HHH Trust

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: J. A. Clyde-Smith,Jurats Le Breton,Milner
• Judgment Date: 28 June 2012
• Neutral Citation: [2012] JRC 127B
• Date: 28 June 2012

[2012] JRC 127B

ROYAL COURT

(Samedi)

Before:

J. A. Clyde-Smith, Commissioner., andJurats Le BretonandMilner.

IN THE MATTER OF HHH EMPLOYEE TRUST

AND IN THE MATTER OF THE B SUB-TRUST

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

Between

B

Representor

and

C

First Respondent

and

E

Second Respondent

Advocate A. D. Hoy for the Representor.

Advocate E. C. P. Mackereth for the Second Respondent.

Authorities

In the matter of HHH Trust [2011] JRC 235 .

Re Bird Charitable Trust and the Bird Purpose Trust [2008] JLR 1 .

Lewin on Trusts (18th edition).

Imperial Group Pension Trust Ltd -v- Imperial Tobacco Ltd [1991] 1 WLR 589 .

Prudential Staff Pensions Ltd -v- Prudential Assurance Co Ltd and others [2011] EWHC 960 .

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

In the matter of the B, C and D Settlements [2010] JLR 653 .

S -v- L [2005] JRC 109 .

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

Bathurst (Countess) -v- Kleinwort Benson (Channel Islands) Trustees Ltd [2007] WTLR 959 .

Murphy -v- Murphy [1999] 1 WLR 282 .

Spellson -v- George [1987] 11 NSWLR 300 .

Re the Freiburg Trust [2004] JRC 056 .

Re Londonderry Settlement [1965] Ch 918 .

Re Rabiotti 1989 Settlement [2000] JLR 173 .

Trust — wider disclosure sought by the representor from the first and second respondents.

THE COMISSIONER:

1 This judgment is concerned with whether a settlor of a trust is under an obligation to make disclosure to a beneficiary and, if so, the extent of that obligation.

2 By its re-amended representation, the representor (“B”) seeks wide disclosure from the first respondent (“the Trustee”) as trustee of the HHH Employee Trust (“the Trust”) and of sub-trusts created under it and from the second respondent (“the settlor”) which is the settlor of the Trust. The Court directed that the issue of disclosure from the settlor should be dealt with separately. The judgment of Clyde-Smith, Commissioner, of the 15 ^th December 2011 ([2011] JRC 235) sets out some of the background, but it is helpful to set out again the salient features of the matter.

3 The settlor, a multinational company, established the Trust by deed on 4th December, 1998, for employees of the settlor. The settlor is excluded from benefit. B began employment at the settlor in Paris in July 1992 and moved to the settlor in London in August 1993. By virtue of his employment, B became a beneficiary of the Trust.

4 By deed of appointment dated 18th February, 2000, the trustee created the B Sub-Trust of which B and his family are beneficiaries. The value of the B Sub-Trust as at 16th March, 2009, was approximately US$ 30M. In March 2005, B took leave of absence and his employment with the settlor eventually terminated on 15th August, 2005.

5 There have been extensive exchanges between the parties and their respective advisers, a small part of which is summarised in the judgment of 15th December, 2011, but, leaving aside the deterioration in relations between B and the trustee, at the heart of this matter lies a concern on the part of B that no benefit can be obtained by B or his family from the B Sub-Trust without a liability to UK Income Tax and National Insurance contributions arising in an amount equating to 62% of the current value of the B Sub-Trust, and this contrary to representations B may say were made to him by the settlor before contributions were made to the Trust and as a result of certain decisions subsequently made by the trustee and/or the settlor. These potential liabilities raise issues as to the indemnities that the trustee would require whether in appointing out funds or in retiring as trustee.

6 Proposals and counter proposals to address or mitigate this have been put forward in correspondence, but the parties and their advisers have been unable to agree on a way forward.

7 Tracking the matter procedurally, the first draft representation prepared on behalf of B and notified to both the trustee and the settlor in July 2010 sought the removal of the trustee as trustee in favour of Ogier Trustees Limited, an order that an account be taken of the losses of the B Sub-Trust due to the trustee's actions and the payment to B of the amount found due. The settlor was not named as a respondent at that stage.

8 The draft representation was subsequently amended and when first brought before the Court on 26th November, 2011, the settlor was named as a second respondent and although the body of the draft was substantially the same, it no longer sought the removal of the trustee. The relief sought was now limited to the seeking of disclosure against both the trustee and the settlor (as a party having a connection with the Trust) and an order for wasted costs.

9 The representation was supported by an affidavit sworn by Nigel George Andrew Pearmain dated 21st January, 2011, in which he asserted that it was essential that in order for B to obtain full detailed and accurate advice regarding the tax implications of his interest in the B Sub-Trust, he should be provided with all documents in the possession, custody and power of the trustee and settlor set out in the prayer to the representation. The representation was also supported by an extensive affidavit from Véronique Favreau, B's French advocate, which sought disclosure on potentially more hostile grounds, namely that she believed full disclosure would demonstrate:-

• “(a) that [the Trustee] (a US company) as shown on the trust deed of the [Trust] is not the real Settlor of the [Trust]. A [company in the same group] located in the UK is, or several UK companies are Settlors of the [Trust] casting doubts on the nature of the [Trust] itself.

• (b) having expressed my belief that the Settlor is de facto Trustee of the [Trust] and that the discretionary powers of [the Trustee] only apply as directed by [the Settlor], I am advised that may not be a correct legal analysis of [the Settlor's] fiduciary position under Jersey law as it holds no assets. However I am advised that it may be the case that based on future disclosure and on the actual involvement of [the Settlor] in the [Trust], it is revealed that [the Trustees] are acting as nominees for [the Settlor] and that the very existence of the [Trust] is at risk.”

10 The representation came before the Court on 13th April, 2011, for directions and in his short oral judgment Clyde-Smith, Commissioner, said this:-

“As far as [the settlor] is concerned the representation is entirely unclear as to its role, why it has been convened and the basis upon which disclosure and other relief is sought from it. A further issue has arisen, namely the effects of HMRC's “Employment Income through Third Parties document” in respect of which Mr Hoy has said it may still be possible to mitigate the consequences with the co-operation of the trustee. Accordingly he saw merit in Mr MacRae's suggestion of a stay to allow the parties to work together on this .

Clearly the Court should encourage resolution of these issues between the parties and I therefore agree to grant a stay for that period. Thereafter if the representor wishes to pursue his representation seeking information then he has leave to file an amended representation within twenty-eight days of the expiration of the stay. In my view that would involve a substantial re-writing of the representation, deleting all that part of it which currently relates to a potential removal of the trustee and prayer g [wasted costs], and setting out clearly and with particularity, what information is sought, the purpose for which it is being sought and the basis upon which disclosure should be ordered by the Court. It should also address the issue of confidentiality in so far as other beneficiaries not convened are concerned and of who should pay the costs of the exercise. In so far as the purpose for seeking disclosure relates to tax matters, then I would expect the application to be supported by the advice of tax counsel.’”

11 Accordingly, the representation was stayed for six weeks to allow the parties to resolve the matter by agreement, if possible, and B was given leave to file an amended representation within 28 days of the expiration of that stay.

12 The parties were unable to resolve matters during the six weeks' stay. The time for filing the amended representation expired on 22nd June, 2011, and on 13th August, 2011, an amended representation was filed out of time. The amended representation had now added to it hostile claims against both the trustee and the settlor alleging false representations on the part of the settlor and claiming that as a consequence of these false representations, and certain failures of the trustee, B had lost the opportunity to enter into beneficial tax planning strategies. Damages were sought against both the trustee and the settlor, as well as disclosure.

13 B was immediately faced with summonses by both the trustee and the settlor seeking to strike out the amended representation on the grounds that it was filed out of time and failed to comply with the requirements of the Commissioner's judgment of 13th April, 2011, in that it continued to combine both an application by B as a beneficiary for disclosure and hostile claims against the trustee and the settlor. In response B sought leave to file a re-amended representation which removed the hostile claims and once again sought only disclosure from both the trustee and the settlor. On 15th December, 2011, the Commissioner gave B leave to file the re-amended representation and, as previously mentioned, directed that the issue of disclosure against the settlor should be dealt with separately.

14 In the re-amended representation the requirements for disclosure are now summarised in paragraph 52 by reference to an opinion from tax counsel as follows:-

"5...