British Virgin Islands Financial Services Commission v Lemma Europe Insurance Company Ltd

This case concerned a Gibraltarian registered insurance company that offered insurance cover to clients in the British Virgin Islands (broadly property and marine insurance in relation to assets in the BVI).

The BVI insurance legislation required that as, a term of the grant of an insurance licence, specified foreign insurers place assets in trust essentially to meet claims in relation to BVI insurance business (presumably to enable insured persons to have recourse against that fund locally, rather than to enforce claims in the jurisdiction in which the insurer was incorporated).

The scheme of the BVI legislation required, amongst other things, that the insurer declare a trust in a form approved by the BVI Financial Services Commission (“FSC”). No form was ever promulgated by the FSC, who dealt with applications for licences on an informal basis, by simply requiring that insurers demonstrate to the FSC that they had assets of the appropriate value “vested in trust.”

Lemma applied for a licence, and in correspondence between them (and their agents) and the FSC, informed the FSC that they had assets vested in trust in the sum of $1.5 million, in a BVI bank, for the purposes of the scheme.

Lemma’s business collapsed and it was placed in insolvent liquidation in Gibraltar.

An issue arose as to whether the fund of $1.5 million was held so that it was available for the general body of creditors worldwide for pari passu distribution, or whether it was available only to meet claims in relation to BVI business.

Bannister J found that no trust, formal or informal, had been declared over the funds in the BVI bank as there was no proof that Lemma intended to create a trust of those funds. However, he held that in segregating the funds as it had, with the clear intention of meeting claims arising from its BVI business, Lemma had created an equitable charge over the fund, the purpose of which was to meet such claims.

The case illustrates the difference between a trust, which requires intention to create a trust on the part of the settlor, and an equitable charge over funds.