Family feuds and fire
29 November 1999
12 November 2013
12 September 2013
12 December 2013
17 April 2014
27 August 2014
Matt Barnard reports on the Thyssen-Bornemisza family saga and the Commonwealth's most expensive litigation.
The normally closed world of some of the richest individuals and companies associated with the island of Bermuda has been prised open.
Two cases have attracted global interest and drawn a large number of the UK legal community to the other side of the world. Both, in different ways, shed light on the role offshore jurisdictions play as the base for a vast and diverse range of international business interests.
The first case, which Clifford Chance, Norton Rose and some leading London barristers are acting on, concerns the Swiss Thyssen-Bornemisza family and the control of its huge industrial empire, which includes banking, mining and shipping interests estimated to be worth £1.2bn. The family dynasty has been one of the most powerful influences on European industry for the last century.
The origins of the dispute go back to 1983 when the now 78-year-old Baron Hans Heinrich Thyssen-Bornemisza, "Heini" to his friends, set up the Bermuda-based Continuity Trust as an ownership vehicle for the Thyssen empire. At the time the baron was divorcing his fourth wife. The trust was a means of protecting his financial interests from the divorce settlement, and was also intended as a mechanism to ensure that the businesses would continue to be run for the benefit of his family when he died.
However, the baron now claims that he was misled about the way the trust was set up by his son Georg, "Heini junior", and that the trust has failed to pay him the agreed income of £12m a year. He issued a writ in January 1997 and the trial began in October this year. The baron claims that he devolved responsibility for creating the trust to his son, and as a result of that Georg was in a position of trust and confidence vis-a-vis his father.
Norton Rose partner James Bagge is one of the solicitors acting on behalf of the directors of the trust. The team includes Frank Much, former partner of Collyers Dylan Turnman, a Bermuda law firm; Eric Pfaff, a South African lawyer; Arne Hovdesven, a former senior partner of US law firm Shearman & Sterling; and Cummings Zuill of the Bank of Bermuda.
Bagge explains the basis of the baron's claims and the meaning of the expression "undue influence", which forms part of the accusations: "The baron says the trust does not comply with what he says were his defined wishes and that as a result of that the son has abused the relationship of trust and confidence, and has exercised 'undue influence' over his father. The best way for me to put it is that the undue influence cases are usually associated with the sort of cases where doctors have prevailed upon aging patients to leave them their wealth in their will."
The baron, however, believes that notwithstanding the fact that he put his assets into trust, nothing would change as far as access to income was concerned.
However, the trustees' recollection of events are different to the baron's, both in terms of what the baron's defined wishes were and the explanations that were given to him at the time, and they dispute that there was any undue influence exercised over him. They also point out that despite the fact that the trust was set up in 1983, no complaint was made until 1996, and argue that if the baron had a complaint about the trust he has had ample opportunity to have raised it.
Georg also disputes the baron's claims. Jeremy Sandelson, partner at Clifford Chance, who is acting for Georg, says: "We just think it is complete nonsense to suggest that [the baron] didn't know what he was doing. He had a large body of advisers and it is frankly absurd to suggest that a man of his intellect and ability would not have got involved in the decision to effectively give away his business interests."
Sandelson also points out that Georg gave up the fixed rights in the business that he had under Swiss law, in return for rights in the trust which are less favourable, and therefore it is hard to imagine that he was being dishonest.
However, the shadowy figure thought to be the moving force behind the case is the baron's fifth wife, former beauty queen Carmen "Tita" Cervera, winner of the 1961 Miss Spain contest, and famed, among other things, for frequenting Europe's most luxurious hotels with her pet panther. To add to the family tension, the baroness has claimed that Georg is not the baron's son but a product of an adulterous relationship between her husband's first wife and his brother-in-law.
Though the baroness is not directly involved in the case, the co-plaintiff in the trial is another trust, set up in part to continue the litigation in event of the baron's death, of which the baroness is the principle beneficiary. The baron will receive income from the original trust until he dies, but at that point it ceases. If he wins the case, the major beneficiary will be the baroness who would be in control of the revised family trust. If he loses, she will have nothing when he dies.
The lawyers involved estimate that the case is unlikely to reach a conclusion until 2001.
The second case that has brought Bermuda into the headlines has just broken the 110-day mark and is set to continue until November 2000. The Bermuda Fire & Marine Insurance fraud litigation is thought to be the most expensive case in Commonwealth legal history, costing £100,000 a day. Again it involves a large number of UK lawyers.
In 1991 the board of the Bermuda-based Bermuda Fire & Marine Insurance company undertook a reorganisation of the business which resulted in a subsidiary company being formed, BF&M, which took over the domestic side of the business while international affairs were left with the parent company.
Bermuda Fire & Marine Insurance subsequently went into liquidation in 1993 owing approximately £270m , while BF&M continued to make healthy profits.
The liquidator Ernst & Young is being represented by Clifford Chance and is challenging the reorganisation in 1991, arguing that the international side of the business was no longer operative.
Ernst & Young is also suing the auditors Coopers & Lines and the company's legal adviser, local firm Conyers Dill & Pearman, for damages, accusing them of professional negligence.
All accusations are being contested by the defendants, which argue that they acted in the best interests of the company, its shareholders and its policy holders, including those the liquidators represent.
Actions are also being brought against the 1,006 Bermudan-based shareholders of Bermuda Fire & Marine Insurance who received shares in the new company.
Ernst & Young is suing the five former directors of Bermuda Fire & Marine Insurance who sat on the finance committee and oversaw the 1991 break-up of the business, accusing them of fraud and willful neglect of their duties.
The directors had decided that the company should write no new international insurance policies and were just carrying out the run-off of the polices they had written previously, having reinsured their risk, largely to US reinsurance companies.
This meant, Ernst & Young claims, that in separating the two aspects of the business the creditors of the international side of the business were denied access to the funds of the domestic business in the event that the international business would run out of funds.
The primary aim of the litigation is a restitutionary claim against the subsidiary BF&M for a return of its shares.
The case is given added spice by the fact that the five former directors, who are giving evidence at the moment, are prominent local figures. They are: Gregory Hayrack, who was a partner at KPMG; Michael Collier, manager of Bank of Butterfield, one of the biggest banks on the island; Donald Lines the former manager of Bank of Bermuda; William Cox, a former partner in one of the major local law firms; and local senator Charles Collis, who is now deceased.
The two groups of professionals who were advising on reorganisation had more than just a professional relationship with the company. John Collis, a lawyer at local firm Conyers Dill & Pearman, who advised on the reorganisation, is the son of the former chairman of the board of directors of the company, Senator Charles Collis.
Furthermore, the partner at auditors Cooper & Lines, an affiliate of Coopers & Lybrand, who dealt with the transaction, was David Lines, brother of board member Donald Lines.
The law firms working on the case are Herbert Smith for Conyers Dill & Pearman, DJ Freeman for BF&M, Barlow Lyde & Gilbert for Coopers & Lines and Freshfields for the individual defendants.
And with this case and the Thyssen-Bornemisza case set to continue, Bermuda is proving to be a true paradise island for lawyers.