Trust. re: settlement agreement.
Before : |
Sir Michael Birt, Commissioner, and Jurats Dulake and Austin-Vautier. |
Between |
Vistra Trust Company (Jersey) Limited |
Representor |
And |
1-8 [The 8 Adult Beneficiaries] |
Respondents |
|
9 Advocate Steven Chiddicks (as Representative of the Unborn Beneficiaries) |
|
IN THE MATTER OF THE H TRUST
Advocate C. J. Swart for the Representor.
The First to Eighth Respondents were not present or represented.
Advocate S. M. J. Chiddicks in Person.
Judgment
the COMMISSIONER:
1. This is an application by Vistra Trust Company (Jersey) Limited ("the Trustee") as trustee of a settlement known as the H Trust ("the Trust") for blessing of a momentous decision, namely to enter into a settlement agreement ("the Settlement Agreement") to compromise certain proceedings which have been brought against the Trustee in Sweden. We gave our approval at the conclusion of the hearing and now give the reasons for our decision.
2. The background is as follows. The Trust was established on 2nd June, 2016 by Mrs J ("the Settlor"). She was a widow and had inherited many of the assets which she contributed to the Trust from her husband.
3. The Settlor had one biological child, ("R"). He in turn has four adult children ("R's children"). The Settlor's husband had two children by his previous marriage, namely ("T") and ("U"). The latter has twin adult children ("U's children").
4. The Trust is a conventional discretionary trust governed by Jersey law. The schedule to the Trust names nine beneficiaries, namely the Settlor, R's children, T, U and U's children. Apart from the nine named beneficiaries, the class includes "the issue of the Beneficiaries named at 1-9 above".
5. The Representation, the affidavit on behalf of the Trustee in support and the skeleton argument of Advocate Swart all asserted that R is not a beneficiary of the Trust, and this seems to have been the basis upon which all parties have proceeded. However, during the hearing, it became clear that this was wrong. The Settlor is one of the nine named beneficiaries in the trust deed and, as mentioned in the preceding paragraph, the class of beneficiaries includes the issue of any named beneficiary. R is the issue of the Settlor and is accordingly a beneficiary within that description even though he is not a named beneficiary. We discuss later the relevance of this error.
6. The Settlor resided in Sweden and died on 1st October, 2017. As her sole child, R is entitled to claim 50% of her estate. Under Swedish law, R also has the right to claw back into the estate any assets transferred by the Settlor prior to her death to the extent that such transfers were undertaken with the sole purpose of circumventing R's statutory share. He has instituted proceedings in Sweden against the Trustee seeking to claw back substantial assets transferred to the Trust by the Settlor before her death.
7. Although the Trustee has not submitted to the jurisdiction of the Swedish courts, many of the assets of the Trust comprise real property in Sweden owned by companies which are in turn owned by the Trust. It is considered therefore that such assets may be vulnerable to enforcement in satisfaction of any judgment of the Swedish court which might be given in R's favour in relation to his claim.
8. The Trustee has reached a compromise with R and with the administrator of the Settlor's estate which is contained in the Settlement Agreement produced to the Court. The Settlement Agreement contains releases by R and the administrator of any claims against the Trust in exchange for:-
(i) payment of SEK 10 million to the estate; and
(ii) the Trustee assuming responsibility for settlement of a debt owed by the estate to Credit Suisse in the sum of €7,719,746. This debt was incurred by the Settlor during her life and was secured by a policy on her life. In circumstances which are not entirely clear, following the Settlor's death the proceeds of the life policy were paid to a company owned by the Trust rather than to the estate. The consequence is that the estate still owes the debt to Credit Suisse but has not received the proceeds of the life policy necessary to pay off that debt.
9. The ultimate effect of the Settlement Agreement is that, after payment of the SEK 10m and settlement of the Credit Suisse debt, the Trust will be left with all its real property assets and cash which it held already, together with a balance from the proceeds of the life policy in the sum of €126,751, being the excess of the value of the proceeds of the life policy over the amount owed to Credit Suisse.
10. The Trustee has taken legal advice from the Swedish lawyers it has instructed in connection with R's claim. We do not think it necessary to recite the details of that advice. Suffice it to say that the lawyers advise that the Settlement Agreement is advantageous to the Trust compared with the alternative course of contesting R's claim, which would result in lengthy litigation. The advice from the lawyers is supported by advice from the protector of the Trust, who is also a Swedish lawyer and who has been involved with the family and the Trust for many years.
11. The eight remaining named beneficiaries, namely R's children, T, U and U's children, have been convened. Although T and U have made observations about the circumstances in which assets deriving originally from their father's wealth were inherited by the Settlor and then contributed to the Trust, they support the Settlement Agreement, as have all the remaining beneficiaries save for one of Rs children, who has not expressed a view. He is, however, himself a party to the Settlement Agreement as he is a beneficiary under the Settlor's will.
12. The test for this Court, when considering whether to approve a momentous decision of a trustee, is well-established. As set out in Re S Settlement [2001] JLR Note 37 and confirmed by the Court of Appeal in Re Otto Poon Trust [2015] JCA 109, the Court must satisfy itself that:
(i) the trustee's decision has been formed in good faith,
(ii) the decision is one which a reasonable trustee properly instructed could have reached, and
(iii) the decision has not been vitiated by any actual or potential conflict of interest.
13. There is no suggestion in this case that the Trustee's decision has not been formed in good faith or that there is any actual or potential conflict of interest. It follows that the sole question for this Court is whether the decision to enter the Settlement Agreement is one which a reasonable trustee properly instructed could have reached.
14. In our judgment, subject to consideration of the three matters mentioned below, the Trustee's decision to settle the claim of R and the administrator by entering into the Settlement Agreement is clearly a reasonable one which should be approved. It is supported by the Trustees' legal advice and by all but one of the beneficiaries. It was also supported by Advocate Chiddicks in his submissions to us. However, three matters emerged in the course of the hearing on which we should comment.
15. First, the skeleton argument and the affidavit on behalf of the Trustee contain a comparison of the present value of the Trust with its value after giving effect to the Settlement Agreement. However, that comparison gives a misleading impression of the present value because it includes the Credit Suisse debt as a liability of the Trust. Whilst, given that the proceeds of the life policy intended to secure the Credit Suisse debt were paid to a company owned by the Trust rather than to the estate, it is certainly arguable that the Trust should in fairness settle the Credit Suisse debt, this is not the prima facie legal position because the debt is owed by the estate. It was therefore somewhat misleading to include the Credit Suisse debt as a present obligation of the Trust without further explanation of the position. However, the correct position is apparent from the rest of the papers.
16. Secondly, as noted above, the case was presented to us on the basis that R was not a beneficiary of the Trust. As stated above, this is incorrect. It follows that the Court was misinformed of the position when the Representation was originally presented and the Court was deciding who should be convened. As a beneficiary, R might have expected to be convened. However, we do not see that any unfairness has arisen as a result of this error. R is the opposing party in the litigation and is the counter-party in the Settlement Agreement. Thus, even if informed of the true position, the Court might well have decided not to convene R or, alternatively, to have convened him but ordered that he be provided only with very limited material so as not to compromise the position of the Trust should the litigation continue. R is clearly aware of the position because he has agreed the Settlement Agreement on his own behalf. Accordingly, we do not see that the error over R's position as a beneficiary is any reason not to approve the decision to enter into the Settlement Agreement; but the error should not have occurred.
17. Thirdly, Advocate Swart informed us during the hearing that there was a possible question mark over the enforceability of the Credit Suisse debt. He referred to a letter dated 21st November, 2019 from the Swedish lawyer acting for R which contained a sentence "Credit Suisse is not collecting the debt for reasons that may have to do with the recent development concerning EU legislation". The lawyer gave no further explanation and the Trustee is not aware of any reason for thinking that the Credit Suisse debt is not enforceable. However, it was clear that no consideration had been given to the matter and the observation in the lawyer's letter had not been followed up. Accordingly, having taken instructions from the Trustee representative in Court, Advocate Swart gave an assurance on behalf of the Trustee that, before it paid the Credit Suisse debt pursuant to the Settlement Agreement, it would satisfy itself that the debt was an enforceable debt which was properly due and payable by the estate (or by the Trust or any company owned by the Trust). On the basis of that assurance, we were content to approve the decision to enter into the Settlement Agreement. Apart from the somewhat delphic sentence in the letter from the Swedish lawyer, there was no reason to question the existence and enforceability of the Credit Suisse debt. If it is properly due and payable by the estate, it should be paid pursuant to the Settlement Agreement; but the Trustee must make reasonable investigations first in order to see whether there is any reason to conclude that the Credit Suisse debt is not properly payable.
18. In summary, for the reasons which we have given, the Court approved the Trustee's decision to enter into the Settlement Agreement.
Authorities