The Esteem Settlement (Abacus (CI) Ltd as Trustee

JurisdictionJersey
CourtRoyal Court
JudgeBirt, Deputy Bailiff and Jurats de Veulle and Bullen
Judgment Date13 June 2003
Date13 June 2003
ROYAL COURT
Birt, Deputy Bailiff and Jurats de Veulle and Bullen

J.A. Clyde-Smith for the trustee;

N.F. Journeaux for the first and second plaintiffs;

N.M. Santos-Costa for the second and third defendants;

The first, fourth and fifth defendants did not appear and were not represented.

Cases cited:

(1) Abacus Trust Co. (IoM) Ltd. v. Barr, [2003] 1 All E.R. 763; [2003] W.T.L.R. 149, followed.

(2) Abdel Rahman v. Chase Bank (C.I.) Trust Co. Ltd., 1991 JLR 103, distinguished.

(3) Adams v. Cape Indus. PLC, [1990] Ch. 433; [1991] 1 All E.R. 929, considered.

(4) Atlas Maritime Co. S.A. v. Avalon Maritime Ltd., [1991] 4 All E.R. 769; [1991] 1 Lloyd's Rep. 563, dicta of Staughton, L.J. applied.

(5) Barton v. Bank of New S. Wales (1890), 15 App. Cas. 379 ([1890] UKPC 37), considered.

(6) CPS v. Compton, The Times, December 11th, 2002; [2002] EWCA Civ 1720, considered.

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

(8) Commonwealth Reserves v. Chodar (2001), 3 IETLR 549, considered.

(9) Company, Re a, [1985] BCLC 333, applied.

(10) Cusack v. Scroop Ltd., [1997-98] 1 O.F.L.R. 68; 1996-98 MLR N-20, considered.

(11) Fortex Group Ltd. v. MacIntosh, [1998] 3 NZLR 171, dicta of Tipping, J. applied.

(12) Foskett v. McKeown, [2001] 1 A.C. 102; [2000] 3 All E.R. 97, distinguished.

(13) Gibbon v. Mitchell, [1990] 1 W.L.R. 1304; [1990] 3 All E.R. 338, distinguished.

(14) Gibbs v. Rea, [1998] A.C. 786 ([1998] UKPC 3); 1998 CILR 16, referred to.

(15) Gilford Motor Co. Ltd. v. Horne, [1933] Ch. 935; (1933), 149 L.T. 241, considered.

(16) Goldcorp Exchange Ltd., Re, [1995] 1 A.C. 74 ([1994] UKPC 3), considered.

(17) Grupo Torras S.A. v. Sheikh Fahad Mohammed Al-Sabah, English Queen's Bench Division, July 29th, 1994, unreported, considered.

(18) H, In re, [1996] 2 All E.R. 391; [1996] BCLC 500, distinguished.

(19) Harris v. Sharp, English C.A., March 21st, 1989, unreported, referred to.

(20) Hastings-Bass, In re, [1975] Ch. 25; [1974] 2 All E.R. 193, considered.

(21) Hitch v. Stone, [2001] STC 214; [2001] BTC 78, followed.

(22) Intl. Credit & Inv. Co. (Overseas) Ltd. v. Adham, [1998] BCC 134; [1999] I.L.Pr. 302, considered.

(23) Johnson Matthey Bankers v. Shamji, 1985-86 JLR N-26, applied.

(24) Jones v. Lipman, [1962] 1 W.L.R. 832; (1962), 106 Sol. Jo. 531, applied.

(25) LAC Minerals Ltd. v. Intl. Corona Resources Ltd. (1989), 61 D.L.R. (4th) 14; [1990] F.S.R. 441, distinguished.

(26) Letterstedt v. Broers (1884), 9 App. Cas. 371 ([1884] UKPC 18); [1884] All E.R. Rep. 882, dicta of Lord Blackburn applied.

(27) Lipkin Gorman v. Karpnale Ltd., [1991] 2 A.C. 548; [1992] 4 All E.R. 512, referred to.

(28) Lysaght, In re, [1966] Ch. 191; [1965] 2 All E.R. 888, referred to.

(29) Mallott v. Wilson, [1903] 2 Ch. 494; (1903), 89 L.T. 522, considered.

(30) Metall & Rohstoff A.G. v. Donaldson Lufkin, [1990] 1 Q.B. 391; [1989] 3 All E.R. 14; (1989), 133 Sol. Jo. 1200, considered.

(31) Midland Bank v. Wyatt, [1995] FLR 697; [1997] 1 BCLC 242, not followed.

(32) Milroy v. Lord (1862), 4 De G.F. & J. 264; 45 E.R. 1185; 7 L.T. 178, considered.

(33) Muschinski v. Dodds (1985), 160 CLR 583; 60 ALJR 52; 62 Aust. L.R. 429, considered.

(34) Natwest v. Jones, [2001] BCLC 98; [2001] B.P.I.R. 1092, considered.

(35) Ord v. Belhaven Pubs Ltd., [1998] BCC 607, referred to.

(36) Pettkus v. Becker, [1980] 2 S.C.R. 834; (1980), 117 D.L.R. (3d) 257; 34 N.R. 384; 19 R.F.L. (2d), applied.

(37) Polly Peck Intl. PLC (No. 2), In re [1998] 3 All E.R. 812; [1998] 2 BCLC 185, considered.

(38) Private Trust Corp. v. Grupo Torras S.A., Bahamian Court of Appeal, October 27th, 1997, unreported, considered.

(39) Salomon v. A. Salomon Ltd., [1897] A.C. 22; (1897), 75 L.T. 426, applied.

(40) Sharrment Pty. Ltd. v. Official Trustee (1988), 82 Aust. L.R 530; 18 FCR 449, considered.

(41) Snook v. London & W. Riding Invs. Ltd., [1967] 2 Q.B. 786; [1967] 1 All E.R. 518; (1967), 111 Sol. Jo. 71, followed.

(42) TSB Bank Intl. v. Chabra, [1992] 1 W.L.R. 231; [1992] 2 All E.R. 245, referred to.

(43) Tjaskemolen, The [1997] 2 Lloyd's Rep. 465; [1997] CLC 521, referred to.

(44) Trustor AB v. Smallbone (No. 2), [2001] 1 W.L.R. 1177; [2001] 3 All E.R. 987, considered.

(45) Turner v. Turner, [1984] Ch. 100; [1983] 2 All E.R. 745, considered.

(46) Twinsectra Ltd. v. Yardley, [2002] 2 A.C. 164; [2002] 2 All E.R. 377, dicta of Lord Hoffmann and Lord Millett applied.

(47) Wallersteiner v. Moir, [1974] 1 W.L.R. 991; [1974] 3 All E.R. 217; (1974), 118 Sol. Jo. 464, not followed.

(48) West Deutsche Landesbank Girozentrale v. Islington L.B.C., [1996] A.C. 669; [1996] 2 All E.R. 961; [1996] CLC 990; (1996), 160 J.P. Rep. 1130; 146 New L.J. 877, considered.

(49) Woolfson v. Strathclyde Regional Council, [1978] S.L.T. 159; [1978] S.C. (H.L.) 90, considered.

Additional cases cited by counsel:

Antoniades v. Villiers, [1990] 1 A.C. 417.

Armitage v. Nurse, [1998] Ch. 241.

Creasey v. Breachwood Motors Ltd., [1993] BCLC 480.

Golder v. Société de Magasins Concorde Ltd., 1967 J.J. 721.

Great Berlin Steamboat Co., In re (1884), 26 Ch. D. 616.

Grupo Torras S.A. v. Al-Sabah, [1995] 1 Lloyd's Rep. 374.

Korkontzilas v. Soulos (1997), 146 DLR (4th) 214.

Multinational Gas & Petrochemical Co. v. Multinational Gas & Petrochemical Services Ltd., [1983] Ch. 258.

Phillips v. Mullings (1870), L.R. 7 Ch. App. 244.

SCF Fin. Co v. Masri, [1985] 1 W.L.R. 876.

Legislation construed:

Trusts (Jersey) Law 1984, as amended by the Trusts (Amendment No. 3) (Jersey) Law 1996, art. 10: The relevant terms of this article are set out at para. 107.

Texts cited:

Basnage, 2 Commentaires sur la Coutume de Normandie, 4th ed., at 294 (1778).

Birks, The End of the Remedial Constructive Trust , 12(4) Trust Law International, at 202 (1998).

Clarke, Offshore Tax Planning, 3rd ed., at 179-185 (1994).

Dalloz, Répertoire, vol. 33, Obligations, paras. 963-1014, at 229-240 (1860 ed.).

Houard, Dictionnaire Analytique, Etymologique, Critique et Interprétif de la Coûtume de Normandie, at 566-568 (1780).

Le Geyt, Privilèges, Loix et Coustumes de L'Isle de Jersey, art. 5, at 58 (1953).

Le Gros, Droit Coutumier de Jersey, at 447 (1943).

Lewin on Trusts, 17th ed., para. 4-23; paras. 5-03-5-15; para. 12-19; para. 13-46; paras. 14-30-14-32 (2000).

Matthews, The Constitution of Disclaimed Trusts Inter Vivos, 46 The Conveyancer & Property Lawyer, at 141 (1981).

Matthews & Nicolle, The Jersey Law of Property, at 23-25 (1991).

Millett, Equity—The Road Ahead, 9(2) Trust Law International, at 35 (1995).

Payne, Lifting the Corporate Veil: A Reassessment of the Fraud Exception, 56(2) Cambridge Law Journal, at 284-290 (1997).

Pothier, Coutumes d'Orléans, 2nd ed., at 355 (1861).

Thomas on Powers, 1st ed., at 86-87; at 273-274 (1998).

Underhill & Hayton, Law of Trusts & Trustees, 16th ed., at 47-49; at 58-63; at 144-170; at 191; at 882 (2003).

Wright, The Remedial Constructive Trust, in Scope of the Remedial Constructive Trust, at 129 (1998).

Trusts—creation—intention of donor—sham—trust not sham unless both settlor and trustee intend true beneficial position to be otherwise than stated in trust deed—common intention requires dishonesty—individual transactions under trust may be sham even if trust itself valid

Trusts—donor's residuary rights—"donner et retenir ne vaut"—maxim applicable to time of gift into trust, as concerned with "retention" of power by donor at that moment—return of power to donor very soon after donation may be evidence of attempt to retain it

Trusts—"piercing veil" of trust—no action for "piercing veil" of trust as settlor's level of control not complete enough—may be otherwise if trustee breaches fiduciary duties by surrendering effective control to settlor, in which case actions of trustees liable to be struck down

Trusts—constructive trusts—"remedial constructive trusts"—probably not remedy available in Jersey law

The plaintiffs brought an action seeking to recover the "clean assets" left in the Esteem Settlement.

The plaintiff company was owned by the Kuwait Investment Office ("KIO") in London. The first defendant was the chairman of both the plaintiff company and KIO. Between October 1988 and May 1990, he defrauded the plaintiff of US$430m., of which his personal share was US$120m., which he paid into his bank accounts. Criminal proceedings were commenced against him in Kuwait on October 26th, 1992 and in England on April 14th, 1993. On June 24th, 1999, the plaintiff obtained judgment against him in the English High Court in respect of the fraud for US$687m., with interest accruing at a rate of US$55m. per annum.

Prior to the fraud, the first defendant had established (a) the Esteem Settlement, a discretionary settlement governed by Jersey law, of which Abacus (C.I.) Ltd. was the trustee and the defendants were the main beneficiaries; and (b) Ceyla, a Liechtenstein Anstalt administered by Abacus, the founder rights of which were held for the first defendant. The Settlement incorporated a wholly-owned company in Jersey known as Esteem Ltd. The income earned by these structures was periodically distributed to the first defendant and then resettled by him as capital. The bodies and the resettlement procedure were legitimately designed to avoid the Kuwaiti laws of forced inheritance and to shield the first defendant's substantial assets from the impact of UK taxation.

Between 1988 and 1992, after he had begun to defraud Grupo Torras (GT), the first defendant contributed further of his own funds to the Esteem Settlement and to Ceyla. In April 1992 he contributed £4.4m., stolen from GT, to the Esteem Settlement. In August 1992 he contributed £4m. of his own funds to the No. 52 Trust. In September 1992 he contributed ownership of Ceyla to the Esteem Settlement.

In an earlier action, the plaintiff company had sought to recover...

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