Jersey Unreported Judgments

Taxation - claim by the plaintiff against the defendant for breach of trust.

[2014]JRC231

Royal Court

(Samedi)

24 November 2014

Before     :

Advocate Matthew John Thompson, Master of the Royal Court, sitting alone.

 

Mr A. P. Booth appeared on his own behalf.

Advocate M. P. Cushing for the Defendant.

CONTENTS OF THE JUDGMENT

		Paras
1.	Introduction	1
2.	Background	2-9
	The plaintiffs complaint	10-14
	Decision	15-27
	Conclusion	28-29

judgment

the master:

Introduction

1.        This judgment represents my reasons for striking out the plaintiff's claims for breach of trust against the defendant.  The plaintiff had already conceded that its claims in tort can be struck out. 

Background

2.        The plaintiff's claim essentially concerns the operation of a tax avoidance scheme known as an ITPM Scheme.  The scheme operated between 2000 and 2002 when it was closed following receipt of tax advice that the scheme was no longer workable.  There then followed a lengthy run off period during which efforts were made to unwind the scheme. 

3.        The essence of the scheme was to try to save United Kingdom tax and national insurance.  In summary, a UK based company would enter into an agreement with a UK based agency, for the UK based agency to supply individuals to provide services to the relevant UK Company.  The UK agency in turn entered into contracts with various offshore companies, ultimately numbering nine in number.  The relevant offshore company in turn engaged a UK employment company called Internet Web and Design Consultancy ('IWDC') who would employ the particular contractor who was going to provide services to the original UK Company.  The fees charged by the agency to the original UK Companies were transferred via the offshore companies, less the UK agency's fee.  A portion of monies received by the offshore companies which would not attract higher income tax in the UK were paid to IWDC.  These monies were then paid to the scheme participants after deductions for basic rate income tax and national insurance. 

4.        The remaining balance equating to approximately seventy per cent of the monies received by the UK agent were deposited with a bank in Switzerland in the name of one of the offshore companies.  Eighty per cent of this sum was then lent to a further offshore company Kingslawn Finance Limited which in turn loaned the money to a scheme participant.  The remaining balance was left on deposit at the relevant Swiss bank. 

5.        The scheme participants also held shares in the offshore companies.  The balance held in the relevant Swiss bank not distributed to a scheme participant was intended to be used to purchase the shares of scheme participants on their leaving the scheme. 

6.        The intended benefit of the scheme was to be that, even without the payment to a scheme participant of the balance held in the Swiss Bank, the amount received by a scheme participant was higher than would be the case if a scheme participant had paid income tax and national insurance on the full amount of monies paid to that participant by the original UK company. 

7.        Mr Booth's involvement in relation to the scheme is that he contends that he designed the scheme in the construction industry; he agreed his scheme could be used in the IT sector, for the ITPM Scheme provided his financial interests for doing so were protected. 

8.        The defendant's role in relation to the ITPM System is that it was engaged to administer the offshore companies but not provide directors through a company known as Bayroc.  Bayroc provided the directors for the offshore companies including the plaintiff.  The defendant contends that the plaintiff was one of the ultimate beneficial owners of Bayroc.  The plaintiff argues that Bayroc was owned by the defendant. 

9.        In further and better particulars of paragraph 32 of the plaintiff's order of justice, the plaintiff pleaded that he and another individual, Mr Bults, in November 2003 "took control of the ITPM run off by their directorships of offshore companies, which controlled the ITPM's assets that the defendant/Bayroc held as fiduciary/trustee."

The plaintiff's complaint

10.      In summary the plaintiff's complaint was that he entrusted the benefit of the ITPM System to the defendant, requiring the defendant to account for the value of the plaintiff's interest in the ITPM scheme.  The amount claimed by the plaintiff is not clear and in particular whether he is claiming twenty per cent of gross revenues of the scheme or twenty per cent of any surplus of income over expenditure.  The plaintiff also alleges that the defendant has failed to account to the plaintiff in contract for monies expended during the defendant's administration of the companies.  It is not disputed that the claim for an account in contract is a matter for trial. 

11.      By the time of the hearing before me, it was also not disputed that any claims in negligence should be struck out as the acts complained of occurred a number of years ago.  Proceedings were only issued on 17^th July, 2013, nearly ten years after the plaintiff and others took over the run off of the ITPM Scheme including the offshore companies previously administered by the defendant.  Even if the plaintiff and others did not take control or the winding down of the system until 2005, as set out at paragraph 47 of the order of justice, rather than at the end of 2003, more than three years still has elapsed since the plaintiff took control.  The plaintiff in submission also indicated he had explored the possibly as far back as 2005 of bringing proceedings against the defendant.  Why he did not do so was because the lawyers he had retained were said to be under a conflict of interest and for personal reasons connected with his late wife's ill health which meant the plaintiff did not take this matter forward.  No argument was advanced that the plaintiff was under a practical impossibility from suing the defendant much earlier.  In my judgment the plaintiff was right to concede that the claims in tort were time barred in light of the above matters I have referred to. 

12.      In relation to his claims for breach of trust, the plaintiff accepted that ordinarily claims of breach of trust would also be time barred unless he could bring himself within Article 57(1)(a) of the Trust (Jersey) Law 1984 which provides that:-

"57 Limitation of actions or prescription

(1) No period of limitation or prescription shall apply to an action brought against a trustee -

(a) in respect of any fraud to which the trustee was a party or to which the trustee was privy."

13.      The plaintiff set out four reasons as to why there was fraud which could be pleaded against the defendant:-

(i)        The defendant wrongly arranged a loan in the sum of £68,474 to a company called Colm Associates owned by the plaintiff and Mr Bults which was the main shareholding company of the ITPM Scheme.  It was said to be a fraud on Colm Associates for the defendant to have borrowed this money.  The rationale of the loan was to lend money to the participants in the ITPM scheme to establish trusts where the defendant could act as trustee. 

(ii)       A fee note raised by the defendant dated 21^st July, 2003, in the sum of £410,113.13 was fraudulent because the defendant now states it never provided any services to the plaintiff, and yet the fee note purported to be a closure fee for winding up the scheme. 

(iii)      The agreement dated 18^th July, 2003, to pay the defendant fifty-five per cent of monies received in respect of national insurance litigation schemes was reached on the basis that the defendant had to make certain payments to a Mr Youd and a Mrs Jardine and no such payments have been made (see paragraph 38 of the order of justice).  The plaintiff therefore alleges that the defendant has been dishonest or fraudulent by obtaining an increase in its share without fulfilling the obligations the increased reward was required to satisfy. 

(iv)      There is a difference between the amounts held in the Swiss bank in 2002 and the amount received by RBSI in Jersey in 2003 of approximately £630,000.  The plaintiff inferred that such monies had wrongly disappeared while under the control of the defendant. 

14.      The defendant, contended, while it is not accepted that there was any trust, assuming in the plaintiff's favour that the ITPM System was held on trust by the defendant for the plaintiff, that the matters referred to by the plaintiff do not amount to arguable allegations of fraud.  The plaintiff's claims for breach of trust are therefore time barred because the plaintiff cannot rely on the exception contained in Article 57(1)(a) of the Trusts (Jersey) Law 1984.  The defendant does not dispute that it continues to face a claim for breach of contract. 

Decision

15.      It was not disputed between the parties that I can strike out a claim which is clearly prescribed.  (See Classic Herd Limited v JMMB [2014] JRC 127) at paragraphs 225.  When considering an appeal against my judgment in Classic Herd v JMMB [2014] JRC 217 the Royal Court adopted the same approach. 

16.      Secondly, I observe that the matters raised by Mr Booth in his skeleton argument are not pleaded.  However, I have proceeded on the assumption that the matters raised, if they amount to an arguable case in fraud, would lead to an amendment of the order of justice. 

17.      In relation to what is meant by fraud, in AG v Foster [1992] JLR 6 fraud was defined in summary as a defendant deliberately making a false representation with the intention of causing thereby and with the result in fact of causing thereby actual prejudice to someone, and an actual benefit to himself or somebody else.  This definition was most recently approved and considered in Bhojwani v AG [2010] JLR 78. 

18.      For the purposes of Article 57, at present a plaintiff however does not need to go so far as to prove criminal fraud.  Both in West v Lazards Bros & Co Jersey Limited [1993] JLR 165 and Midland Bank Trust Company (Jersey) Limited, Established Committee and Day v Federated Pension Services [1994] JLR 276, the Royal Court accepted that equitable fraud or dol was sufficient.  The Court of Appeal in Midland Bank v Federated Pension Services [1995] JLR 352 did leave open the question of whether fraud meant fraud to the criminal law standard or the civil law concept of equitable fraud or dol.  For the purposes of this application I have assumed, in the plaintiff's favour that allegations of dol are sufficient to involve Article 57. 

19.      As to what is meant by dol, in Midland Bank Trust v PBS the Royal Court at page 297 lines 35 made it clear that the concept of dol in Jersey "was so surprisingly similar to the English concept of equitable fraud that we were able to extend the doctrine in that way."  In West v Lazards Bros. the Royal Court approved a definition of dol as being a type of device that one person uses to trick or deceive another.  To determine the defendant's summons it is necessary for me to consider whether the conduct complained of by the plaintiff amounts to an arguable case of the defendant trying to trick or deceive the plaintiff. 

20.      In relation to the plaintiff's complaint that an unauthorised loan was taken from Colm Associates to provide funds to enable scheme participants to establish a trust, I do not consider this amounts to fraud or dol.  As the plaintiff accepted, the loan is recorded in the accounts of Colm Associates.  There was no attempt by the defendant to conceal the loan from the plaintiff or to deceive the plaintiff.  Rather what the plaintiff is really complaining about is that an unauthorised deduction was made out of monies administered through the defendant which deduction should be accounted for by the defendant.  In my judgment this complaint is a complaint of breach of contract and forms part of the account that will be resolved by the Royal Court at trial.  If it is necessary to apply the criminal law test, I conclude that no representation has been formulated to deceive Colm Associates.  The claim in my judgment is therefore for breach of duty not a fraudulent breach of trust. 

21.      In relation to the fee note dated 21^st July, 2003, this fee note followed an agreement reached between the plaintiff, the defendant and Mr Bults.  The agreement was recorded in writing and is exhibited to the plaintiff's order of justice.  The agreement provides as follows:-

"This agreement is made in Jersey on 18^th July, 2003. 

It is hereby formally acknowledged by the undersigned that all and any monies received by ABA Chartered Surveyors ("ABA") as a result of the use of IP rights (in respect of National Insurance mitigation schemes) belonging to ABA, by Adelphi Bay Limited, Alberta Bay Limited, Eastwide Limited, Kopykat Limited, Landow Limited, Lexica Limited, Mayden SA, Tiahma Limited and Yanucca Corporation, shall be divisible between the parties hereto in the proportions and for the reasons detailed below:-

25% to be retained by ABA Chartered Surveyors

20% to be paid to Elik Jan Bults (in recognition of the services provided in respect of the above companies)

55% to be paid to Zenith Trust Company Limited (in recognition of the services provided in respect of the above companies)

The above agreement is hereby confirmed by the undersigned."

22.      The agreement was signed by the plaintiff on behalf of ABA Chartered Surveyors which is his business, Mr Bults and the defendant. 

23.      The companies referred to in the extract cited above are the offshore companies owned by Bayroc and administered by Zenith.  The plaintiff alleges this agreement represented a first tranche between the three parties of monies received in respect of the ITPM System (see paragraph 39 of the order of justice).  The defendant argues that this agreement represented a closure fee that the plaintiff, the defendant and Mr Bults were entitled to charge in respect of winding up the scheme. 

24.      The plaintiff complains that, because the defendant accepted it did not provide any services to the plaintiff and that there was no basis for a closure fee in the defendant's terms and conditions, there is no basis for the defendant to raise a fee note that specifically referred to services rendered. 

25.      I cannot see any basis upon which this aspect of the plaintiff's complaints can amount to fraud.  In the 18^th July, 2003, agreement it records that the fee is to be paid for services provided for administration of the offshore companies.  The plaintiff ultimately did not dispute that services were being provided by the defendant to Bayroc to administer the offshore companies.  The language in the 18^th July, 2003, agreement is entirely consistent with the arrangements between the defendant and Bayroc.  The fact that, on the defendant's case, it was not providing the services to the plaintiff, does not give rise to a case of fraud in respect of an agreement drawn up between the plaintiff and the defendant and Mr Bults to divide up surplus monies, which agreement was signed by all of them.  There is nothing that is capable of amounting to any kind of fraud in respect of this part of the claim.  

26.      In respect of the plaintiff's argument that the agreement of the 18^th July, 2003, was procured on the basis of the defendant having to make distributions to a Mr Youd and Ms Jardine as pleaded at paragraph 38, even if such payments have not been made, at present this is a claim to set aside the 18^th July, 2003, on the basis of an erreur.  The order of justice already seeks rescission including in relation to the matters pleaded at paragraph 38.  Despite the fact that ten years has passed since the plaintiff's signed the 18^th July, 2003, agreement, nothing is pleaded or has been produced to me to show that the plaintiff's request for fifty-five per cent of the monies to be divided up was based on an intention to defraud the plaintiff or to somehow trick or deceive the plaintiff.  There is no evidence from either Mr Youd or Ms Mulholland or any other documentary evidence which might allow a case in fraud to be pleaded. 

27.      What I did allow the plaintiff to do is within 28 days to make an application to apply to amend paragraph 38 of the order of justice to make it clear that he seeks to set aside the 18^th July, 2003, agreement on the basis of a misrepresentation producing an erreur on his part.  While this is implicit in the further and better particulars provided in response to request 33, I consider it would assist the court, if an express allegation that the position was misrepresented to the plaintiff leading to an erreur on his part and therefore the plaintiff seeks the setting aside of the agreement and the recovery of the sums paid to the defendant. 

28.      It is a matter for the plaintiff whether he wishes to plead that any such misrepresentation was made deliberately or known to be untrue, but if he does, evidence to support such a pleading will have to be produced.  I also record that Advocate Cushing on behalf of the defendant indicated he had documents relevant to this issue which he would provide to the plaintiff within 14 days. 

29.      The final allegation of fraud was made in relation to the plaintiff's concerns about the transfer of monies from the Swiss bank to RBSI and an alleged shortfall in the region of £630,000.  What was produced to me were extracts from bank accounts of the Swiss bank and an email from RBSI which the plaintiff relies on to show that monies are missing.  In my judgment, at this stage it cannot be said that monies are missing.  What was not produced to me were all the relevant records of the offshore companies including records of accounts of the Swiss bank or all relevant accounting entries of the offshore companies at RBSI.  While I understand why the plaintiff is asking questions as part of the account he seeks, the fact that he is currently unable to reconcile the information provided to him does not mean he is entitled to allege fraud as matters stand.  What he is entitled to, and what Advocate Cushing accepts, is discovery of all the relevant bank accounts.  To the extent he does not already possess the same, this will enable him to analyse whether in fact monies are missing.  It was partly for these reasons that at the conclusion of the application I ordered discovery to be provided so that the plaintiff could analysis the statements to find answers to the questions he has posed.  What follows from such analysis may be an issue for another occasion. 

Conclusion

30.      In conclusion, none of the matters raised by the plaintiff in my judgment, based on the information presented to me amount to arguable cases of fraud or dol.  Accordingly, I struck out those parts of the order of justice containing allegations of breach of trust because no exemption falling within Article 57(1)(a) of the Trust (Jersey) Law 1984 could be established by the plaintiff. 

31.      As a consequence I gave directions for discovery.  

Authorities

Trust (Jersey) Law 1984.

Classic Herd Limited v JMMB [2014] JRC 127.

Classic Herd-v-JMMB [2014] JRC 217.

AG-v-Foster [1992] JLR 6.

Bhojwani v AG [2010] JLR 78.

West v Lazards Bros & Co Jersey Limited [1993] JLR 165.

Midland Bank Trust Company (Jersey) Limited, Established Committee and Day v Federated Pension Services [1994] JLR 276.

Midland Bank v Federated Pension Services [1995] JLR 352.