Case studies

In this international liability proceeding, our Liechtenstein law firm successfully represented a Liechtenstein trustee against damages claims brought by a US-insolvent Liberian company. The claim for USD 13.7 million was dismissed.

 

Already in the preceding proceedings (linking to https://paragraph7.com/fallstudien/vollmachten-im-treuhandbereich-vertrauen-ist-gut-kontrolle-ist-besser/) our firm had represented a Liechtenstein trustee who was confronted with liability claims from the past. At its core, the earlier claim alleged that, in his capacity as a board member of Liechtenstein Establishments (“Anstalts”), he had failed to prevent the beneficiaries’ US lawyer from misusing distributions from those Anstalts. In that previous case, it was finally decided already in 2022 that the prerequisites for the US lawyer’s authority to represent, in the form of a special form of a power of attorney, were fulfilled and that all claims were time-barred.

 

International follow-on claim by a US-insolvent company

 

It seemed, however, that the ghosts from the past would not rest. In the same complex of “Anstalts versus Liechtenstein trustee”, a new actor had appeared already in mid-2019: a Liberian company in which the Liechtenstein trustee formally acted as director, but which had been misused by the US lawyer as a vehicle to siphon client funds and to hide the US lawyer’s criminal acts. This company now asserted its own damages claims against the trustee, alleging corporate liability. He allegedly should have ensured that those criminal acts were prevented.

 

With regard to the Liberian company, a multitude of complex legal issues arose under Liechtenstein and US law: questions concerning recognition and effects of US bankruptcy proceedings in Liechtenstein; fundamental issues of US insolvency law; the effects of a US forum-non-conveniens decision; and highly doctrinal questions regarding the capacity to sue and be sued (“Partei- und Prozessfähigkeit”, “Prozessstandschaft”) and authority to conduct proceedings of a foreign insolvency administrator in Liechtenstein. Added to this were issues regarding the conclusiveness of the statement of claim and questions on whether the pleadings were inconclusive (“Schlüssigkeit”), lawful alternative conduct (causation defence), and the concept of damage in the context of corporate liability of the trustee.

 

Complex issues of US insolvency and procedural law

 

The complexity of the proceedings was mainly due to the fact that insolvency proceedings had been opened over the Liberian company under US law and, subsequently, its US bankruptcy trustee (again represented by Liechtenstein “special foreign litigation counsel”) continued to pursue the claim. This alone raised difficult conflict-of-laws and procedural questions concerning the capacity to sue and the authority to conduct the proceedings in Liechtenstein. Before the Liechtenstein courts could address the merits, complex questions of international jurisdiction had to be clarified.

 

The complexity was further increased by the fact that, prior to the Liechtenstein proceedings, which were represented by our firm, the Liechtenstein trustee had already successfully raised an objection of lack of jurisdiction (forum non conveniens) in parallel US proceedings with identical subject matter, in which our firm acted in an advisory role. While the US court declared Liechtenstein to be the more appropriate forum, it reserved the right to adjudicate the case on the merits in the US should the Liechtenstein proceedings end to the detriment of the US-insolvent Liberian company for formal reasons (which the US court considered to include the issue of limitation).

 

On the merits, the claimant, the US bankruptcy estate representative, sought damages based on corporate liability in the amount of approximately USD 14 million. The US trustee alleged that, in his capacity as an officer of the Anstalts and simultaneously as director of the Liberian company, the Liechtenstein trustees had allowed funds to be transferred via the Liberian company and thereby enabled the US lawyer’s criminal acts, in particular because he had failed to supervise him. At the same time, he was accused – again resulting in corporate liability – of having wrongfully failed, as director of the Liberian company, to defend it against a damages action brought by the Anstalts in New York, which had resulted in a default judgment there.

 

In the first round of proceedings, a significant success was already achieved: in January 2021 the Liechtenstein Princely Court dismissed the claim in its entirety. It held that the action was inconclusive. From the US default judgment, it could neither be inferred that the claims asserted there had been unfounded nor that the Liberian company had suffered any compensable damage at all, since it had merely served as a vehicle to “siphon off” client funds (keyword: indirect damage). However, the court of first instance considered that it did not need to address the complex questions concerning the procedural position of the US bankruptcy trustee.

 

The Princely Court of Appeal subsequently considered the claim to be “just barely conclusive” and in December 2021 remitted the case to the Princely Court for supplementation, regarding an assessment on the claimant’s capacity to sue and authority to conduct proceedings, but made this decision subject to final review. In May 2022 the Supreme Court confirmed that the court of first instance had not addressed all issues relevant to the decision and provided fundamental clarifications regarding the courts’ duty of examination and the (doctrinal and practical) distinction between various aspects of the capacity to sue.

 

Claim finally dismissed

 

In the continued proceedings, extensive expert opinions on US law were obtained. After a change of judge, the Princely Court held that although the US bankruptcy trustee’s procedural capacity and authority to conduct proceedings were to be affirmed, the asserted claims were time-barred and in any event also unfounded on the merits.

 

On the merits, the court first noted that the allegation of insufficient supervision of the US lawyer had already been finally adjudicated and dismissed in the earlier proceedings.

Regarding the alleged damage arising from the US default judgment, the Court held that neither valid service of the default judgement had been proven nor could the default judgment have become final and binding under Liechtenstein standards; for ordre-public reasons it was therefore not capable of recognition in Liechtenstein.

Moreover, there had been no duty on the part of the Liechtenstein trustee to arrange legal representation for the Liberian company in the US proceedings. Based on the knowledge at the time, it could be assumed that the company itself would have to bear responsibility for the asset transfers originating from criminal acts. In terms of causation defence, the defendant therefore could not be reproached for not intervening in the US proceedings on behalf of the Liberian company and resisting a claim that was in fact probably justified.

 

Finally, the Regional Court clarified that the Liberian company, as a mere vehicle to siphon client funds, had never been the owner of the misused assets. That a company through which criminally obtained assets had been transferred (to hide the US lawyer’s criminal acts) now claims damages from its own officer for alleged supervisory failures was characterised by the court, in strong terms, as even contra bona fide.

 

Christoph Bruckschweiger, Partner at paragraph 7 in Liechtenstein, successfully led these international liability proceedings.