The Esteem Settlement and The No. 52 Trust

JurisdictionJersey
CourtRoyal Court
JudgeBirt, Deputy Bailiff:
Judgment Date14 April 2000
Date14 April 2000
ROYAL COURT
Birt, Deputy Bailiff:

P.C. Sinel for the second and third defendants;

N. Journeaux for the plaintiff.

Cases cited:

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

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

(3) Cusack v. Scroop Ltd., 1996-98 MLR N-20, considered.

(4) Fortex Group Ltd. v. MacIntosh, [1998] 3 NZLR 171, considered.

(5) Farah v. British Airways, English Court of Appeal, December 6th, 1999, unreported, followed.

(6) Golder v. Société des Magasins Concorde Ltd., 1967 J.J. 721.

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

(8) Grupo Torras S.A. v. Sheikh Fahad Mohammed Al-Sabah, English High Court, Q.B.D., July 29th, 1994, unreported.

(9) International Credit & Inv. Co. (Overseas) Ltd. v. Adham, [1998] BCC 134.

(10) Macrae (née Tudhope) v. Jersey Golf Hotels Ltd., 1973 J.J. 2313, considered.

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

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

(13) 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), considered.

(14) Polly Peck Intl. PLC (in administration) (No. 2), Re, [1998] 3 All E.R. 812; [1998] 2 BCLC 185.

(15) Private Trust Corp. v. Grupo Torras S.A. (1997/98), 1 O.F.L.R. 443.

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

(17) Wallersteiner v. Moir, [1974] 1 W.L.R. 991; [1974] 3 All E.R. 217; (1974), 118 Sol. Jo. 464.

(18) Westdeutsche Bank 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.

Legislation construed:

Trusts (Jersey) Law 1984, art. 10(2): The relevant terms of this article are set out at page 141, line 44 - page 142, line 3.

Texts cited:

Millett, Equity—the road ahead, 6 King's College Law Journal 1 (1995).

Supreme Court Practice 1999, vol. 1, para. 18/19/10, at 349; para. 18/7/11, at 315.

Underhill & Hayton, Law of Trusts & Trustees, 15th ed. at 165 (1995).

Civil Procedure—pleading—striking out—only if plain and obvious claim will not succeed that pleading to be struck out—if pleading discloses cause of action or raises question fit for decision, weakness of case not ground for striking out, particularly if uncertain and developing field of law

Trusts—donor's residuary rights—"lifting veil" of trust—possible that Jersey law will in future recognize doctrine of "lifting veil" of trust to give remedy to victim of fraud

Trusts—constructive trusts—"remedial constructive trusts"—possible that Jersey law will in future recognize doctrine of remedial constructive trust for victim of fraud

Trusts—public policy—hidden objective—by Trusts (Jersey) Law 1984, art. 10(2)(b)(ii), trust may be invalid as contrary to public policy if for unstated purpose of putting assets beyond reach of creditors

Civil Procedure—pleading—matters to be pleaded—matters of law to be pleaded if necessary to clarify nature of claim

The second and third defendants sought to strike out part of the plaintiff company's particulars of claim and counterclaim.

The plaintiff company had brought proceedings seeking to enforce a judgment it had obtained in separate proceedings. The judgment had required the first defendant (in the present proceedings), who had been a director of the plaintiff, to repay money he had obtained by fraud from the company. The plaintiff was unable to enforce the judgment against the first defendant since the proceeds of the fraud had been placed in two trusts and he therefore sought to enforce the judgement against the assets of these trusts.

The beneficiaries of the trusts included the first defendant and his wife and son, the second and third defendants. The second and third defendants were not parties to the fraud though their claim was through the first defendant who, it was alleged, effectively controlled the trusts.

In its particulars of claim the plaintiff submitted, inter alia, that (a) as the trusts were under the control of the first defendant the court was entitled to "lift the veil" of the two trusts in order to provide it with a remedy; (b) the court could impose a remedial constructive trust upon the assets in the two trusts so that they were held upon trust for it as a defrauded creditor; and (c) the trusts were not valid pursuant to art. 10(2)(b)(ii) of the Trusts (Jersey) Law 1984 as they were contrary to public policy. The second and third defendants brought the present proceedings seeking to strike out the above aspects of the plaintiff's claim.

They submitted that (a) the plaintiff could not succeed since (i) a trust had to be recognized and enforced unless it was a sham, which was not alleged in the present case, and further that "lifting the veil" applied only to companies and not to trusts, (ii) even if, as a matter of principle, the court could impose a remedial trust it should not do so in the circumstances of the case since the second and third defendants were in no way involved in the fraud, and (iii) art. 10(2)(b)(ii) was concerned only with the purpose and objectives of a trust as set out in the terms of the trust deed and provided these were not contrary to public policy the trust would not be invalidated; and (b) inadequate pleading of a number of issues meant that part of the plaintiff's claim should be struck out, since various causes of action did not emerge clearly from the claim, e.g. art. 10 was not mentioned in the claim and it only became clear that the plaintiff was relying on that article in the prayer for relief.

The plaintiff submitted that (a) the causes of action should not be struck out since (i) while there was no Jersey case in which the court had "lifted the veil" of a trust so as to enable the creditors of a settlor to have recourse to assets in a trust that was otherwise valid, this was a developing field of law and the court might choose to look through the trust structure and treat the assets as if they were the settlor's, particularly since there was fraud involved, (ii) although there was no Jersey case in which a remedial constructive trust had been imposed, it was open to the court to do so and, moreover, it should do so in the present circumstances since the title of the second and third defendants depended on the person who had committed the fraud and they would be unjustly enriched if they benefited from his fraud, and (iii) under art. 10(2)(b)(ii) of the Law, the trust was invalid in that it was contrary to public policy for a trust to be established for the purpose of putting assets beyond the reach of defrauded creditors; and (b) it was not necessary to attach a specific legal label to a cause of action provided that the pleading sufficiently disclosed the nature of the cause of action upon which the claim was based, which was the case here.

Held, ordering the amendment of the plaintiff's pleadings:

(1) It was only where it was plain and obvious that the claim could not succeed that recourse would be had to the court's summary jurisdiction to strike out and it was therefore not the court's duty to decide whether it found in favour of the plaintiff but rather whether it was certain that its claims would fail. Provided that a statement of claim or particulars disclosed some cause of action or raised some question fit to be decided by a judge or jury, the mere fact that a case was weak was not a ground for striking it out. This was particularly so in uncertain and developing fields of law such as those in the present case (page 127, line 33 - page 128, line 1).

(2) The plaintiff's novel proposition in relation to "lifting the veil" of the trusts should be tested against actual facts found after a trial rather than on a hypothetical basis. The cases relied upon by the plaintiff illustrated that courts elsewhere were taking a new approach to this problem. It was not so overwhelmingly clear that the plaintiff's claim would fail that it should be prevented from adducing evidence in support of its case and arguing its proposition in full. The cumulative effect of the matters pleaded by the plaintiff might satisfy a court that the trusts were under the effective control of the settlor and that it was appropriate to "lift the veil" of the trusts. The "lifting the veil" claim would therefore not be struck out (page 135, line 35 - page 136, line 8; page 136, lines 19-32).

(3) It was also arguable that Jersey law might recognize the doctrine of remedial constructive trust. The court should hear the evidence and reach conclusions on the conduct of all relevant parties. Having done so, it could then consider whether Jersey law recognized such a remedy and if so whether it could be applied to the present case. The court would therefore also decline to strike out the claim in relation to the remedial constructive trust (page 141, lines 20-40).

(4) Similarly, the plaintiff's submission that the trust should be declared invalid under art. 10(2)(b)(ii) as contrary to public policy was not untenable. Since it was arguable that a court could have regard to the intentions of the settlor and the trustee as well as to the written terms of the trust deed, the plaintiff's argument that the circumstances surrounding the two trusts revealed that they were contrary to public policy was not necessarily hopeless. The court would therefore decline to strike out the plaintiff's claim in relation to art. 10(2)(b)(ii) (page 143, lines 1-10).

(5) The purpose of the pleading was to give fair notice of the case which the defendants needed to meet and to clarify the issues between the parties. To achieve that it was usually necessary to make clear the legal basis of the claim, though there was otherwise no strict requirement that matters of law be pleaded. That had not been done in the present case...

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