MacKINNON v REGENT TRUST COMPANY Ltd and EIGHT OTHERS

JurisdictionJersey
CourtRoyal Court
JudgeBailhache, Bailiff
Date06 December 2004
ROYAL COURT
Bailhache, Bailiff

N.M.C. Santos Costa for the plaintiff;

J.P. Speck for the first defendant.

The second to ninth defendants did not appear and were not represented.

Cases cited:

(1) Antoniades v. Villiers, [1990] 1 A.C. 417, dictum of Lord Ackner distinguished.

(2) Att. Gen. v. Hall, 1995 JLR 102, referred to.

(3) Att. Gen. v. Weston, 1979 J.J. 141, referred to.

(4) Bentley v. Mackay (1851), 15 Beav. 12; 51 E.R. 440, distinguished.

(5) Bowes v. Foster (1858), 2 H. & N. 779; 157 E.R. 322, dicta of Pollock, C.B. and Martin, B. distinguished.

(6) Butlin's Settlement Trusts, In re, [1976] Ch. 251; [1976] 2 All E.R. 483; (1975), 119 Sol. Jo. 794, referred to.

(7) Chase Manhattan Equities v. Goodman, [1991] BCLC 897; [1991] BCC 308, considered.

(8) Dutton v. Thompson (1883), 23 Ch. D. 278, dicta of Jessel, M.R. considered.

(9) Esteem Settlement, In re, 2000 JLR 119; further proceedings, 2003 JLR 188, dicta of Birt, Deputy Bailiff applied.

(10) Hitch v. Stone, [2001] EWCA Civ. 63; [2001] STC 214; [2001] BTC 78, dicta of Arden, L.J. considered.

(11) Investors Compensation Scheme Ltd. v. West Bromwich Bldg. Socy., [1998] 1 W.L.R. 896; [1998] 1 All E.R. 98, distinguished.

(12) Knights (Jersey) Ltd., Re, 1962 J.J. 207, distinguished.

(13) Madell v. Thomas & Co., [1891] 1 Q.B. 230, distinguished.

(14) Polsky v. S.& A.Servs.Ltd., [1951] 1 All E.R. 185; on appeal, [1951] 1 All E.R. 1062n; (1951), 95 Sol. Jo. 414, distinguished.

(15) Shalson v. Russo, [2003] EWHC 1637, dicta of Rimer, J. applied.

(16) Smith v. Wardle (1845), 15 Sim. 56; 60 E.R. 537, dicta of Shadwell, V.-C. distinguished.

(17) Snook v. London & W. Riding Invs. Ltd., [1967] 2 Q.B. 786; [1967] 1 All E.R. 518; (1967), 111 Sol. Jo. 71, dicta of Diplock, L.J. applied.

(18) Twinsectra Ltd. v. Yardley, [2002] 2 A.C. 164; [2002] 2 All E.R. 377, observations of Lord Hoffmann and Lord Millett referred to.

(19) Walker v. Armstrong (1856), 8 De G. M. & G. 531; 44 E.R. 495, considered.

(20) Watson, In re (1890), 25 Q.B.D. 27, dictum of Lord Esher, M.R. distinguished.

Trusts—creation—intention of donor—sham—common intention of settlor and trustee to mislead or deceive by not expressing true intentions in trust deed is essential feature of sham trust

Trusts—creation—intention of donor—no jurisdiction to set aside trust merely because fails to implement settlor's true intention—settlor's subjective intention irrelevant unless established vitiating cause of action also shown—certainty of trust documents important

A trustee sought the directions of the court in relation to excluding certain beneficiaries from a group of connected trusts and subsequently to resign as trustee of one of them.

The plaintiff, the settlor's son, obtained a stay of the proceedings and brought an Order of Justice alleging that the trusts were invalid as they did not reflect the settlor's true intentions that the property was to be held on trust for her absolutely. He claimed that after her death the property formed part of her estate.

The plaintiff in effect alleged that the trusts were shams as they did not reflect the settlor's true intentions and that, in the interests of justice, the court should look behind the trust documents to give effect to those intentions. The trustee applied for the allegations to be struck out as the plaintiff had not pleaded that, by creating documents which did not reflect her true intentions, the settlor had intended to mislead or deceive. The Master declined to strike out the allegations. He found that, whilst the plaintiff could not establish that the trusts were shams without pleading an intention to mislead or deceive, the law was uncertain as to whether there was a broad jurisdiction to look behind trust documents which allegedly did not reflect the settlor's true intentions.

The trustee appealed, submitting that (a) the allegations that the trusts were invalid should be struck out as the plaintiff had not pleaded an intention to mislead or deceive on the part of the settlor, which was an essential feature of a sham trust; and (b) furthermore, there was no broad jurisdiction to set aside the trust documents merely because they allegedly did not reflect the settlor's true intentions and, in the absence of an established vitiating factor, they could not be set aside.

The plaintiff submitted in reply that the Master's refusal to strike out the allegations should be upheld because (a) an intention on the part of the settlor to mislead or deceive was not essential to make a trust a sham; and (b) in any case, there was a broad principle that the court was able to look behind the trust deeds to give effect to the settlor's true intentions as she had not intended her property to be held on the trusts created.

Held, allowing the appeal and striking out the relevant passages:

(1) As the plaintiff did not plead an intention to mislead or deceive on the part of the settlor, his allegation that the trusts were shams did not disclose a reasonable cause of action. A common intention of both the settlor and the trustee to mislead or deceive was an essential feature of a sham trust and, as the plaintiff did not allege such an intention on the part of the settlor, that allegation would be struck out ( para. 22).

(2) Furthermore, there was no broad jurisdiction to look behind the trust documents to establish the settlor's true intentions and to set aside the trusts merely because they did not reflect those intentions. The trustee's appeal would therefore be allowed and the claim that the trusts were invalid as not reflecting the settlor's intentions would be struck out. In the absence of an established vitiating cause of action, which was not pleaded by the plaintiff, the settlor's unexpressed intentions when executing the trusts—that the property was to be held for herself absolutely—were insufficient grounds for setting them aside. As a matter of public policy it was important that, in a jurisdiction in which there existed a successful "trust industry," beneficiaries and third parties should be able to rely on the legal enforceability of properly created trust deeds, subject only to the established vitiating causes of action ( para. 40; paras. 45-48).

1 BAILHACHE, BAILIFF:

Procedural history

The history of this litigation begins on May 29th, 2003, when Regent Trust Co. Ltd. ("the trustee") issued a representation in relation to its administration of three trusts, known as the D.E.S. MacKinnon 1981 Settlement, the D.E.S. MacKinnon 1998 Settlement and the D.E.S. MacKinnon 1999 Settlement (to which I shall refer as "the 1981 settlement," "the 1998 settlement" and "the 1999 settlement" respectively). By its representation, the trustee sought approval—

(i) to exclude the plaintiff, Andrew MacKinnon, from benefit under the 1981 settlement and the 1998 settlement;

(ii) to exclude the second defendant and his issue from benefit under the 1999 settlement; and

(iii) subsequently, to resign as trustee of the 1999 settlement.

2 On October 14th, 2003, at the hearing of the summons for directions before the Master in relation to the trustee's representation, the plaintiff sought and obtained a stay on the basis that he intended to attack the validity of the three settlements. At that time, the plaintiff had filed an affidavit in which he had stated:

"I make this affidavit in support of an application that the representation be stayed pending the issuance and resolution of proceedings attacking the validity of one or more of the [trusts] for the reason that they are shams and/or, in the case of the 1981 settlement, for the reason that it is in breach of the maxim of Jersey customary law known as 'donner et retenir ne vaut.'"

3 On December 12th, 2003, the trustee was served with an Order of Justice attacking the validity of the three settlements. The plaintiff, who is the son of the settlor, Mrs. D.E.S. MacKinnon, claimed that the assets purportedly held on trust were, and at all times had been, held to the order of Mrs. MacKinnon and now formed part of her estate.

4 On February 25th, 2004, the trustee applied, inter alia, to strike out certain paragraphs of the Order of Justice on the ground that they disclosed no reasonable cause of action. On May 27th, 2004, the application was heard by the Master, who delivered judgment on June 29th, 2004. The Master found that "the plaintiff could not succeed in establishing a case of sham," but he dismissed the application on the basis that—

"the plaintiff has, however, raised a wider issue, namely, whether in the circumstances as described in the Order of Justice the Jersey courts can look behind documents to establish that the parties intended something other than as set out in the relevant trust deeds.

I am satisfied that this is an issue on which the law is not clear in Jersey. I consider that it is a question fit to be decided by the Royal Court after hearing detailed evidence. I think that this is an uncertain and developing field of law which requires further consideration by the Jersey courts. I do not consider it possible for me to give a certain and affirmative answer to the question whether the plaintiff's claim is bound to fail. Therefore, I conclude that the case is not one in which it is appropriate to strike out the paragraphs complained of in advance of the trial."

5 It is against that decision that the trustee now appeals. It is accepted by both parties that the appeal is by way of a rehearing. Counsel for the second defendant did not appear but indicated that he supported the contentions of the trustee. Counsel for the remaining defendants rested on the wisdom of the court.

Test on a strike-out application

6 The principles to be applied by the court are well settled. The court must proceed on the basis that the facts alleged in the Order of Justice are true. As to...

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6 cases
  • Grand View Private Trust Company Ltd v Wong, Wen-Young
    • Bermuda
    • Court of Appeal (Bermuda)
    • 20 April 2020
    ...to discerning the purpose of the trust and the settlor's true intentions, see too e.g. Thomas on Powers at 9.03, Mackinnon v Regent Trust [2004] JLR 477 at [47]: “ Subject only to established causes of action…the intentions of a settlor must be ascertained from the trust deed” and Tao v HSB......
  • Mackinnon v Mackinnon; Mackinnon v Regent Trust Company Ltd
    • Jersey
    • Court of Appeal
    • 19 May 2005
    ...allowed the trustee's appeal and struck out the relevant passages from the appellant's Order of Justice (in proceedings reported at 2004 JLR 477). The court found that a common intention of the settlor and the trustee to mislead or deceive was an essential feature of a sham trust and, as th......
  • Nd v Sd (1St Respondent) Y Trustees Ltd (2Nd Respondent) Ph (3Rd Respondent)
    • United Kingdom
    • Family Division
    • 21 June 2017
    ...that the settlor alone has such an intention. Re Esteem Settlement has been followed in MacKinnon v Regent Trust Company Limited 2004 JLR 477, a decision which was upheld by the Jersey Court of Appeal at [2005] JCA 066, [2005] WTLR 1367.' [52] In Re Esteem the Royal Court had in fact been r......
  • A v A
    • United Kingdom
    • Family Division
    • 29 January 2007
    ...that the settlor alone has such an intention. Re Esteem Settlement has been followed in MacKinnon v Regent Trust Company Limited 2004 JLR 477, a decision which was upheld by the Jersey Court of Appeal at [2005] JCA 066, [2005] WTLR 1367.” 52 In Re Esteem the Royal Court had in fact been ref......
  • Request a trial to view additional results
1 firm's commentaries
  • Asset Protection Trusts – Why The Recent Interest?
    • Jersey
    • Mondaq Jersey
    • 13 February 2019
    ...that it will uphold the sanctity of the trust arrangement. The Royal Court confirmed, in Mackinnon v The Regent Trust Company and Ors 2004 JLR 477 "An overriding consideration (one of public policy) is that persons dealing with trustees should be entitled to rely upon the sanctity and ......

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