusive jurisdiction of the courts. Although the phrase “condition precedent” was not used, the wording clarified that the right to commence proceedings was subject to the parties’ first engaging in mediation. The CEDR procedure was sufficiently clear and certain to be enforceable, as it does not require any further agreement by the parties to enable the mediation to proceed. The rules provide for the selection of a mediator and a court could determine by reference to objective criteria whether the parties had engaged in mediation and whether the dispute remained unresolved.

The court also considered Ohpens submission that the alternative dispute resolution requirements did not apply (i) outside the development and implementation phase or (ii) on termination of the Agreement. While the court accepted that the Agreement did have a separate procedure for disputes arising after the launch date (without a mediation requirement), there was no indication that the dispute resolution clause requiring mediation would only apply while the parties remained under obligations to perform the Agreement. In any event the court held that termination had occurred during the development and implementation phase. The court further held that the obligation to mediate survived termination of the Agreement. The termination clause in the Agreement provided that “those provisions necessary for…. enforcement of this Agreement follow termination”. While the termination clause did not expressly make reference to the dispute resolution clause, as a matter of principle, dispute resolution obligations ordinarily survive termination.

Comment

The decision serves as a useful reminder that parties wishing to commence litigation or arbitration should take care to comply with any enforceable conditions precedent before initiating proceedings. Failure to comply can have serious consequences, including challenges to the court’s jurisdiction and a stay of proceedings, which will inevitably increase the time and costs involved with resolving the dispute. To mitigate these risks parties should seek legal advice as soon as the dispute arises so that compliance is ensured.

Simcocks offer a full range of alternative dispute resolution services including mediation, as an effective way of resolving disputes without the need to go to court.