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The Jersey Law Review – June 2005

CHOICE OF LAW IN PROPERTY TRANSACTIONS IN JERSEY LAW

Paul Matthews

Introduction

1 The sixteenth century French jurist Bertrand D’Argentré was one of the earliest to

develop a modern theory of the conflict of laws. Although he was a writer on the Coutume

de Bretagne rather than on that of Normandy his work on conflicts is said to have had –

and to continue to have – considerable influence on the development of Jersey private

international law.1 Nevertheless, the body of rules dealing with the conflict of laws, or

private international law as it is also known, is underdeveloped in Jersey relative to larger

jurisdictions such as England.

2 There are good historical reasons for this. In the past Jersey was not only an insular

community, but also an overwhelmingly agricultural one.2 Although much produce was

exported, individual shipments of vegetables would not be of high value, and hence were

not normally worth litigating about if something went wrong. Moreover, in those rare cases

where litigation about Jersey exports or merchant adventures did ensue, it was usually

brought in the place to which the exports went or the adventures occurred, i.e. more likely

London than Jersey. Thus the opportunities for the Island’s lawyers and courts to deal

with private international law issues were very few. Very few of Le Geyt’s or Poingdestre’s

writings, for example, concern such issues.3

3 But times change, and Jersey is now a leading offshore international finance centre.

There are modern laws expressly enacted to deal with all aspects of commerce and

financial services, and many of these lay down conflicts rules.4 However, these express

rules are situation specific, and do not lay down principles of general application. So,

where the enacted laws are silent, postwar Jersey lawyers have usually5 referred to and

followed the English common law principles of the conflict of laws.6 The same appears to

be true for Guernsey lawyers.7 However, in the last twenty-five years or so the English

rules in this area have become increasingly statute based. As a result, a premium has

been put (for Channel Islands lawyers, at least) on old editions of classic English

textbooks such as Dicey and Morris on the Conflict of Laws, or Cheshire and North’s

Private International Law.

1 See Nicolle, The Origin and Development of Jersey Law – an Outline Guide, revised ed 1999, paras 14.8-14.9. 2 See Kelleher, The Triumph of the Country, 1994, Chap 2. 3 See though, Code Le Geyt, Titre VII, Des Testamens, art. 8, “Le Meuble suit la personne comme l’Héritage le territoire”. 4 See e.g. the Security Interests (Jersey) Law 1983, as amended, art 12; Trusts (Jersey) Law 1984, as amended, arts 3-5, 8A, 44-

45. 5 But see Re Representation of the Viscount re Nield, below. 6 See e.g. Official Solicitor v Clore 1984 JJ 81, 99; Re Imacu Ltd 1989 JLR 17; Re Lundquist 1997 JLR N-4. 7 Dawes, Laws of Guernsey, 2003, Chap 20.

4 This article considers the Jersey rules on choice of law in transactions involving

property, whether movable or immovable. Central to the discussion about movable

property is a case decided by the Royal Court in 1983, Re Representation of the Viscount

re Nield.8 Although two short notes on this case, dealing with propositions of law for which

the case is said to stand, are to be found in the Jersey Law Reports,9 the case has not

hitherto been fully reported anywhere. The Act of the Court (summarising the pleadings)

and a transcript of the judge’s reasons are however available. To facilitate readers’

access to these materials, they are reproduced in an appendix to this article. The Act of

the Court is printed unaltered. Although the actual text of the reasons for judgment is

printed exactly as given in the transcript, it is accompanied by a number of footnotes which

form no part of the original, but which have been contributed by the present writer in order

to draw attention to certain features.

5 The pattern adopted in this article is first to consider the rules for choice of law in

relation to immovables, and then those relating to movables. Within each part,

consideration is given, in summary form and by way of comparison, to the corresponding

rules in typical common law and civil law systems. Finally there is a short conclusion.

IMMOVABLE PROPERTY

Common law

6 In the common law world it is a rule of great longstanding that the applicable law for

determining questions relating to immovables is the law of the place where it is, the lex

situs, or (as it is sometimes put) the lex rei sitae.10 This applies to transactions on death11

as it does to those inter vivos.12 This question of choice of law is conceptually distinct

from the issue of which courts should have jurisdiction to deal with such matters. There is

no logical reason why they must be the same. But there is a practical connection, which is

why it is mentioned at all. It was and is much easier for English courts to apply English

law to English land, rather than to apply some other law. So English courts not only

adopted the lex situs as the choice of law rule,13 but also embraced the procedural rule

that – with limited exceptions14 – the English courts had no jurisdiction to determine

questions of title to foreign land.15 This meant that English courts would rarely if ever be

called upon to apply foreign law to land.

7 In fact, the jurisdiction rule has now been partly abrogated by statute, so that in

some cases where the European rules16 do not apply the English courts now have

jurisdiction to try cases of trespass or other torts to foreign land, where this does not

8 270 Ex 130 9 See 1990 JLR N-12, N-18. 10 See e.g. Story, Commentaries on the Conflict of Laws, 8th ed 1883, ss 428, 444. 11 E.g. Re Hernando (1884) 27 Ch D 284 (testate succession); Duncan v Lawson (1889) 41 Ch D 394 (intestate succession). 12 E.g. Re Ross [1930] 1 Ch 379 13 E.g. Bank of Africa Ltd v Cohen [1909] 2 Ch 129, CA. 14 For contracts and equities on the one hand (Penn v Lord Baltimore (1750)1 Ves Sen 444), and estates and trusts on the other

(Nelson v Lord Bridport (1846) 8 Beav 547). 15 E.g. British South Africa Co v Companhia de Mocambique [1893] AC 602, HL; 16 I.e. the Brussels and Lugano Conventions, arts 16(1)(a), and the Council Regulation (EC) No 44 of 2001, art 22(1).

involve trying questions of title.17 On the other hand, the choice of law rule, although much

criticised,18 is still in force today. Its main value is that it reflects the practical realities of

the situation: immovable property is under the direct control of the legal system in force

where the immovable is. And, unlike movable property, land has an almost mystical

importance in the concept of nationhood, and is thus to be protected from the influence of

alien ideas, including law. For another system to disregard these facts and to seek to

apply (say) its own law, inconsistent with the lex situs risks becoming a brutum fulmen.

Civil law

8 Looking to the civil law, the French choice of law rule for immovables – whether the

dealing is inter vivos or on death – is the same pragmatic one as in England, i.e. that the

lex rei sitae should apply. This is express for immovables situated in France,19 and

derived from caselaw for other cases. Belgian law is heavily based on French law, but it

recently enacted a new Code on private international law.20 This makes the same rule

express in all cases.21

9 As for the related question of jurisdiction, it is well known that the French rules

contain exorbitant provisions enabling a French national to sue22 anyone, including

foreigners, in France and to be sued23 only in France if he wishes, even though the

obligation concerned has no other connection with France. These provisions do not

prevent other systems from asserting jurisdiction according to their own rules, but mean

that judgments from these systems will not be recognised in France.24 They can apply

where a French national claims as heir to a donatrix of a foreign immovable to enforce

obligations attaching to the donation against the donee.25 But they do not apply where

actions about inter vivos dealings with immovables are concerned, and the rule is again

like the common law one, i.e. that French courts have no jurisdiction to deal with questions

affecting foreign immovables.26 And once more the new Belgian Code expressly makes

international jurisdiction depend on the asset being situated in Belgium.27

Jersey

10 Not surprisingly, the rare statements on the question of choice of law for immovables

to be found in the Jersey cases come to the same conclusion. Thus, in Lane v Lane,

17 Civil Jurisdiction and Judgments Act 1982, s 30(1). 18 E.g. Cook, Logical and Legal Bases of the Conflict of Laws, 1942, Chap 10; Hancock (1964) 16 Stanford LRev 561, (1965) 17

Stanford LRev 1095, (1966) 18 Stanford LRev 1299, (1967) 20 Stanford LRev 1; Morris (1969) 85 LQR 339. 19 Code Civil, art 3 para 2. 20 Loi portant le Code de droit international privé (16 juillet 2004), which came into force on 1 October 2004. The French text

can be found at www.notaire.be/info/actes/100_code_dip.htm 21 Loi portant le Code de droit international privé (16 juillet 2004), art 87 para 1. 22 Code Civil, art 14. 23 Code Civil, art 15. 24 See, e.g., Delaage v Bloom Midaeloff [1997] IL Pr 150, Paris CA. 25 Fondation Solomon R Guggenheim v Helion [1997] ILPr 45, Cass Civ 3 juillet 1996 (claim in respect of the Venetian palazzo

given to the Guggenheim Foundation of New York). 26 Cass civ 24 nov 1953, Rev cr dr int pr 1955, 698, note Metzger; Civ 4 dec 1979, Rev cr dr int pr, 1980, 758, note Ancel. 27 Loi portant le Code de droit international privé (16 juillet 2004), art 85.

where there was a dispute about a Jersey immovable which had been the subject of an

order in an English divorce, the then Deputy Bailiff said, obiter -

“We note that Sheldon J [the English judge concerned] was careful not to decide

questions of Jersey law, which of course govern the transfer of immovables in

the Island.”28

11 Frankly, given the unanimity of the English and French rules on this point, it would

be surprising if in Jersey it were otherwise, at least as a general proposition. Le Geyt

took the same view in relation to transfer on death.29

12 As for jurisdiction, there appears to be no clear authority that the Jersey courts have

no jurisdiction to decide questions concerning title to foreign immovables, but there are

express rules conferring (discretionary) jurisdiction on those courts in relation to land

situated within Jersey.30 Probably the Jersey courts would be content to adopt the

common law rule (and its exceptions) here as they have done in other parts of the conflict

of laws.

MOVABLE PROPERTY

Common law

13 Most questions about choice of law in relation to tangible movables concern

dealings with them, such as using them as security or transferring them outright, whether

inter vivos or on death. In English law there are not many authorities on the point, but

there are at least three theories, each with some support. They are (1) the law of the

domicile of the owner, (2) the proper law of the transfer (or other dealing), and (3) the lex

situs.

14 The first of these is accepted to govern questions of substance in the case of

transfer on death.31 There are dicta in old cases in favour of applying it to inter vivos

transfers as well,32 but none in modern times, and the weight of authority takes a different

view. The second theory would be advantageous in cases where a single transaction

dealt with things in different places, or with things actually in transit, but less useful where

the same thing were subject to two or more simultaneous transactions governed by

different laws. Moreover, in some cases, where there were various international factors

involved, it might be difficult to know which was the proper law. It is however probably the

best theory for dealing with the contractual – as opposed to proprietary – consequences of

the transaction.33 But the third theory provides the most certainty, and is the one

28 1985-86 JLR 48, 60. 29 See note 3 above. 30 Service of Process (Jersey) Rules 1994, r 7(g), (h) , (i). 31 Re Annesley [1926] Ch 692. 32 Sill v Worswick (1791) 1H Bl 665, 690; Re Ewin (1830) 1 Cr & J 151, 156. 33 See Cheshire and North, Private International Law, 13th ed 1999, 941.

nowadays preferred by common law courts for inter vivos transactions, whether the situs

remains constant at all material times,34 or changes.35

15 In relation to intangible movables, ascertaining the situs is sometimes problematic.

Hence the lex situs is not the appropriate test. Instead, the English courts in the past

usually applied that of the place where the dealing itself takes place, the lex loci actus.36

But there was strong academic support for a different test. This was the proper law of the

transaction by which the right was created.37 And in fact this is the test now applied under

the Rome Convention of 1980 on the Law applicable to Contractual Relations38 (which

now has the force of law in the United Kingdom)39 in determining the assignability of the

right, the relationship between the assignee and the debtor, and any question of discharge

of the debtor’s obligations.40 But the mutual obligations of the assignor and assignee

remain governed by the law of the contract between them.41 There are special rules for

negotiable instruments42 and company shares.43

Civil law

16 In French law the choice of law rule is the same for inter vivos dealings with tangible

movable property as for immovable, i.e. the lex rei sitae.44 Thus the effects of a pledge of

movables situated in France must be governed by French law alone.45 However in cases

of sale it may be necessary to draw a distinction between the terms of the transfer of

ownership of the goods (which are regulated by the proper law of the contract) and the

protection of the property rights involved (which are governed by the lex rei sitae).46 The

new Belgian statutory position is also the same,47 except that there is a special rule for

goods in transit, when the law of the place of the destination applies.48

17 It is slightly more complicated for inter vivos dealings with intangible movables. In

France the original rule was that they were generally governed by the lex rei sitae of the

property affected by them, although the Rome Convention approach has now superseded

this where the convention applies.49 But intellectual property rights are governed by

relevant international conventions,50 and protection against infringing acts done in France

is regulated by French law.51 In Belgium the Rome Convention applies to contractual

34 Inglis v Robertson [1898] AC 616, HL. 35 Cammell v Sewell (1860) 5 H & N 728; Winkworth v Christie [1980] Ch 496. 36 Re Anziani [1930] 1 Ch 407. 37 See Cheshire and North, Private International Law, 13th ed 1999, 957-58. 38 See OJ L-266 of 9 October 1980. 39 Contracts (Applicable Law) Act 1990, s 2. 40 Art 12, para 2. 41 Art 12, para 1. 42 Koechlin v Kestenbaum [1927] 1 KB 889, CA. 43 Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, CA. 44 Req 24 mai 1933, DH 1933, 378. 45 Cass Civ 1re, 8 juillet 1969, JCP 1970, II, 16182, note Gaudemet-Tallon. 46 Cass Civ 1re, 9 déc 1974, Rev cr dr int pr1975, 504, note Mezger. 47 Loi portant le Code de droit international privé (16 juillet 2004), art 87 para 1. 48 Loi portant le Code de droit international privé (16 juillet 2004), art 88. 49 France ratified the Convention on 10 November 1983, having been authorised to do so by Loi 82-523 of 26 June 1982, and it

came into force for all contracting states on 1 April 1991. 50 Eg the Paris Convention of 1883, the Berne Convention of 1886, the Geneva Convention of 1952. 51 Cass Civ 1re, 22 déc 1959, D 1960, 93, note G Holleaux.

rights,52 and there are special rules for negotiable instruments, and for intellectual

property.53

18 The French rule for choice of law in relation to succession to movables on death is

governed by the law of the deceased’s domicile (in the French sense of the place where

he has principally established himself)54 at the time of death.55 The new Belgian rule refers

to the deceased’s habitual residence at the time of death, although there is also provision

for the deceased himself to select the applicable law in some cases (obviously without

prejudicing forced heirship rights).56

Jersey

19 What then is the position in Jersey? In relation to transfers of movables on death, it

is clear that the interpretation of a will is governed by the law of the deceased’s domicile at

death.57 On the other hand, the capacity of a person to receive a legacy has been held to

be governed by the law of the testator’s or the legatee’s domicile.58 Even more curiously,

however, the jurisdiction of the Jersey court to vary a will of movable estate59 after the

death of the testator has been held to apply even where the testator died domiciled

outside Jersey.60 So the lex domicilii rule does not hold complete sway in this area.

20 There is no jurist’s comment or case which the writer has been able to find dealing

expressly with the choice of law for inter vivos dealings with tangible movable property.

Were it not for the case of Re Representation of the Viscount re Nield,61 the lex situs rule

(being the law of both France and England) would be the obvious one to apply. Re Nield is

a case dealing with policies of life assurance, intangible movables, and we must consider

it further in that context hereafter. But for now we should notice that in that case the judge

drew no distinction between tangible and intangible movable property. He looked at the

matter simply as one for the proper law of the transaction concerned, in that case an

attempt to create security interests in the movables. The merits of applying the proper law

test to tangibles have already been considered above. It must be an open question

whether the Jersey court, faced with the question in a case involving tangible movables,

would adopt the lex situs rule, or follow Re Nield. We must simply note that, if it were the

latter, it would put Jersey law at odds with both English and French law on this point.

52 Loi portant le Code de droit international privé (16 juillet 2004), arts 98, para 1. 53 Loi portant le Code de droit international privé (16 juillet 2004), arts 91, 93; see also art 98, paras 2 and 3. 54 Code Civil, art 102. 55 See Lagarde, French Rapporteur, in EU Comparative Law Study on Conflicts of Law relating to Wills & Succession, 2004, 386

(French text available at http://europa.eu.int/comm/justice_home/doc_centre/civil/studies/doc/report_conflits_france.pdf ; Cass Civ 19 juin 1963, Rev cr dr int pr 1965, 366, note Loussouarn; Cass civ 19 juillet 1976, Rev cr dr int pr 1978, 338, note

Ancel. 56 Loi portant le Code de droit international privé (16 juillet 2004), arts 78, 79. 57 Code Le Geyt, note 3 above; Re Chief Aleyideino 2003 JLR N-7. 58 Re Fargus 1997 JLR 89. 59 Under s 25 of the Probate (Jersey) Law 1998. 60 Re Wakefield 1999 JLR N-19. 61 270 Ex 130.

21 In relation to intangible movables, there are at least decided cases to consider. One

is Marriott v AG,62 a criminal case decided in 1987. In that case a son, appointed curator

of his mother’s property under the mental health law, was convicted of fraudulent

conversion after he instructed his bank to sell British Government stock standing in his

mother’s name without the (Jersey) court’s authority. However, although the stock was

indeed sold and the money paid, the Bank of England would not register the transfer

without an order of the (English) Court of Protection, which had not been obtained. On

appeal, he argued that he had never been ‘entrusted’ with the stock for the purposes of

the offence, because he had never had control of it, because he never had the Court of

Protection’s order for transfer of the stock to the purchaser.

22 The argument included the point that -

“The fraudulent conversion alleged here was of British Government stock. This

stock for legal purposes is situated in England and the relevant rules governing

its disposition are the rules of English law. English law does not permit the

transfer of stock into the name of a foreign curator except with the authority of

an order of the Court of Protection. In this case, such an order was never

obtained and the stock continued to be registered in the name of [the mother].”63

23 The court expressly accepted that -

“the appellant was not in a position in which he could obtain the transfer of the

stock to a third party and the sale which he tried to arrange therefore was

ultimately aborted.”64

24 In other words, the requirements of English law applied to any disposition of these

British Government stocks. However, this did not help the appellant, as the Court of

Appeal dismissed his appeal on the basis that being given control of his mother’s property

as curator was sufficient for him to be ‘entrusted’ with it for the purposes of the offence.

So the decision ultimately turned on a rather broad meaning being given to the word

‘entrusted’, rather than to technical points of private international law.

25 What significance then does this case have beyond establishing that English law

applied to the stock? It is clear that the argument was that the stocks were situated in

England; it is not clear whether the court accepted this, though it certainly did not dissent.

Nor indeed is it clear from the facts given where the attempted dealing took place, though

probably this was in England too. The proper law of the original transaction (the issue of

the stock by the British Government) was almost certainly65 English. So this case does not

help us to decide between the lex situs, the lex loci actus or the proper law tests for

62 1987-88 JLR 285, CA. 63 1987-88 JLR 285, 289. 64 1987-88 JLR 285, 291. 65 Being issued through the Bank of England in London rather than in Scotland or Northern Ireland.

intangible movables. (In England and France there is now the Rome Convention. But in

Jersey, of course, this does not yet apply.)

26 The other case to be discussed is Re Nield. It is dealt with second because,

although it was decided earlier66 than Marriott, it was not reported (and then only in very

brief note form)67 until afterwards. Consequently, it was not brought to the attention of the

court in Marriott.

27 In Nield a Jersey resident had taken out four life assurance policies in Jersey with

two English life companies trading there. Two of the four policies were expressed to be

governed by English law, and a third referred to the payment of premiums in Jersey; the

fourth was silent on either point. In 1977 the policyholder (probably in Jersey, though this

is not stated) executed four documents, purporting to create a legal mortgage of each of

the four life policies in favour of a Jersey branch of an English bank. Each such document

expressly provided that “this mortgage shall be governed by English law”. In 1980 the

policyholder’s movable property was declared “en désastre” and the Viscount proceeded

to take control of it, with a view to realising it for the benefit of the creditors. This property

included the four policies. The bank argued that it had a valid security interest in the

policies, or if not that then an outright assignment of them, and claimed the surrender

values.

28 The then Deputy Bailiff, sitting alone, held that the four documents did not create

valid security interests, and did not amount to outright assignments of the policies, so that

the bank’s claim failed. Unfortunately the judge appears not to have taken time to consider

his judgment, and the oral reasons given are consequently somewhat unstructured and

disjointed. Added to that, some of the material facts are not stated, in particular where the

documents were executed, and what their most material terms were, which adds to the

difficulty in working out what the case stands for.68 The matter is also not helped by the

fact that it is apparent from a reading of the official transcript of the oral reasons that at

least some of the words in the transcript are unlikely to have been those actually used, or

at any rate intended. Nonetheless we must do our best to understand and analyse the

reasons given.

29 The judge appears to have held the following -

(1) The 1977 transactions were attempts to create legal mortgages as known

to English law, not outright assignments;

(2) Jersey law did not permit the hypothecation of movables;

66 On 25 April 1983. 67 See 1990 JLR N-12, N-18. 68 On this point see also (2001) 5 JLRev 186.

(3) Jersey law permitted parties to a contract to choose the governing law,

provided the choice was bona fide and legal, and there was no objection

on public policy grounds;

(4) It was not ‘bona fide and legal’ for parties to pretend to contract under one

law in order to validate an agreement whose closest connection was with

another law, under which the contract would not be valid;

(5) All four parties were firmly connected with Jersey, and the 1977

transactions were not so closely allied with the UK that the proper law

governing them was English; instead their closest connection was with

Jersey law;

(6) Hence Jersey law and not English law applied, and the 1977 transactions

were not valid.

30 A number of comments can be made on this reasoning. The most important from the

point of view of the present article is that, despite the practice of Jersey lawyers up till

then, the court did not overtly attempt to ascertain what was the relevant conflicts rule in

English law, let alone in French law, much less to follow either. And it did not go into the

question of the correct test for the choice of law in any depth. It may be that it was not

argued in detail, although it is plain from the Act of the Court that the question of choice of

law was fairly and squarely raised on the pleadings.

31 Instead, without any discussion, the judge treated the test for choice of law as one of

the proper law of the contracts concerned (i.e. the transactions in 1977), and then

proceeded to consider what that involved. Despite the express English choice of law

clauses, the judge held that the proper law of the 1977 transactions was Jersey law (under

which he held that they were invalid) rather than English law (under which they may or

may not have been valid).69

32 Whether the judge was right to hold that the 1977 transactions were attempts to

create mortgages in the English sense70 rather than outright assignments is impossible to

know, as the relevant terms of the documents are not given. Each of the documents was

labelled “Legal Mortgage of Life Policy”, but we must look to the substance, not to the

69 The judge did not have to deal with the latter issue, but there does not appear to have been any evidence of the effect of

English law if it applied. 70 In modern legal systems there are broadly three ways to give security in an asset: (1) transfer ownership to the creditor, but not

possession, subject to retransfer when the debt is repaid (“mortgage”); (2) transfer possession to the creditor, but not ownership,

subject to retransfer when the debt is repaid (“pledge”); (3) transfer neither possession nor ownership to the creditor, but give him

a right of recourse to the asset if the debt is not repaid (“hypothec” in civil law systems; “charge” in common law ones). Only

the common law has examples of all three types. In England a legal charge of land after 1925 carries one important

characteristic of a (pre-1926) mortgage: the immediate right to possession of the charged land. This differentiates it sharply from

the continental hypothec. In fact there is no reason in principle why Jersey law could not accept an outright assignment with a

(contractual) provision for reassignment on repayment of the debt. After all, La convention fait la loi des parties; Donnelly v

Randalls Vautier Ltd. 1991 JLR 49 at 57; L.C. Pallot (Tarmac) Ltd. v Gechena Ltd. 1996 JLR 241 at 252. The difference with

English law would be thrown into sharp relief if the asset reached the hands of a third party, not bound by the contract. For a

European survey of security in land, see Nasarre-Aznar [2005] Conv. 32.

form; labels are not conclusive.71 And in Jersey, as in England, judges should interpret

documents if possible so that they are valid, not void.72

33 A further matter is whether, having held that the test was one of the proper law of

the transaction and that in Jersey law the parties to a contract could select the governing

law as long as the choice was bona fide, the judge was right then to hold that the choice of

English law to govern the 1977 transactions was not bona fide. His reasons appear to

have been that the policies were governed by Jersey law and entered into in Jersey with

English companies trading in Jersey, and the policyholder was a Jersey resident. (He

could have added, but did not, that the other party to the 1977 transactions was a Jersey

branch of an English bank.)

34 He concluded that the system with “the closest connection” to the 1977 transactions

was that of Jersey. That is, with respect, not a self-evident conclusion. The underlying

policies were taken out with English companies resident in England (and hence the

policies were situated in England),73 and the bank lending the money to the policyholder on

the security (or so it thought) of those policies was an English resident bank, even though

carrying on business in Jersey.

35 But, and much more seriously, the judge has confused the test of good faith with

that of closest connection. The whole idea of freedom of choice exercised in good faith is

to enable the parties to select a law which does not have the closest connection with the

events in question. As the test of “closest connection” is dependent on objective

phenomena, freedom of choice would otherwise be simply meaningless. But this judge

considers that the fact that the parties have selected a law to govern which is not that

which (in his eyes, at least) has the closest connection to the events in question,

demonstrates bad faith – and conclusively at that, entitling him to ignore the choice made!

36 It is clear what the subtext in this case was. Jersey law at this time did not permit

security to be given of valuable intangible movables, such as life assurance policies, bank

deposits, and so on.74 Consequently, and as always happens, there was pressure to find

a commercial solution for Jersey residents. This was to use English law, by means of an

express choice of law clause. Finally a case raising this issue came before the Royal

Court, which did not like the practice, and struck it down.

37 It is a strange irony that a jurisdiction such as Jersey, which makes its money in

modern times by offering an alternative legal system for investors and businessmen

71 Antoniades v Villiers [1990] 1 AC 417, 466-67; Luke v Le Moignan 1987-88 JLR N-16; AG v Hogan 1989 JLR 238, 253. 72 Le Pennec v Romeril (née Wood) 1995 JLR N-17. 73 See New York Life Insurance Co v Public Trustee [1924] 2 Ch 101, 119; Kwok Chi Leung Karl v Cssr of Estate Duty [1988] 1

WLR 1035, 1040. 74 This is not as a result of the maxim “Meuble n’a pas suite par hypothèque”, because that does not forbid hypothecation of

movables as between debtor and creditor; instead it merely deprives the hypothec of proprietary consequences as against third

parties into whose hands the goods come. Instead it is because of express legislation, the Loi (1880) sur la propriété foncière, art

3: Apart from the soil itself, “les autres espèces de biens, qu’elles soient réputées meubles ou immeubles” [save for immaterial

exceptions] “ne pourront être hypothéquées et n’auront point de suite par hypothèque, quelque stipulation qu’il y ait du

contraire.” So a movable could only be the subject of security by way of pledge, handing over possession – impossible with an

intangible.

elsewhere to take advantage of so as to avoid inconvenient rules and indeed lacunae in

their own system, should have been so offended by the fact that, its own legal system not

providing a sensible solution, some of their own investors and businessmen sought to go

elsewhere. A case of the biter bit. And a deficiency remedied the very same year by the

enactment of the Security Interests (Jersey) Law 1983.

38 Despite the weaknesses in the reasoning, and the perhaps rather unfortunate

subtext, on the face of it this case is nevertheless an authority in favour of the test for the

choice of law being the proper law of the transaction, rather than the lex situs (because

the situs of the policies was England, where the debtor companies were).75 But we should

note that, since the 1977 transactions probably took place in Jersey, the result would have

been the same if the test had been that of the lex loci actus. So it is not so strong an

authority as it might have been. However, if the Rome Convention were adopted in

Jersey, the test would change to that of the proper law of the underlying transaction by

which the right was created. As it happens, in this case the result would actually still have

been the same, as the judge had earlier held that the life policies were governed by Jersey

law. Nowadays, of course, the 1983 Law provides a solution for giving security in

intangibles, though Re Nield is still relevant in relation to other dealings with intangibles,

and as we have seen may indeed extend to tangible movables as well.

Conclusion

39 For historical reasons, private international law in Jersey is underdeveloped.

Particularly so in this area. For modern commercial reasons it needs not to be. Re Nield

gives us the worst of all possible worlds: a rule based on weak foundations, uncertain in

scope, and clear only in ignoring both English and French law. This is hardly conducive to

confidence in Jersey’s legal system as a sensible place to do business and, in the

unfortunate event of any disputes arising from that business, to resolve those disputes. It

was all very well, in the past, relying on English common law principles of the conflict of

laws. But English statutes and international conventions, to which Jersey is after all not

subject, have changed a great many of these principles in their application in England.

And, as Re Nield shows, the ones that are left are not always well applied in Jersey.

40 Jersey has been happy in the last quarter century or so to enact a raft of modern

commercial (and indeed non-commercial) legislation to support and regulate the modern

society which it has become, and to attract business from outside the Island. But surely a

comprehensive private international law statute – as last year enacted in Belgium – is now

highly desirable too. For a legal system which is no longer insular, merely concerned, say,

with the price of potatoes, but which instead claims to be international and outward

looking, to maintain a situation in which a Jersey lawyer can tell his client what the

75 See note 61 above.

relevant Jersey commercial law is, but not whether it – or, if not it, which other law – will be

applied by the Jersey court in an international situation, is simply no longer acceptable.76

APPENDIX

IN THE YEAR ONE THOUSAND NINE HUNDRED AND EIGHTY-THREE, THE TWENTY-FIFTH DAY OF APRIL.

BEFORE Peter Leslie CRILL, Esq., C.B.E

DEPUTY BAILIFF OF JERSEY, sitting alone

by virtue of the provisions of Rule 3/6

of the Royal Court Rules, 1982.

Whereas on the 5th February, 1982, the Viscount represented to the Court:

1. That prior to the 4th November, 1977, one Michael Vaughan Nield (hereinafter

called ‘the debtor’) effected certain policies of life assurance with certain life assurance

companies. That details of the said policies are as follows:

Policy No Assurer

11497690 Prudential Assurance Company Limited

11804475 Prudential Assurance Company Limited

2448258A Pearl Assurance Company Limited

3221158A Pearl Assurance Company Limited

2. That on the 4th November, 1977, the debtor executed, in respect of each of the said

policies, a document entitled "Legal Mortgage of Life Policy" in favour of the National

Westminster Bank Limited, St. Brelade (hereinafter called ‘the bank’).

3. That on the 25th July,1980, the moveable property of the debtor was, by Act of this

Court, declared "en désastre".

4. That the bank has notified the Viscount that it claims to be entitled to certain monies

representing the surrender values of the said policies in virtue of the said transaction of

the 4th November, 1977.

5. That the Viscount has notified the bank that the said transaction of the 4th November,

1977, may be invalid in point of law and that, in that event, the said monies representing

the said surrender values become payable into the said "désastre" for the benefit of the

creditors who prove their claims therein.

Wherefore the Viscount prayed the Court to convene the bank before it and:

76 Thanks to Professor Robin Morse and to Advocate Richard Falle for valuable comments on an earlier draft. Responsibility for

the views expressed, and for any remaining errors, is however the writer’s alone.

(1) determine the validity of the said transaction of the said 4th November

1977;

(2) direct that the said monies, together with interest accrued, should be paid

to the Viscount for the benefit of the creditors who prove their claims in the

said "désastre";

(3) make provision for the costs of this application; and

(4) make such other order as it deems fit and just.

And whereas the Court ordered that the bank be convened and it appeared forthwith.

Whereupon the Court placed the matter on the pending list;

And whereas on the 24th May, 1982, the bank filed the following answer:

1. That paragraphs 1, 2, 3 and 4 of the Viscount's representation are

admitted.

2. That the document entitled "Legal Mortgage of Life Policy is not invalid In

point of law as the document was a valid form of assignment of the

policies issued by the Prudential Assurance Company Limited and the

Pearl Assurance Company Limited referred to in the representation and

as notice of assignment of such policies had been properly given to the

said assurance companies who, subsequent thereto, were in a position to

acknowledge such assignments and treat the bank as the absolute owner

of the policies.

3. That notwithstanding the valid assignment of the policies in accordance

with the lex fori, such policies were Issued In accordance with the Law of

England and that the proper law of the document entitled “Legal Mortgage

of Life Policy" is the Law of England as evidenced by the documentation

and the intention of the parties.

And whereas on the 10th June, 1982, the Viscount filed the following reply:

1. That the Viscount joins issue with the bank on paragraph 2 of its answer.

2. That the Viscount will object that the further matter raised in paragraph 3

of the answer, which is admitted, is not sufficient in law to render the said

transaction valid as against the Viscount as administrator of the debtor’s

moveable property;

And whereas on the 14th September, 1982, on the application of the Viscount, the matter

was set down for hearing;

Now this day, upon hearing the Viscount and the bank through the intermediary of their

advocates, the Court, for the reasons set out in a judgment that was delivered by the

Deputy Bailiff, held that the said transaction of the 4th November, 1977, was not valid

according to the law of Jersey and accordingly (a) made an order in the terms of

paragraph (2) of the prayer of the said representation, and (b) ordered that the costs

incurred by the Viscount in the matter be paid by the bank.

The reasons for the Court’s judgement will be found in Unreported Judgements (1983/8).

TRANSCRIPT OF ORAL REASONS FOR JUDGMENT

41 The need for deciding this issue before me in future has been resolved by recent

legislation,77 but that doesn’t mean to say that the principles which have been canvassed

before me were not until the passing of that legislation of great importance. This is an

application for the determination of two issues; first, what is the proper law of four

documents described therein as ‘legal mortgages’, and which contain a clause which is as

follows (clause 7) – ‘This mortgage shall be governed by English law’, and secondly,

whatever may be the proper law of the contract, whether it’s English or Jersey, has there

been by the means of those documents four valid assignments of life insurance policies by

the person named therein? The short history of the matters before me is as follows. Each

of the policies were effected before the 4th November 1977, by Mr Malcolm Vaughn

Nield.78 On the 4th, he executed the four documents I have been referred to and purported

to create four ‘legal mortgages’ in favour of the National Westminster Bank. Each of the

documents which purported to create the ‘legal mortgage’ is headed in the top left hand

corner, ‘NWB 1021 (Jersey) Legal Mortgage of Life Policy by Person or Company’. That

leads me to suppose that it is a standard form used in the United Kingdom but referred to

in the heading as being suitable for use in Jersey. There is nothing that I can find in it

which is particularly applicable to Jersey, except the claim in the heading. On the 25th July

Mr Nield’s assets were declared en désastre. The bank now claims the surrender values

of the policies. The Viscount claims those surrender values for the benefit of the general

creditors.

42 The law of Jersey does not permit the hypothecation of movables and therefore it

cannot be said that, prima facie, the four transactions, if they are legal mortgages as

understood in English law, can be valid according to Jersey law. I have however been

asked by Mr Cridland to look at the wider effect of the documents, and to say that,

whatever the wording was in each one and in whatever way it is couched, that really is no

more than an assignment properly executed and lawful, and known to the law of Jersey. I

am not prepared to go as far as that. I have no doubt that the intention, both of Mr Nield

and the bank, was to create what it purported to do, if it could, that is to say a ‘legal

mortgage’ as known to the law of England. Indeed it would be absurd to put in clause 7,

‘this mortgage shall be governed by English law’ if the form indeed of the document was

77 [See the Security Interests (Jersey) Law 1983.] 78 [Sic. In the Act of Court, however, the debtor’s names are given as Michael Vaughan Nield.]

something unknown to English law. Furthermore, it is my belief that the proper purpose of

all four documents, was for the bank to obtain preference over the assets of Mr Nield if by

mis-chance he were to fall on ill times and his assets were to be declared en désastre. I

hasten to say, as Mr Day was at pains to point out, and the Court accepts it, that the

documents were not an attempt to achieve a fraudulent preference in favour of the bank.

Indeed the dates between the signing of the document and the unfortunate financial

collapse of Mr Nield’s affairs speaks for themselves.

43 I was referred to a number of authorities as regards the issue of the proper law of

the contract and by Mr Day in particular, to the tenth edition of Cheshire on Private

International Law79 at page 201. There the learned author, having discussed the Vita Food

case which is a Privy Council case, and is therefore of great weight in this Court,

nevertheless drew attention to certain limitations which were to be found in the case itself.

That case, although it has been criticised in subsequent decisions, but not in the Privy

Council is, as I say, one which is to be preferred to other authorities unless there are

reasons to the contrary. That case is a authority for the position, in general terms, that the

parties to a contract are able to choose the law of that contract. However, that choice is

limited as the Vita case shows in two ways. First, there is a limitation on the freedom of

choice, that is to say the parties’ choice must be bona fide and legal, and secondly, there

should be no reason for avoiding the choice on the grounds of public policy. If the Royal

Court is to be asked to declare a choice of law, in a deed which may be English, and then

for the reason of public policy, not to implement it, I would not be prepared to go as far as

that unless it were clear to me that it would be right to do so. But it is the question that

‘bona fide’ should be interpreted in the widest possible sense that concerns me. There the

learned authority of Cheshire says at page 201, ‘That the statement of the claim80 must be

bona fide and legal is not free from ambiguity’, what he presumably means is that the

parties cannot pretend to contract under one law in order to validate an agreement that

clearly has it’s closest connection with another law and under which the agreement would

not be valid.81 It seems to me that as regards the policies themselves, two of them are

specifically stated to be governed by the law of Jersey, one of them refers to the payment

of the premiums in Jersey and one is silent; nevertheless, all four have a firm connection

with Jersey, inasmuch as the person who insured his life and took out the policy lived in

Jersey and the contract was actually concluded in Jersey with English companies who

were trading here. As regards the ‘legal mortgages’, as called in the documents, I cannot

find that they are so closely allied with the United Kingdom, that would be right for me to

hold that the proper law of those documents should be English. In my view the closest

connection with these contracts is indeed this Island and its laws. That being so I have

been asked to declare on behalf of the Viscount in the presentation as to the validity of the

agreement. I find they are not valid according to the law of Jersey, inasmuch as they

purport to create a hypothecation of immeubles82 which is contrary to Article 3 of the law

79 [Edited by North, published 1979. The current edition is the 13th, edited by North and Fawcett, published in 1999.] 80 [Sic; but what is printed in Cheshire is ‘But the statement that the claim…’] 81 [Sic; but, apart from the misspelling of ‘its’ and a change in spelling ‘connection’, the words from ‘presumably’ to ‘another

law’ are in fact a direct quotation from Cheshire, despite the absence of quotation marks.] 82 [Sic; compare the first sentence of the second paragraph of the judgment.]

on real property.83 Secondly, even if that were not so, I’m not satisfied that they are an

assignment in the ordinary sense as understood in Jersey law. They do not categorically

transfer to the bank the choses in action with a re-transfer clause, which is customary in

proper assignments, for it to transfer the assignment back after re-payment. The form is

quite clear, it purports to be a ‘legal mortgage’. There is no such thing known to Jersey

law. It therefore follows that I should direct that the assets (or surrender value) be paid to

the Viscount for the general benefit of the creditors. As regards the question of costs, I

think it is right and proper that the bank should pay the costs.

44 I’m grateful to counsel for helping me in this matter and had the law not been passed

I might well have delivered a much longer and much more detailed judgment, but I don’t

think it is necessary for me to do more than consider the actual documents before me.

45 Order: Direction that the monies representing the surrender value of the policies

together with interest accrued, be paid to the Viscount for the benefit of the creditors who

prove their claims in the désastre; order that the costs incurred by the Viscount in the

matter be paid by the bank.

Paul Matthews is a solicitor of the Supreme Court of England and Wales and a consultant

with the firm of Withers LLP, 16, Old Bailey, London, EC4M 7EG.

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83 [The reference is to the Loi (1880) sur la propriété foncière, as amended.]