First Purported Trustee v Second Purported Trustee

JurisdictionJersey
CourtRoyal Court
JudgeJ. A. Clyde-Smith,Jurats Ramsden,Morgan,Clyde-Smith
Judgment Date22 February 2016
Neutral Citation[2016] JRC 48
Date22 February 2016

[2016] JRC 48

ROYAL COURT

(Samedi)

Before:

J. A. Clyde-Smith, Esq., Commissioner and Jurats Ramsden and Morgan

Between
First Purported Trustee
Representor
and
Second Purported Trustee
First Respondent

and

Retired Trustee
Second Respondent

and

Settlor's Spouse
Third Respondent

and

Beneficiary
Fourth Respondent

and

Advocate James Dickinson as guardian for the minor daughter of the Beneficiary and any unborn beneficiaries of the Trust
Fifth Respondent

Advocate G. C. Staal for the Fourth Respondent.

Advocate L. K. A. Richardson for the Representor and the First Respondent.

Advocate A. Kistler for the Second Respondent.

Authorities

Re Skeats' Settlement [1889] 42 Ch D 522.

In re Bird Charitable Trust [2008] JLR 1.

In re Jasmine Trustees Limited [2015] JRC 196.

Trusts (Jersey) Law 1984.

Re Z [2015] JRC 19.

Tait v Apex Trustees Limited [2012] JRC 148.

Seggins v Apex Trust Company Limited [2013] JRC 77.

Moffat v Apex Trust Company Limited [2014] JRC 252.

In the Matter of the Representation of Wilkes [2015] JRC 200.

Royal British Bank v Turquand [1856] 6 E&B 327.

Law of Property Act 1925.

Re BB [2011] JLR 672.

Trust & Trustees Volume 19 No 1 February 2013.

Trusts and Trustees Volume 19 No 5 June 2013 pages 469–474, Dakis Hagen and Bruce Lincoln.

19th Edition of Lewin on Trusts.

Re IMK Family Trusts [2008] JLR 250.

Shinorvic Trust [2012] (1) JLR 324.

Re Gleeds Retirement Benefits Scheme [2015] Ch 212.

HR Trustees Ltd v Wembley Plc [2011] EWHC 2974 (Ch).

Schmidt v Rosewood Trust Ltd [2003] 2 AC 709.

Re Norfolk's Settlement Trusts [1982] Ch. 61.

Re WW and XX [2011] JRC 231.

Re New [1901] 2 Ch 534.

Chapman v Chapman [1954] AC 429.

Jasmine Trustees Ltd v Wells & Hind [2008] Ch 194.

English Trustee Act 1925.

Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587.

Trust — application by the 4th respondent to set aside the appointment of the representor and the 1st respondent as trustees of the Trust.

IN THE MATTER OF THE Z TRUST

AND IN THE MATTER OF ARTICLE 51 OF THE TRUSTS (JERSEY) LAW 1984

THE COMMISSIONER:

1

The fourth respondent (“the Beneficiary”) applies to have set aside the appointment made by his late mother the settlor of the representor and the first respondent as trustees of the Trust, as a consequence of which the Trust became resident in the United Kingdom for tax purposes.

Background
2

The Trust is a discretionary trust settled by the settlor by deed of settlement. It is governed by Jersey law.

3

The principal asset of the Trust is a shareholding in a foreign registered company (“the Company”) which prior to any of the events listed below owned two properties in England, a leasehold flat (“the Flat”) and a freehold property (“the Property”).

4

The original beneficiaries of the Trust were the settlor and her children (including the Beneficiary) and remoter issue.

5

The settlor purported to exercise the power of appointment conferred on her under the Trust deed on the “Appointment Day”, so as to appoint the Representor and the First Respondent (together the “Purported Trustees”) as trustees in place of the second respondent the Retired Trustee. At that time, the Purported Trustees were both resident in the UK and worked for a firm of solicitors (“Solicitors' Firm”) in London.

6

On the same day, the Retired Trustee purported to appoint the Purported Director as the Company's director, president, treasurer and secretary and to transfer the Company's shares to the Purported Nominee, which in turn purportedly held the Company's shares on bare trust for the Purported Trustees.

7

At the instigation of the settlor, the Purported Trustees executed a deed of addition and a deed of exclusion on by which, respectively, two of her children were revocably excluded and the settlor's spouse was added as a beneficiary.

8

The settlor died less than a year after the Appointment Day. Shortly after the settlor's death, the settlor's two children who had been revocably excluded challenged the validity of the appointment of the Purported Trustees on the basis of the settlor's lack of physical and mental capacity.

9

Approximately two years after the Appointment Day the Company sold the Flat for approximately 2/3 of the value of the trust fund. It retains ownership of the Property which is thought to be worth approximately 1/3 of the value of the trust fund and is occupied by the settlor's spouse.

10

The two revocably excluded children neither acted upon nor withdrew their challenge, and as a consequence the First Purported Trustee brought a representation before the Court, seeking directions as to the validity of the appointment of the Purported Trustees.

11

During the course of last year, the Court approved an agreement between the convened parties, the Purported Trustees and the Retired Trustee surrendering their discretion to the Court, by which all of the claims the two revocably excluded children (and their issue) had in relation to the Trust were settled and under which they, their children and remoter issue were irrevocably excluded as beneficiaries of the Trust.

12

It was also a term of that agreement that the Beneficiary would apply to the Court to set aside the appointment of the Purported Trustees because of the adverse tax consequences to the Trust of that appointment. It was agreed that the Purported Trustees and the Retired Trustee would play a neutral role in that application. HMRC had been notified of the application but had not sought leave to participate.

The appointment of the Purported Trustees
13

The Court had before it affidavits sworn by the Purported Trustees, the Beneficiary, the settlor's spouse and Mr X on behalf of the Retired Trustee. It also had a report from Mr Jonathan Riley, an English solicitor in the firm of Michelmores LLP, on the tax consequences of the trust moving onshore.

14

There is no dispute as to the events surrounding the appointment of the Purported Trustees and we set them out as we find them to be.

15

The settlor was a member of a significant Middle Eastern family. She married the settlor's spouse before the Trust was established, but because they were not from the same country, the marriage was not approved by her family. As a consequence, they experienced a number of difficulties with the authorities in her home country. She was stopped from accessing her assets her home country. Two of her children (namely those who were later revocably excluded) benefited from these assets and declined to transfer them to her. As a consequence of this and a number of other matters which it is not necessary to go into, she had a very strained relationship with the two children who were later revocably excluded. She and the settlor's spouse had one son, the Beneficiary, and some five years after establishing the Trust, they moved permanently to the United Kingdom, which was when their home, the Property, was acquired by the Company.

16

The settlor and the settlor's spouse were clients of the Solicitors' Firm and consulted the Second Purported Trustee (who worked at the firm) in relation to their wills and the Trust. At that time the settlor was very ill with a series of medical issues and had suffered from a stroke. Although she spoke some English, it was not her first language and the settlor's spouse would act as an intermediary, sometimes explaining the Second Purported Trustee's advice to the settlor.

17

The settlor had a number of concerns at that time in relation to the Trust:-

  • (i) The Retired Trustee, who administered the Trust from Jersey, was threatening (in her view) to sell the Flat for a figure of less than ? of the eventual sale price, something she and the family were strongly opposed to and which they thought was a serious undervalue. To be fair to the Retired Trustee, the Trust had no liquid funds to meet its obligations and as a consequence, relations between the settlor and the Retired Trustee had become strained. The Flat had been let out by the family, with income being collected by the settlor's spouse, as opposed to being paid to the Company. It was actually a suggestion, rather than a threat, of the Retired Trustee that it solve the funding problem by selling the Flat, which it thought was worth in the region of less than ? of the eventual sale price, but it made it clear that an agent would be appointed to give a more accurate figure.

  • (ii) One of the settlor's children (who would later be revocably excluded) (“A”) had contacted the Retired Trustee directly about the Trust, which as a beneficiary she was perfectly entitled to do. However, this caused the settlor a great deal of anguish and distress. She felt this interference in the affairs of the Trust was disrespectful on the part of A. In the settlor's view, A was trying to obtain information about assets which the settlor felt were hers as the primary beneficiary during her lifetime and she was shaken that A had, in her eyes, gone behind her back to discuss the trust assets, which included the settlor's home.

  • (iii) The settlor was very concerned that persons connected with her wider family in her home country would be able to take the trust assets of the Trust because the trustee was based in Jersey. There is in fact no evidence at all that persons connected with her wider family were seeking to interfere with the Trust in any way.

  • (iv) She wanted to ensure that the Beneficiary's future was safeguarded and felt this was best done through having UK trustees. She and the settlor's spouse suggested that this be done by the Purported Trustees taking over as trustees on the basis that this would secure the trust assets and, because she had been living in the UK for some years, she was prepared to pay a reasonable amount of English taxation.

18

The Solicitors' Firm prepared a “tax note”, the purpose of which was to highlight some of the tax implications of moving the Trust and the...

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