Trust - reasons for directing the Trustee to proceed with its application
Before : |
J. A. Clyde-Smith O.B.E., Commissioner, and Jurats Olsen and Dulake |
Between |
Oak Trustees (Jersey) Limited |
Representor |
And |
A |
First Respondent |
And |
B |
Second Respondent |
And |
C |
Third Respondent |
And |
D |
Fourth Respondent |
IN THE MATTER OF THE REPRESENTATION OF OAK TRUSTEES (JERSEY) LIMITED
AND IN THE MATTER OF THE X TRUST
Advocate B. J. Lincoln for the Representor.
Advocate B. H. Lacey for the First and Second Respondents.
Advocate A. Kistler for the Third and Fourth Respondents.
judgment on preliminary issue
the COMMISSIONER:
1. The Court sat on 20th November, 2019, to consider a preliminary issue that has arisen in connection with an application that the representor (which we will refer to as "the Trustee") intends bringing for the Court to bless a decision it has made as to who should benefit from the X Trust ("the Trust"). The preliminary issue is whether or not it should await the outcome of certain proceedings currently on foot in Country 1 before proceeding with its application.
2. The Trust is a discretionary trust established by a unilateral declaration of trust on 13th March, 1989 by Chrisalis Trustees Limited as the original trustee. The Trust is governed by Jersey law. The original beneficiaries of the Trust were the World Wildlife Fund International and the International Red Cross.
3. Various additions to the trust property have been made over the years, and as at the date of the Trustee's representation, the assets of the Trust comprised cash and properties held through companies owned by the Trust, with a value, we were informed, of between £20 million and £25 million, which includes some £10 million in cash. The properties are all situated in the Country 2.
4. By deed of addition dated 30th August 1996, three brothers, namely E, the first respondent ("A") and the second respondent ("B"), were added as beneficiaries of the Trust.
5. By deed of addition and removal dated 17th April, 2012, the original beneficiaries of the Trust were excluded from the beneficial class, and the third respondent ("C"), who is E's son, was added to the beneficial class. By the same deed, the beneficiaries were then divided into four classes in order to identify who the successor beneficiaries of the Trust would be upon the death of each of the three brothers and C.
6. E was the eldest of the three brothers, and shortly after the creation of the Trust, he signed a letter of wishes dated 28th April, 1989, saying that he would provide guidance from time to time to the trustee as to how it should run the Trust, but that after his death, the trustee should consult B and A, and should both of them die before him, then they should consult his son C and any other male descendants of E and his brothers who were over 30 years of age. The trustee was asked to take out life insurance policies on the lives of himself and his two brothers.
7. Between February 2012 and E's death in October 2014, after some 23 years of the Trust being administered on the basis that the three brothers were the intended beneficiaries, the Trustee received a number of letters of wishes from E and correspondence from A and B. E indicated to the Trustee that he regarded the trust property as being derived from his personal wealth and it should therefore be for the benefit of his family line alone. In E's final letter of wishes, he requested the Trustee effectively to extinguish A and B's interest in the Trust, by reducing their respective shares in the total trust fund to 0.00001% each. In contrast, A and B in their jointly signed letter of wishes to the Trustee dated 19th October, 2015, made it clear that they regarded the trust assets as being for the benefit of the three brothers and their respective family lines in equal shares.
8. After E's death, C maintained the position taken by his late father, namely that the trust property was derived from his father's personal wealth and should be for the benefit of his family line alone. A and B maintained their position that the Trust was for the benefit of the three brothers and their respective family lines in equal shares. As a consequence of the directly conflicting views of the beneficiaries, the Trustee undertook a period of investigation and consultation with the beneficiaries in order to allow it to determine the basis upon which it should administer the trust assets. This was led by Mr Christopher McFadyen, who at the time was a director of the Trustee, but he has since retired. Mr McFadyen produced a written report ("the McFadyen Report") which was provided by the Trustee to the beneficiaries by way of consultation with them and in order to enable them to provide comments and input.
9. On 10th October 2018, the board of the Trustee met to consider both the McFadyen Report and the information received from the beneficiaries during the consultation process and reached a preliminary decision that the Trust should be administered on the basis that the trust assets should be apportioned as to one third to B, one third to A and one third as to the fourth respondent who is E's widow ("D") and C, subject to adjustment to take into account benefits already received. In view of the issues between the beneficiaries, it is the Trustee's intention to seek the blessing of the Court for its decision.
10. The McFadyen Report explains that the family are Hindus who originated from India, but who moved to the east coast of Africa at some point in the 20th century. E, who was considerably older than his brothers, lived and worked in building a successful business in Country 1 as did A and C. B lived and worked in Country 2. The McFadyen Report states that the family suffered badly under the "Great Exodus" in Uganda, when Idi Amin expelled the Indian nationals and confiscated their businesses and lands. They had similar problems in Country 3. As a result, they were concerned to have a safe haven in case of further political problems and, as they held Country 2 passports, the Trust was established to invest in property in Country 2. We would interpose to note that C may well contest this account of the intentions behind the establishment of the Trust. According to the McFadyen Report, relations between E on the one hand and A and B on the other hand deteriorated in 2011, hence the change in the wishes expressed by E to the Trustee from 2012.
11. In April 2014, A and B commenced proceedings in Country 1 against E, D and C, essentially seeking a declaration that the three brothers are the joint and equal beneficial owners of what is described in the plaint as "the family wealth, properties, assets and businesses handed down from bequests by their parents and grown and expanded as per the Agreement of 1988 wherever they are situated", but their claim is concerned essentially with a number of companies in Country 1. It is common ground that the Trust and its assets are not in issue in the Country 1 proceedings. Neither does the Trust hold any Country 1 sited assets.
12. A and B aver in the Country 1 proceedings that their claim to an equal interest in these Country 1 based assets accords with Hindu tradition and custom and that E, as the elder brother, would hold family assets in trust or as a "benamidar" for his younger siblings. The 1988 Agreement is a hand-written document purportedly signed by all three brothers, in which they agree, inter alia, to preserve and expand the wealth, business empire and property for the family.
13. C, in his defence to the Country 1 based proceedings, denies that these Hindu principles have any application to the assets in dispute, which he asserts were E's beneficially. Similarly, in his dealings with the Trustee, he asserts that the assets settled into the Trust were E's beneficially, and E was quite entitled, therefore, to change his wishes as expressed to the Trustee. He maintains that the 1988 Agreement is a forgery.
14. The trial of the Country 1 based proceedings was due to take place on 1st November 2018, but the day before the hearing, A and B applied to amend their plaint and the judgment on that application has yet to be delivered. Both sides blame each other for delays in the Country 1 based proceedings and differ in their estimate of when those proceedings will be finally determined.
15. Although the Trustee is not a party to the Country 1 based proceedings, it is the view of C that the outcome of the Country 1 based proceedings will need to be taken into account by the Trustee in relation to its decision as to the apportionment of the trust assets, and therefore that the Trustee should not take any decision in that regard until the Country 1 based proceedings are concluded. A and B take the opposite view. The Trustee, for its part, recognises that there are arguments both ways. In reaching its own decision as to how the trust assets should be apportioned, the Trustee did consider some areas which also feature in the Country 1 based proceedings, including:
(i) the authenticity of the 1988 Agreement;
(ii) the origins of the family wealth;
(iii) E's role in dealing with the family assets, and how the family has structured its affairs generally; and
(iv) E's behaviour, and more generally, his capacity post 2012 in executing the letters of wishes.
16. The Trustee, we think fairly, has summarised the position of the respondents. Taking first C, his position is that:
(i) the validity of the 1988 Agreement is relied upon in support of the claims in both Jersey and Country 1;
(ii) the question about the ownership of the companies in the Country 1 based proceedings is linked to the issues in Jersey, because he says the Trust was partly funded from monies derived from these companies;
(iii) both the Country 1 based proceedings and any blessing application will need to deal with the issue of whether E was acting alone in managing the family wealth or in accordance with the principles of Karta and Hindu United Family and therefore managing the family wealth on behalf of the three brothers; and
(iv) The issue of E's health and capacity is something that is in issue and relevant in both the Country 1 based proceedings and to the Trustee's decision. In particular, C is of the view that any finding in respect of E's capacity is relevant in relation to any assessment of the weight that could be attributed to the changes to E's letters of wishes over time.
17. A and B's position is that:
(i) the authenticity of the 1988 Agreement is informative, not determinative; not only does it pre-date the formation of the Trust, but much greater reliance was placed by the Trustee on the various trust instruments and therefore an adverse finding in respect of the 1988 Agreement would not significantly alter the Trustee's final position in respect of the allocation of the trust assets;
(ii) the family companies under consideration in the Country 1 based proceedings are not relevant to matters in Jersey as they are not in any way owned by, or connected to, the Trust;
(iii) there is overwhelming evidence available which confirms that the Trust was to benefit all three of the brothers and their families, and not just E and his family alone, and therefore that any contentions to the contrary are unsupported by evidence and cannot be maintained. Furthermore, whatever the outcome of the applicability of Karta in the Country 1 based proceedings, it cannot alter the facts of any of the documents which specifically name and/or refer to A and B as beneficiaries of the Trust; and
(iv) E's capacity and behaviour is not a relevant issue and would have no relevance to the Trust post creation or in its subsequent operation. Furthermore, no evidence has been produced either to the Trustee or in the Country 1 based proceedings to show that E lacked capacity at any juncture, specifically, when signing the letter of wishes in 1989.
18. The Trustee's view is that there is an apparent overlap between certain issues in the Country 1 based proceedings and the matters that may be relevant to its decision in relation to the Trust, but the overlap in itself may not necessarily be reason enough to postpone the blessing application. It recognises that if it were to proceed with the blessing application ahead of the conclusions of the Country 1 based proceedings, there may be a risk that the rationale behind the blessing application could be called into question once the Country 1 based proceedings have been concluded if, for example, the court in Country 1 reached a different conclusion on factual issues upon which the Trustee had taken a particular view in coming to its decision. However, unless or until the blessing application is determined, the Trustee does not feel able to apply the trust assets for the benefit of the beneficiaries and is hampered in taking other decisions in respect of the Trust.
19. In terms of the administration of the trust assets, the position of the Trustee is:
(i) There are significant assets within the Trust, and the extent to which the Trustee is able to apply those for the benefit of the beneficiaries is restricted by the current issues.
(ii) The issues are also hindering the Trustee's ability to make relevant decisions regarding the investment of the trust assets. By way of specific example, the Trustee currently holds some £10 million in cash, which it has been holding pending a final decision on the allocation of the trust assets. It would be preferable for the Trustee to be able to invest that money. In addition, the Trustee also holds a significant amount of property in the structure and it is difficult for the Trustee to move forward with the substantive management of these properties without input and cooperation from the beneficiaries.
(iii) Whilst the Trustee continues to administer the trust assets on a day to day basis, significant decisions in relation to the investment and management of these assets can only be sensibly made once the Trustee has certainty over how and for whom the trust assets are to be held and administered going forward, given the issue of appropriate investment is inextricably linked to the beneficiaries' needs and wishes and how quickly investments might need to be liquidated.
20. The Trustee, again we think fairly, has summarised the position of the beneficiaries on the issue of the administration of the Trust. Taking first C, it summarises his position to be:
(i) that the Trustee's concerns about its ability to apply the assets within the Trust for the benefit of the beneficiaries without a resolution of this matter is unfounded. None of the beneficiaries is in need of any funds. Both A and B live comfortable lifestyles, and are not therefore in any need of distributions or assets from the Trust;
(ii) that the Trustee's concerns in respect of the current issues hindering its ability to make a relevant decision regarding the investment of the Trust assets are unwarranted. The Trustee has power to make investments regardless of the issues in dispute between the beneficiaries.
21. The Trustee summarises the position of A and B to be:
(i) that as long as the Trustee's blessing application remains outstanding, due to the frozen state of the trust assets, they will be unable to benefit from the Trust and therefore to access their "share" of the trust fund;
(ii) that not being able to benefit from the Trust is preventing them from providing for and supporting their families in accordance with their wishes; and
(iii) that their inability meaningfully to express any of their wishes to the Trustee in respect of how they might like their respective shares in the trust fund to be managed has meant that opportunities to adjust investments have been lost, as a result of which the trust fund is not worth as much as it could have been.
22. In their written and oral submissions, Advocate Kistler, for C, and Advocate Lacey, for A and B, expanded upon the position of their respective clients as set out above and the Court has taken their detailed submissions into account. Their submissions inevitably encroached upon the issue that would be before the Court when it is asked to bless the decision of the Trustee.
23. Advocate Kistler submitted that the key question for the Court was whether the Trustee's final decision over the trust fund and the application for the blessing should await what he described as the "imminent" determination by the court of Country 1 these central and fundamental issues. Three questions flowed, he said, from this:
(i) does the Court accept the Trustee's view that there is substantial overlap between the proceedings in Country 1 and a blessing application by the Trustee?
(ii) is the court in Country 1 in a position to reach a more accurate and just determination than this Court could?
(iii) if the answer to questions (i) and (ii) is in the affirmative, are there compelling reasons why the Trustee should nevertheless proceed with its application for a blessing in advance of the outcome of the Country 1 based proceedings?
24. Advocate Kistler informed us that the value of the assets which are the subject of the proceedings in Country 1 was far greater than any of the assets within the Trust and there was no point, he said, in parallel proceedings in which the Jersey tail would wag the dog. The bigger fight was in Country 1. Whilst the trust assets are not before the courts in Country 1, he was concerned that in the Country 1 based proceedings A and B were relying in part on the decision of the Trustee that the trust assets should be divided equally between the brothers in support of their claim to the Country 1 sited assets.
25. Advocate Lacey referred, in particular, to the amended plaint and supplementary list of documents filed in the Country 1 based proceedings, saying that the Country 1 based proceedings had become complex, with allegations of dishonesty, fraud and forgery being made by, which did not augur well for an "imminent" decision from the court in Country 1.
26. The Court concludes that the application to bless the decision of the Trustee should not await the outcome of the Country 1 proceedings.
27. C was of the view that, if the application by A and B in the Country 1 based proceedings to amend their plaint was refused, the trial could start in February/March 2020, with a judgment expected in September/October 2020. If their application was successful, he anticipated that the timetable could be extended by three to four months.
28. A said he had been advised that the Country 1 based proceedings could take another two years at least. After any first instance decision of the High Court in Country 1, there would then be the possibility of appeals, first to the Court of Appeal, and potentially to the Supreme Court in Country 1. A points out that he is now 64, and B 67, whereas C is only 53. He says there is a real risk of him and his brother never being able to benefit from the Trust during their lifetimes.
29. The Court is not able to reach any conclusion on the competing assessments of the time the proceedings in Country 1 will take, other than to say that it is probably not accurate to refer to the trial before the High Court in Country 1 as "imminent". In our view, there is every possibility that the Country 1 based proceedings will take years to reach a final decision, during which time we think that the good administration of the Trust would be adversely affected if the Trustee's blessing application was deferred.
30. It is well established that there is a need for those beneficially interested in a trust to be able to work in harmony with a trustee (see Letterstedt v Broers [1884] 9 App Cas 371 at 386 and 387), but that pre-supposes that the trustee knows who is beneficially interested. In this case, it is either E's family who are interested in the entirety of the trust fund, pursuant to E's later wishes, or it is the families of all three brothers equally, and we are not persuaded by Advocate Kistler's argument that the Trustee can invest the trust fund, certainly in the long term, without knowing which of these opposing camps the trust fund is being held for. Yes, the Trustee has the power to make investments in the short term, but that power can only sensibly be exercised in the long term having consulted with those who are intended to benefit. It would seem that from an investment perspective, the Trust has already been in limbo since at least 2014, when the proceedings in Country 1 commenced.
31. Nor are we persuaded that A and B are not in need of distributions. We have no evidence as to their means, or the means of their families, but the whole purpose of a trust such as this is to provide benefits and the Trustee's dispositive powers are effectively suspended until it knows who it is intended should benefit. Any distribution in advance of that issue being resolved would most likely be challenged as a breach of trust. Say, for example, that B were to die, the Trustee may be faced with an urgent application for funds from his widow, which it would be unable currently to entertain, certainly without court protection.
32. A further argument against awaiting the final outcome of the proceedings in Country 1 is that they will not determine the key issues faced by the Trust, because those issues are not before the court in Country 1. In particular:
(i) The Country 1 based proceedings will not determine E's intention when the Trust was established, irrespective of whether he was or was not acting as Karta in relation to the assets in Country 1, as that is not an issue before the court in Country 1.
(ii) Whilst the proceedings in Country 1 may determine the origin of the family wealth in dispute in Country 1, they will not determine the origin of the funds settled into the Trust, as that is not an issue before the court in Country 1.
(iii) Whilst the court in Country 1 may determine how E may have dealt with the assets in Country 1, that will not determine his role in establishing the Trust, as once again that is not an issue before the court in Country 1.
33. So whilst there is an element of overlap, as identified by the Trustee, it relates to the background and whilst any findings of the court in Country 1 may well be of interest, such findings do not go to and are not determinative of the key issues for the Trust.
34. It is true that in an application to bless the decision of the Trustee, the Court would not ordinarily determine disputed issues of fact, whereas the court in Country 1 will determine the disputed issues of fact before it. However, if the Court in Jersey decides that there are issues of fact that need to be determined before the Trustee's decision can be blessed, then it is perfectly able to have those issues determined before it. Those would, of course, be issues of fact which the Jersey Court would have decided are directly relevant to the Trust.
35. We acknowledge that the court in Country 1 may make findings as to E's capacity, post 2012, but we note that Ms Ita Belinda O'Sullivan, a director of the Trustee, says in her second affidavit at paragraph 9, that the Trustee did not have regard to E's mental capacity when considering what weight to accord to his various letters of wishes. It regarded the weight to be accorded to those letters to be a function of the capacity in which E was acting in relation to the Trust, specifically in terms of whether he was acting in his own personal capacity dealing with his own funds, or acting as effective custodian on behalf of the family.
36. A further factor to be borne in mind in this case is the work that the Trustee had undertaken to resolve this issue, with the production of the McFadyen Report, a process in which the beneficiaries have all been involved. We are informed that the Trustee's costs relating to the preparation of this report, its consideration and the decision amount to some £172,000. The Trustee appears, therefore, to have reached a conclusion on this issue after careful investigation and at considerable cost to the trust estate, and the onus should be upon C to argue why that decision should not be blessed. If C seeks to challenge any fact upon which the Trustee's decision has been based, and the Court concludes that issue needs to be determined before the decision can be blessed, then it can order the same to be determined with the burden of proof, presumably (although this will be a matter for the Court at the time), being upon C as the challenging party, no doubt on the basis that he will be subject to the usual risk as to costs. The Court would have found, of course, that factual issue to be directly relevant to the Trust.
37. Thus addressing the questions put forward by Advocate Kistler, whilst we accept that there is an element of overlap as to the background between the proceedings in Country 1 and a blessing application to this Court, the proceedings in Country 1 do not address the key issues for the Trust. Whatever findings the court in Country 1 reaches on the issues before it, those findings will not resolve the issues for the Trust. If we await the final determination of the Country 1 based proceedings, which could take years, the issues for the Trust will remain unresolved, giving rise to yet further delay, during which time the affairs of the Trust will effectively be held in abeyance. As to the second question, we do not accept that the court in Country 1 is in a better position to resolve issues of fact found by this Court to be directly relevant to the affairs of the Trust. As to the third question there are in our view compelling reasons for the blessing application to proceed, namely so that the administration of the Trust can be put on a proper footing as soon as possible.
38. Accordingly, for all these reasons, we direct the Trustee to proceed with its application to have its decision blessed.
Authorities
Letterstedt v Broers [1884] 9 App Cas 371