GL v Nautilus Trustees Ltd

JurisdictionJersey
CourtRoyal Court
JudgeThe Deputy Bailiff
Judgment Date14 August 2009
Neutral Citation[2009] JRC 164A
Date14 August 2009

[2009] JRC 164A

ROYAL COURT

(Samedi Division)

Before:

M. C. St. J. Birt, Esq., Bailiff, and Jurats King and Liddiard.

In the Matter of The R Remuneration Trust

Between
GL
Representor
and
Nautilus Trustees Limited
Respondent

Advocate N. F. Journeaux for the Representor

Advocate L. K. A. Richardson for the Respondent

Authorities

Income and Corporation Taxes Act 1988.

Re E Trust [2008] JRC 053.

Gibbon v Mitchell [1990] 1 WLR 1304.

Sieff v Fox [2005] 1 WLR 3811.

Re DSL Remuneration Trust [2007] JRC 251.

Re A Trust Company Limited [2007] JRC 184.

The Deputy Bailiff
1

This is an application by the Representor to set aside a trust and certain gifts to that trust on the grounds of mistake. The Court granted the application at the conclusion of the hearing and now gives its reasons.

The Background

2

The Representor is a sole trader carrying on a successful business in the United Kingdom which employs over 200 people. He is married with three children.

3

In 1999, following an introduction from his accountants BDO Stoy Hayward, the firm of Baxendale Walker, English solicitors, advised him that he should set up what is known as a remuneration trust. He was advised by Baxendale Walker that the trust would allow him to:-

  • (i) reduce his tax liability as he could contribute pre-tax profits from his business to the trust;

  • (ii) set aside money to invest in his business as and when required by way of loans back from the trust;

  • (iii) provide benefits to his staff in a manner that reduced the tax liability of the business on those benefits, and;

  • (iv) allow the funds of the trust to be distributed to his family following his death.

4

Acting upon this advice he executed a trust deed (“the Trust”) on 15th March, 2000, with an original fund of £100. He subsequently made additional transfers to the Trust of £2,250,000 on 28th March, 2000, US$750,000 in early 2001 and £1m on 11th May, 2001, (“the transfers”). The trust deed was entered into between the Representor (described as “the Founder”) and Atlas Trust Company Limited (Jersey) Limited (“Atlas”) as original trustee.

5

The Trust was a discretionary trust and the beneficiaries were defined as the present, past and future employees from time to time of the Founder and the wives, husbands, widows, widowers, children, step-children and remoter issue of such employees and the spouses and former spouses of such children and remoter issue. There was a further provision that no Excluded Person could be a beneficiary. By schedule 2 of the trust deed, Excluded Person was defined to include the Founder and any person ‘connected with’ the Founder, where ‘connected with’ had the meaning ascribed to the expression by the Income and Corporation Taxes Act 1988 (“ ICTA”.)

6

The trust deed conferred a power of amendment upon the Representor as Founder to be exercised with the consent in writing of the trustee, but this power was restricted so that it could not be used to alter the provisions of Clause 10 or any of the provisions concerning Excluded Persons.

7

The relevant provisions of Clause 10 are as follows:-

  • 10.1 Notwithstanding anything to the contrary expressed or implied in this Deed, no power or discretion hereby or by law conferred on the Trustees shall be exercisable nor exercised by the Trustees in such manner as to cause any part of the Trust Fund or the income thereof….. to become payable to or applicable for the benefit of the Founder…

  • 10.2 Notwithstanding anything to the contrary express or implied in this Deed, no dispositive duty or power hereby or by law conferred on the Trustees shall be exercisable nor exercised by the Trustees so as to cause Trust Funds to be distributed to or for the benefit of any Beneficiary UNLESS, had the Founder been the legal and beneficial owner of such property, such a hypothetical expenditure by the Founder would have constituted an expense incurred wholly and exclusively for the purposes of the Trade and for no other purpose.”

8

Para 1.2.16 of the First Schedule to the trust deed conferred a power on the trustees to lend any part of the trust fund to any person and to provide guarantees to any person (including the Founder) whether or not taking security for the same and on such terms as the trustees may think fit. As well as a loan to the Representor in May 2000, which was subsequently repaid, the Trust has made the following loans to the Representor, (as Founder), namely £150,000 in June 2004, £25,000 in December 2005, £22,000 in December 2006, and finally £2.4m on 1st June, 2007, to finance the establishment of a production facility in Lithuania.

9

Between December 2000 and December 2004 the Trust made a series of discretionary bonus payments to various members of staff as incentives for those staff members to remain loyal to the business. These payments were invariably made at the instigation of the Representor with the names and amounts of bonuses suggested. In addition, the cost of some Christmas parties and hampers as gifts for the staff of the business were met by the Trust during this period.

10

On 30th November, 2005, the Representor exercised his power to amend the trust deed by deed of amendment which provided that:-

The class of beneficiaries of the trusts hereof shall not include, as from 1 November 2002, any employee or former employee of the Founder (but shall continue to include spouses, dependants and remoter descendents of such descriptions of person).”

This deed was executed on advice from Baxendale Walker for reasons unconnected with the present application. The effect was that the only beneficiaries of the Trust as at the date hereof are the wives, husbands, widows, widowers, children, step children and remoter issue of present, past and future employees and the spouses and former spouses of such children of remoter issue plus future employees.

11

On 29th February, 2008, Nautilus Trustees Limited (“Nautilus”) was appointed as trustee in place of Atlas.

12

The Representor has been advised that, contrary to his understanding at the time of the creation of the Trust:-

He contends that he would not have established the Trust had he known that this was the position. Accordingly, he now seeks to set aside the Trust and the transfers on the grounds of mistake.

Who should be convened?

  • (i) The Trust cannot make loans to him in the manner envisaged at the time of the Trust's creation, and;

  • (ii) his wife and children may not become beneficiaries of the Trust following his death.

13

The Representation was first presented before the Court on 26th June, 2009. On that occasion it was ordered that Nautilus, as trustee of the Trust, be convened. However, the Court does not appear to have been invited to consider whether any of the beneficiaries should be convened or whether someone (whether one of the beneficiaries or an advocate) should be appointed under RCR 4/4 to represent the interests of the beneficiaries.

14

When the matter came on for hearing, we invited submissions as to whether it would be right to proceed in the absence of a representative of the beneficiaries.

15

Mr Journeaux referred us to paragraph 21 of the judgment of the Court in Re E Trust [2008] JRC 053 where the Court said:-

When the Court sits in its supervisory capacity to consider directions or rulings it should give in relation to a trust, it has to consider in each case who should be convened at the hearing. The starting point is that the trust property is held beneficially for the beneficiaries and accordingly it is normally appropriate that they should be convened (see Re A Settlement [1994] JLR 139 at 144 per Bailhache, Bailiff). However, as that case made clear, it is not invariably the case that all the beneficiaries need to be heard. Many of them may have an identical interest; alternatively their interest may be extremely remote. It is ultimately a matter for the discretion of the Court as to which beneficiaries should be convened having regard to the nature of the particular application and the particular circumstances.”

16

We also bear in mind the terms of RCR 4/5 which reads as follows:-

  • (1) Proceedings may be brought by or against trustees ….. in their capacity as such without joining any of the persons having a beneficial interest in the trust ….; and any judgment or order given or made in those proceedings shall be binding on those persons unless the Court in the same or other proceedings otherwise orders on the ground that the trustees…. could not or did not in fact represent the interests of those persons in the first mentioned proceedings.

  • (2) Paragraph (1) is without prejudice to the power of the court to order any person having such an interest as aforesaid to be made a party to the proceedings or to make an order under Rule 4/4.”

17

Mr Journeaux argued that, on the facts of this case, it was not necessary to convene any of the beneficiaries or appoint a representative because the trustee was well placed to put forward any possible arguments on their behalf. Furthermore, the interests of the beneficiaries were remote for the reasons referred to later. Miss Richardson, on behalf of the trustee, supported Mr Journeaux and confirmed that the trustee was conscious of its responsibility to look at the matter from the point of view of the beneficiaries. She pointed out that, in the leading case on mistake of Gibbon v Mitchell [1990] 1 WLR 1304, Millett J had not thought it necessary to join or hear from those who would lose out if the trust were set aside, namely the unborn children and remoter issue. We were referred in particular to Millett J's observation that such persons were all volunteers and could not conscionably insist upon their legal rights under the deed once they had become aware that it had been executed under a mistake. On the other hand, in Sieff v Fox [2005] 1 WLR 3811, Re DSL Remuneration...

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    ...whether to exercise its discretion. In doing so, it took into account the effect on the beneficiaries and third parties and observed ([2009] JRC 164A, at para. 37) that if the gifts were set aside, the donor would have a theoretical claim against the trustee for moneys distributed to the be......
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1 firm's commentaries
  • It Was All A Mistake!
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    • Mondaq United Kingdom
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