J.A. Clyde-Smith Esq., Commissioner and Jurats Le Cornu and Crill.
IN THE MATTER OF THE REPRESENTATION OF ROGER BADEN-POWELL
AND IN THE MATTER OF THE ROCK TRUST AND MEGAC LIMITED
Advocate O. A. Blakeley for the Representor.
Advocate D. Evans for the Respondent.
1. This representation concerns the last entity, Megac Limited ("Megac"), which is the subject of a claim in the désastre of Chimel Trustee Company Limited ("Chimel") following the demise of the trust and company business run by Mr Peter Wilson Michel of Michel & Co. The business was conducted through a number of companies including Chimel, Oceanic Trust Company (Jersey) Limited and Rroyds Management Services Limited. On the application of the Jersey Financial Services Commission, these companies were placed under the control of managers on 12th July, 2001. They were then declared "en désastre" on 4th October, 2001. Detailed directions were subsequently given by the Court to the Viscount in relation to the administered entities and their transfer to new service providers. Mr Michel was convicted of serious money laundering offences on 14th May, 2007.
2. By his amended representation, the representor, Mr Roger Baden-Powell ("Mr Baden-Powell") seeks a transfer of the assets of Megac to him, or failing that a declaration that the shares of Megac are held on the terms and subject to the provisions of the Rock Trust dated 17th September, 1991. There was a singular lack of documentation from the files of Michel & Co and its companies to assist in this application.
3. Mr Baden-Powell claims that he caused the legal title of certain assets to be transferred to or acquired by Megac, believing that it was beneficially owned by the Rock Trust of which he was or could be a beneficiary. His primary case is that no such trust existed and that he is the sole beneficial owner of those assets. His secondary case is that the Rock Trust did exist and Megac was beneficially owned by it.
4. We have a copy of the Rock Trust deed dated 17th September, 1991, and settled by Mr Baden-Powell's father, Hubert Edward Philip Peter Baden-Powell. It is a standard discretionary settlement. Chimel is named as trustee and Mr Gerard Sweeting as the first protector. The initial settled property was £1,000. The beneficiaries were named as the British Heart Foundation Appeal and the Imperial Cancer Fund. There is no evidence to suggest that £1,000 was ever settled or that this trust came into existence before1997.
5. There is a second incomplete Rock Trust deed dated 15th April, 1992, in very similar terms, save that the settlor was Mr Baden-Powell's mother, Mrs Dorothy Hilda Clarence Baden-Powell, and the initial property is stated as being Alderbury Hill House, Alderbury, Nr Salisbury, Wiltshire ("Alderbury"). In her affidavit of 25th June, 2008, Mrs Baden-Powell explains that in or about the early 1990s, she had been in discussion with her son Mr Baden-Powell about the possibility of her being the settlor of a discretionary trust, but she never actually gave any instructions for this proposed trust to proceed and did not settle any property. Alderbury was in fact registered in the name of Mr Baden-Powell and his then wife.
6. There are, confusingly, references in correspondence to two other Rock Trust deeds dated 2nd March, 1992, and 30th March, 1992, but no copies appear to exist.
7. Following the bankruptcy of Chimel, it was Mr Sweeting as protector who on 29th October, 2002, filed a claim with the Viscount in relation to the Rock Trust and Megac. The Viscount's investigations had unearthed documents which gave rise to a number of concerns in relation to the structure which became the subject of correspondence. On 19th May, 2003, Mr Baden-Powell filed an affidavit which he subsequently acknowledged with regret was misleading. In 2004, the structure was investigated by the Serious Fraud Office, but no prosecution resulted.
8. Mr Baden-Powell filed a second affidavit dated 16th June, 2008, from which we extract the following:-
(i) Megac holds legal title to a number of properties in the United Kingdom, including Alderbury, shares in a Spanish company, shares in an English plc and bank accounts.
(ii) In 1992, he had purchased Alderbury with funds provided by his mother, which covered not only the purchase price but also the cost of refurbishment. His mother and father were at the time resident in Guernsey and the funds emanated from an account in the Isle of Man.
(iii) In 1997, some five years later, he considered that as the funds to purchase Alderbury had originated offshore, it should remain so and that "when the purchase was made it should have been arranged to achieve this "offshore objective"". He took advice from Mr Michel, who he had met previously with his father when the Rock Trust was established in 1991. He was to be the intended beneficiary (by way of a letter of wishes) but the matter was taken no further as his father became ill and subsequently died in 1993. No property was settled into the Rock Trust nor were any fees rendered by Michel & Co or any of its companies.
(iv) When his father became ill, he discussed with his mother the setting up of a trust instead of his father, and although she signed a trust document (hence the incomplete copy deed dated 15th April, 1992), no settlement was actually created as she has confirmed.
(v) The steps taken in 1997 are best described by quoting from paragraphs 16 - 18 of his second affidavit.
"16 It was not until 1997 that I spoke to Mr Michel again. I explained to him that I would like Alderbury to be owned by a trust rather than myself because I believed this would be beneficial to me when I retired to Spain. In order to save professional fees I suggested that Mr Michel could use the documents that had been signed by my mother in 1992 for the settlement that never came to fruition. Mr Michel told me that he could not use these documents because he had not received instructions from my mother at the time the documents were signed. He did say, however, that he would be able to use the documents originally signed by my father as he had met my father to discuss the documents and his intention for a settlement, although no trust had actually been set up at that time. This seemed sensible to me at the time and I was content to rest on Mr Michel's advice. Mr Michel therefore agreed to do what was necessary to set up the Trust using the documents signed by [my] father. He advised that a company be used to own Alderbury and, in turn, the Trust would own the shares in the company. He explained to me that when he had discussed setting up a trust structure with my father it was intended that there was going to be an underlying company to the trust and so what I required was very simple to achieve as it was on the same basis. He told me that there was a company, Megac, which had never traded and this could be used for my purpose. I agreed to this.
17. Mr Michel later told me that to set up the structure as planned, I would need to pay all the accumulated fees in respect of the Trust/Megac from 1991, which it will be recalled was the date my father had signed Mr Michel's draft trust documents. Mr Michel estimated that these fees would be in the region of £10,000.00 and so I arranged for those fees to be paid to Mr Michel as requested. I had the fees paid by Mr Derek Bell, my financial adviser, who was holding funds on my behalf. I refer the court to the affidavit of Mr Bell in which it is confirmed that these fees were paid and that they were paid from my money. After receipt of the fees Mr Michel confirmed to me that the Trust had been set up properly and everything was in order. My complete acceptance of this was based on Mr Michel's explanation that it was a normal practice to buy a Jersey trust "off the shelf" in a manner similar to buying a shelf company which may have been formed at a much earlier date than that of the subsequent user's purchase date. My legal advisers have advised me that this belief of mine was completely erroneous. Had I known better, I would not have proceeded in the manner in which I did.
18. After receipt of payment of the fees, Mr Michel told me that I could use the Trust and Megac as intended but that "papers" relating to the Trust and Megac would need to be drawn up to reflect the position that Chimel had administered the Trust and Megac since 1991. As this was likely to involve a lot of work, to save costs, Mr Michel suggested that I should prepare draft papers for him to consider and sign. As the fees required to revive the structure from 1991 were so large, I felt that I should go to some trouble to justify them by drafting the required "papers" in detail. Therefore, the documents relating to the structure prior to 1997 were drawn up by me and were backdated. I took care in drafting the documents and probably drafted more than were necessary and in much greater detail than was required but I wanted everything to appear to be properly recorded. I very much regret having decided to do this, but at the time Mr Michel advised me that this was the normal thing to do. I understood that he was a Chartered Accountant of some local standing and so I did not question the procedures that he adopted."
(vi) Mr Baden-Powell thus admits creating a large number of back-dated documents the purpose of which was to show the Rock Trust and Megac being active as from 17th September, 1991, to 1997, something he said he deeply regretted. He did this in order to transfer Alderbury into what he thought would be a legitimate offshore structure and that he had been guided by Mr Michel, who he trusted and upon whom he relied.
9. The documentary evidence shows the following:-
(i) Megac was incorporated in Jersey on 31st July, 1990. In the application for consent to issue shares submitted by Michel & Co, the beneficial owner was described as the Marchall Settlement, a trust settled by a Mr Malcolm Edward Marchall of 806 Gough Street, San Francisco, USA. Mr Evans, for the Viscount, confirmed that there are no records of the Marchall Settlement ever being established or of Mr Marchall having any dealings with Megac. Indeed, the only evidence of activity in Megac follows the meeting between Mr Baden-Powell and Mr Michel in 1997.
(ii) The issued shares of Megac were held by Chimel (3 shares), Rroyds Management Services Limited (3 shares) and Rroyds Limited, another Michel & Co entity, (3 shares). There was a share transfer form executed by Rroyds Limited in favour of Rroyds Management Services Limited in relation to its 3 shares and a declaration of trust by Rroyds Management Services Limited in relation to those shares dated 25th January, 2001, although the identity of the person on whose behalf those shares are held was left blank. In a letter dated 3rd April, 2013, Mr Michel has confirmed that Rroyds Limited transferred its shareholding in Megac to Rroyds Management Services Limited in 2001. Rroyds Limited was dissolved on 21st December, 2010.
(iii) On 3rd September, 2003, Mrs S A Gallichan (formerly Rabet) provided two summary sheets signed by her on behalf of Michel & Co. In the first summary sheet, it was confirmed that the 3 shares held by Chimel and the 6 shares held by Rroyds Management Services Limited were held "as nominees for the sole beneficial owner-the Rock Trust". The second sheet confirmed the existence of the Rock Trust dated 17th September, 1991, of which Mr Sweeting was the protector and Mr Baden-Powell described as the principal beneficiary.
(iv) There are a number of copy invoices from the files of Michel & Co all dated 9th April, 1997, showing fees being charged for:-
(a) Professional services in connection with the formation of Megac for £950.
(b) Corporation Tax and registration fees paid on behalf of Megac for the years 1992 - 1996 at £620 per annum, namely £3,100.
(c) Setting up and engrossing the Rock Trust £1,500.
(d) Trustee's fee for the Rock Trust for the year ended 31st December, 1997, - £750.
10. From 1997 onwards, there were numerous transactions entered into by Megac which appear to be genuine and which are supported by minutes of the meetings of the directors, namely Mr Michel and Mrs Rabet. We are not going to track through each of those transactions and accompanying correspondence, but suffice it to say that none of them support the notion that Megac was acquiring these assets as nominee for Mr Baden-Powell and Mr Blakely does not argue to the contrary. The documentation is all consistent with his belief that Megac was an asset of the Rock Trust, not an asset of his.
11. Mr Baden-Powell does not seek to have his transactions with Megac set aside on the grounds of mistake. Apart from the fact that many of the assets were acquired by Megac for value rather than by being transferred to it, setting aside transactions on the grounds of mistake involves the exercise of the Court's discretion and there must be considerable doubt as to whether, on these facts, the Court would have been prepared to do so. There is, therefore, no legal basis put forward for the Court ordering Megac to transfer its assets to Mr Baden-Powell.
12. That leaves the Court with an issue which is as relevant for the Viscount as for Mr Baden-Powell, and that is for whom do Chimel and Rroyds Management Services Limited hold their shares in Megac? Mr Evans confirmed that neither company claimed any beneficial ownership in Megac. Megac cannot be transferred by the Viscount to another service provider without that issue being determined and even if Megac were to be wound up and its assets distributed, both shareholders would have to seek directions as to who they would hold those assets for.
13. There are three contenders, namely the Marchall Settlement, Mr Baden-Powell and Chimel as trustee of the Rock Trust.
14. We did consider whether Mr Marchall should be convened to these proceedings, but have decided that it is not necessary for the following reasons:-
(i) He is mentioned only once when Megac was first formed, 24 years ago.
(ii) There is no record of the Marchall Settlement ever being established or of Mr Marchall having any involvement in Megac from that time.
(iii) The only assets now held by Megac were acquired in or after 1997, when Mr Baden-Powell became involved. Mr Marchall has made no claim to any of them over the fourteen years that the Viscount has been involved.
15. There was no evidence that Chimel and Rroyds Management Services Limited ever held their shares as nominee for Mr Baden-Powell. Although he is the only person that has ever claimed an interest in the assets of Megac, he has never claimed to be the beneficial owner of Megac itself, and indeed, his position throughout his dealings with Megac was that the Rock Trust was the beneficial owner.
16. There is evidence that the Rock Trust beneficially owns Megac. It was the intention of Mr Baden-Powell and Mr Michel for a trust to come into existence in 1997. The fact that documents were then back-dated to show that it was in existence from an earlier date, reprehensible as that may be, does not affect the issue of whether, as of 1997, a trust did come into existence with the shares in Megac comprising the trust fund.
17. The position of the Viscount is that there is no evidence of a trust existing prior to 1997 but that there is evidence of one existing from that date. That evidence comprises:-
(i) The affidavit of Mr Baden-Powell.
(ii) The certified information sheets prepared by Michel & Co.
(iii) The copy invoices issued by Michel & Co.
18. Despite the paucity of records kept by Michel & Co., we find, on the evidence before us and on the balance of probabilities, that from 1997, Chimel held its 3 shares in Megac on the terms and subject to the provisions contained in the Rock Trust dated 17th September, 1991, and Rroyds Management Services Limited and (until 2001) Rroyds Limited held their shares in Megac as nominees for Chimel in that capacity.
19. We were troubled by the circumstances surrounding the creation of the trust in 1997. There was nothing to suggest that it purported to do anything which is contrary to the laws of Jersey but under Article 11(2)(b)(ii) of the Trusts (Jersey) Law 1984 as amended, a trust shall be invalid to the extent that the Court declares that it is immoral or contrary to public policy. There was no application for such a declaration before us and we did not have the benefit of counsel's submissions on the point. We have decided not to seek those submissions for the following reasons:-
(i) No justification can be put forward for the creation of fictitious documents. The fiction which Mr Baden-Powell and Mr Michel apparently wished to create, however, was that a trust had been in existence longer than it had been.
(ii) We do not know whether these fictitious documents were ever used in a fraudulent manner, but we do know that the Serious Fraud Office have investigated the structure and no prosecution has ensued.
(iii) We have no evidence that the establishment of the trust as at 1997 was for an improper purpose. If a declaration was to be made, it may more likely be that no trust was in existence prior to 1997.
(iv) There is a need for the affairs of these companies, which the Viscount has been administering for some 13 years, to be drawn to a close.
20. In conclusion, we have decided that:-
(i) Chimel holds its 3 shares in Megac upon the terms and subject to the provisions contained in the Rock Trust dated 17th September, 1991.
(ii) Rroyds Management Services Limited holds its 6 shares in Megac as nominee for Chimel in that capacity.
(iii) Rroyds Limited did transfer its shares in Megac to Rroyds Management Services Limited in 2001.
21. Vivat Trustees Limited has agreed to be appointed as the trustee of the Rock Trust should Mr Baden-Powell succeed in his secondary case and we therefore convene it as a party to the proceedings with its consent. When this judgment is handed down, we will appoint it as trustee of the Rock Trust in place of Chimel; the protector Mr Sweeting having released his powers in this respect by letter dated 19th August, 2014.
22. For the avoidance of doubt and for the assistance of Vivat Trustees Limited, we can confirm that the reference in the fourth schedule of the Rock Trust to "the settlor" being an excluded person is a reference to Mr Baden-Powell's father and that there is no bar to the addition of Mr Baden-Powell as a beneficiary of the Rock Trust, the evidence indicating that he was the intended beneficiary.
23. There will be a number of consequential orders that the parties may wish us to make and we invite them to agree the same for submission to the Court before this judgment is handed down.
Trusts (Jersey) Law 1984.