Kea Investments Ltd v Eric John Watson

JurisdictionJersey
CourtRoyal Court
JudgeJ. A. Clyde-Smith OBE.,Jurats Crill,Averty
Judgment Date19 January 2021
Neutral Citation[2021] JRC 9
Date19 January 2021

[2021] JRC 9

ROYAL COURT

(Samedi)

Before:

J. A. Clyde-Smith OBE., Commissioner, and Jurats Crill and Averty.

Between
Kea Investments Limited
Plaintiff
and
Eric John Watson
First Defendant

and

William Gerald Gibson
Second Defendant

and

VG Trustee Limited (in its capacities as trustee of the Kowhai, Glacier and Libra Trusts)
First Party Cited

and

Chanin Holdings Limited
Second Party Cited

and

Lucas Eric Henrekson Watson (by his Guardian ad litem, Advocate Paul Nicholls)
First Intervener

and

Leon Eric Henrekson Watson (by his Guardian ad litem, Advocate Paul Nicholls)
Second Intervener

and

Aidan Brian Henrekson Watson (by his Guardian ad litem, Advocate Paul Nicholls)
Third Intervener

Advocate K. M. Purkis for the Plaintiff.

Advocate P. G. Nicholls for the Interveners.

Authorities

Judgments (Reciprocal Enforcement) (Jersey) Law 1960

F G Hemisphere v Gecamines [2010] JRC 195

F G Hemisphere v Gecamines [2011] JCA 141.

Re Interactive Telesurfaces Group [2013] JRC 009

Trusts (Jersey) Law 1984

Schmidt v Rosewood Trust Limited [2003] UKPC 26

Lewin on Trusts (20 th edition)

Re the Realisable Property of R Tantular [2014] (2) JLR 25

Proceeds of Crime (Jersey) Law 1999

Crociani v Crociani [2017] JRC 146

Crociani v Crociani [2018] JCA 136A

Representation of the Z Trusts [2015] JRC 214

The Security Interests (Jersey) Law 2012

The Esteem Settlement [2001] JLR 7

Akers v Samba Financial Group Limited [2017] UKSC 6

Trusts. re: confirmation of an arrêt.

THE COMMISSIONER:
1

The Plaintiff (“Kea”) seeks confirmation of an arrêt over, inter alia, the rights of the First Defendant (“Mr Watson”) as a discretionary beneficiary of three Jersey trusts.

2

By way of background, at the suit of Kea, Mr Watson is an adjudicated fraudster in and contemnor of the Courts of England and Wales. Kea has the benefit of an English judgment including a declaration of entitlement to equitable compensation in a maximum sum of approximately £43.5 million and interim payment orders of £25,259,986.49, together with £3,837,356.57 in costs. This is supported by post-judgment asset disclosure orders and notification undertakings relating to dealings with his world-wide assets (howsoever held) in excess of £100,000. On 11 th September 2019, Kea registered the interim payment order together with the order for costs in Jersey under the Judgments (Reciprocal Enforcement) (Jersey) Law 1960.

3

The affidavits of Mr Toby Graham, a partner of Farrer & Co., Kea's English Solicitors, show that despite considerable efforts at enforcement, a significant proportion of the Jersey judgment debt remains outstanding, and he deposes that there is a strong basis for saying that Mr Watson is engaged in an unlawful conspiracy with the Second Defendant (“Mr Gibson”), his “right hand man”, to defeat his creditors, in particular Kea.

4

This application, if successful, may provide Kea with a shortcut to what would otherwise be expensive causes of action available to it in Jersey against the trusts, namely a proprietary claim and fact-intensive claims that at least some of the corporate assets within the trusts are in fact held on resulting trusts for Mr Watson.

The Trusts
5

The Kowhai Trust was established by declaration on 30 th January, 2012 and it is governed by Jersey law. The trustee is the first party cited, VG Trustee Limited (“VG”) and the protector is Mr Gibson. The beneficiaries are:

  • (i) Mr Watson;

  • (ii) The children and remoter issue of any beneficiaries. Mr Watson has three children (the Interveners) represented by Advocate Nicholls, as their guardian ad litem;

  • (iii) Any person appointed by the protector;

  • (iv) Any person appointed by the trustee.

6

The trust period is 100 years, or such earlier date as the trustee may appoint, and there are wide discretionary powers of appointment of income and capital, exercisable during the trust period, to or for the benefit of any one or more of the beneficiaries.

7

In default of and subject to the exercise of such powers, at the expiration of the trust period, the trustee shall hold the trust fund upon trust for the beneficiaries in such proportions as the trustee shall determine, and in default, in equal shares absolutely. Subject to this, the trust fund shall be held for such charitable purposes as the trustee shall determine.

8

There is then an overriding power of appointment on such new or other trusts, powers and provisions governed by the law of any part of the world for the benefit of the beneficiaries as the trustee may determine.

9

The Glacier Trust was declared on 15 th April, 2013 and is governed by Jersey law. VG is trustee and Mr Gibson protector. It is in the same terms as the Kowhai Trust, save that the beneficiaries are defined as being:

  • (i) Mr Watson;

  • (ii) The children and more remote issue of Mr Watson, whether now in existence or born at any time during the trust period;

  • (iii) The Jersey Blind Society;

  • (iv) Any person appointed by the trustee.

10

The Libra Trust was declared on 26 th November, 2015 and is governed by Jersey law. VG is the trustee and Mr Gibson Protector. The beneficiaries are defined as being:

  • (i) Mr Watson;

  • (ii) The issue and remoter issue of Mr Watson; and

  • (iii) The Jersey Blind Society

11

The trust period is the maximum permitted under Jersey law, and there are similar wide powers of appointment of income and capital during the trust period to or for the benefit of any one or more beneficiaries and similar default provisions. Again, there is an overriding power of appointment.

12

Thus, in respect of all three trusts (which will refer to collectively as “the trusts”), Mr Watson is an object of the discretionary powers over income and capital vested in the trustee and of the overriding power of appointment. He also has an interest in the default trusts, what is in fact a fixed proportionate share of the assets in default of the exercise of discretion by the trustee, an interest which is not calculable at the present time.

13

Kea accepts that Mr Watson's interests under the trusts is as a discretionary beneficiary, with the hope of benefit and that he has no right or entitlement to any part of the trust property. Kea's case is that his rights as a discretionary beneficiary constitute movable property which under Jersey law can be distrained upon, in this case, by way of an arrêt.

14

An arrêt was granted over Mr Watson's rights as a discretionary beneficiary, and over certain loans, on an interim basis on the 18 th March 2020 pursuant to an Order of Justice under which a number of conservatory and ancillary orders were made.

15

VG and Mr Gibson take a neutral stance on the matter and did not attend the hearing.

The law on arrêts
16

There is no dispute as to the jurisdiction of the Court to grant both an arrêt simpliciter and an arrêt entre mains which was considered recently by the Royal Court in F G Hemisphere v Gecamines [2010] JRC 195 and by the Court of Appeal in F G Hemisphere v Gecamines [2011] JCA 141. A useful summary is contained in Offshore Civil Procedure by Richard Holden, within paragraphs JA11.3.3 and 11.4.2. By way of brief summary:

  • (i) An arrêt is a customary law remedy for the satisfaction of a debt by appropriating the debtor's movable property. An arrêt may be made against the debtor, and his or her property directly, or against a third party, over property owed to the debtor ( arrêt entre mains).

  • (ii) The effect of the arrêt is to charge the thing arrested and create a proprietary security interest in it in favour of the arresting creditor ( F G Hemisphere v Gecamines [2011] JCA 141 at paragraph 156).

  • (iii) The flexibility of the arrêt continues after its confirmation in respect of the precise benefit it confers on the arresting creditor in execution of his or her charge as recently illustrated in the case of Re Interactive Telesurfaces Group [2013] JRC 009, where the Court was prepared to transfer shares arrested on the arresting creditor's undertaking to value the company's sole asset and repay any sum realised in excess of the judgment debt granting the distraint.

  • (iv) An arrêt may be effected against future property where such property is capable of precise identification and declaration as to its existence on oath ( F G Hemisphere v Gecamines [2011] JCA at paragraphs 175–176).

Kea's case
17

We would summarise Advocate Purkis's contentions as follows:

  • (i) The term “beneficiary” under English law is ambiguous in that in the narrow sense it denotes the person who is entitled to trust property, whether that entitlement is vested or contingent, defeasible or indefeasible. The objects of a discretionary power are not beneficiaries in that narrow sense (see Massively Discretionary Trusts by Lionel Smith, 2017, Current Legal Problems).

  • (ii) The position under Jersey law is clear. Article 1(1) of the Trusts (Jersey) Law 1984 (“the Trusts Law”) defines the word “beneficiary” in this way:

    ““Beneficiary” means a person entitled to benefit under a trust or in whose favour a discretion to distribute property held on trust may be exercised.”

    There is no question, therefore, that a discretionary beneficiary is a beneficiary for the purposes of the Trusts Law.

  • (iii) Article 1(1) goes on to define what is meant by the interests of a beneficiary:

    ““interest of a beneficiary” means the beneficiar's interest under a trust and references to the beneficiary's interest have a corresponding meaning”

  • (iv) Article 10(10) of the Trusts Law provides:

    “The interest of a beneficiary shall constitute movable property” .

    It is trite law that movable property is defined negatively in Jersey law as being all property that is not immovable property – see Matthews and Nicolle, The Jersey Law of Property paragraphs 2.1 – 2.3 and Dessain and Wilkins Jersey Insolvency and Asset Tracing 5th edition, where the glossary accepts that...

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1 cases
  • Kea Investments Ltd v Eric John Watson
    • Jersey
    • Royal Court
    • 28 April 2021
    ...Littler for the First and Second Parties Cited Advocate N. B. R. Mière for the Interveners Authorities Kea Investments v Watson and Ors [2021] JRC 009. Judgments (Reciprocal Enforcement) (Jersey) Law 1960. Representation of Rawlinson & Hunter Trustees SA re Z Trusts [2019] JCA 106. In Re ZI......
2 firm's commentaries
  • Can an interest in a discretionary trust ever be a proprietary interest?
    • New Zealand
    • JD Supra New Zealand
    • 21 May 2021
    ...Limited v Watson [2021] JRC 009 In recent years there have been increasing challenges in foreign courts to the use of corporate and trust structures to hold private wealth. As far as public opinion and news agencies are concerned trusts are utilised for tax avoidance — if not tax evasion — ......
  • The Nature Of A Beneficiary's Interest Under A Jersey Law Trust
    • Jersey
    • Mondaq Jersey
    • 28 March 2022
    ...interest under a Jersey law trust, looking at Kea Investments v Watson in its historical context. In Kea Investments v Watson [2021] JRC 009, the Royal Court of Jersey considered for the first time whether a beneficiary's interest under a discretionary trust could be the subject of distrain......

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