Jersey Unreported Judgments

Trust.

[2023]JRC087

Royal Court

(Samedi)

2 June 2023

Before     :

Sir William Bailhache, and Jurats Ronge and Austin-Vautier

 

IN THE MATTER OF THE REPRESENTATION OF OCORIAN PRIVATE TRUSTEES (JERSEY) LIMITED AND OCORIAN LIMITED

 

AND IN THE MATTER OF THE Y TRUST, THE W TRUST, THE V TRUST AND THE U TRUST

 

AND IN THE MATTER OF ARTICLES 47, 51 AND 53 OF THE TRUSTS (JERSEY) LAW 1984 (AS AMENDED)

Advocate N. M. C. Santos-Costa for the Representors

Advocate D. Le Maistre for the First Respondent

Advocate H. Sharp KC for the Second Respondent

Advocate H. B. Mistry for the Third Respondent

Advocate S. C. Thomas for the Fourth Respondent

The Fifth Respondent did not appear

judgment

private

the commissioner:

1.        This is an interim judgment in respect of an application by the Representors (the "Trustees"), as trustees of ("the Y Trust"), (the "W Trust"), (the "V Trust"), and ("U Trust") together the ("T Family Trusts").  In their Representation, presented to the Court on 14 October 2022, the Trustees sought the Court's approval or blessing of what has come to be described as a Revised Distribution Plan by which all the assets of the different Trusts would be appointed out of those Trusts among the first four Respondents, with an additional provision for the divorced second wife of the Settlor, who would be added to the Y Trust solely for the purposes of receiving a benefit of £200,000 and would thereafter be excluded.

2.        The Court sat in private, albeit the judgment was expected to be published but anonymised. 

3.        The hearing took place on 17 and the morning of 18 May.  The Court had heard from the Trustees and from counsel for the First, Second, and, in part, the Third Respondents at the time the adjournment was ordered.  The reasons for the adjournment, despite the Third Respondent not having completed her submissions and despite the Court not having heard from the Fourth Respondent, will become apparent below.

4.        The Court was invited to follow an established line of authority in relation to blessing applications of this kind - in Re S Settlement [2001] JRC 154, Re Otto Poon Trust [2015] JCA 109 and, more recently, In Re HSBC Trustees (CI) Limited [2023] JRC 006.  We have applied the established principles from those cases.

5.        The Revised Distribution Plan which the Trustees sought to have blessed has been superseded by what has been described as the final distribution plan (the " Final Distribution Plan"), albeit the pleading has not been amended.  All parties have agreed to proceed on the basis that the decision of the Trustees to approve the Final Distribution Plan was the relevant decision in respect of which the Court's blessing was sought.  Skeleton arguments were filed by all the parties.  The Guardian Ad Litem, Advocate Renouf, broadly supported the approach of the Trustees, although he formally rested on the wisdom of the Court in that respect.  Because he had no contrary submissions to make, the Fifth Respondent sought, and was granted, leave not to appear but to remain on call.

6.        The T Trusts were all settled by the late ("F") (the "Settlor"), and they are all now governed by Jersey law.  The first four Respondents are the Settlor's adult children, the first three Respondents from his first marriage and the Fourth Respondent from his second marriage to ("G").  The Settlor died in December 2020, but we are told that he was firm in his wish that his children should benefit equally from the T Trusts.  By his Will, the Settlor left his residuary estate to the Y Trust: but as he died domiciled in Country 1, and Country 1 law allows for a similar forced heirship claim as might be brought in Jersey under the légitime principles, there has been a delay in the transfer of the residuary estate to the Y Trust.  The Second Respondent is the executor or administrator of the last Will of the Settlor and, unless some arrangements can be made for ensuring that she is protected against forced heirship claims, she will be unwilling to perform the Will and transmit the net residuary estate to the Trustees of the Y Trust.  As that transfer is fundamental to the Final Distribution Plan, it did not appear to the Court that we could endorse that Plan unless we were confident that the residuary estate would be so transferred.

7.        In that context, there was an exchange of views with counsel representing the first four Respondents.  Advocate Sharp KC had produced a draft indemnity and waiver document which the Trustees and the Second Respondent's siblings were asked to sign.  There was no agreement to the terms of that document.  It seems to us that it ought to be possible for some language to be agreed in this respect.  All the Respondents accept that:

(i)        they will individually be much worse off if the transfer of the residuary estate to the Y Trust does not take place;

(ii)       they will not bring a forced heirship claim against the Second Respondent in Country 1, subject to (iii) below;

(iii)      the Second Respondent, as administrator of the Settlor's estate, performs her functions in accordance with the law by transferring the entire net residuary estate to the Y Trust; and

(iv)      none of the First, Third or Fourth Respondents is aware currently of any circumstances which would give rise to a claim for a breach of a warranty by the Second Respondent that what she is transferring to the Y Trust represents everything which is due.

8.        We recognise that it is agreed that as a matter of Country 1 law, the Second Respondent is not entitled to any such indemnity; but for our part we do not think it is at all improper for her to seek it.  Advocate Mistry, on behalf of the Third Respondent, made it plain that there were three different areas in which claims could be brought against the Second Respondent - for misfeasance as his attorney during their late father's lifetime, for a failure to deliver the entirety of the residuary estate in accordance with the terms of the Will and, finally, for negligence or maladministration of the estate while it was in her possession.  He had no factual basis for asserting that any of these claims could be brought, but his client's unwillingness to abandon the claims could be seen as readily supporting a desire on the part of the Second Respondent for an indemnity.  It appears to us that the right compromise might well be a document which encompasses the four broad statements set out at paragraph 7 and a warranty given by the Second Respondent that she has, as administrator, performed her duties, on the basis that any claim for breach of warranty must be instituted within twelve or eighteen months of the date of the Deed.

9.        As we put it to the four Respondents, it is not the Court's function to direct any of them to enter such a Deed.  It is a matter of commercial choice, but, given the very large measure of agreement and the damage which a failure to accept arrangements for the transfer of the residuary estate to the Y Trust would cause to each of them, it would be extraordinary if an appropriate document cannot be drawn up to meet such respective concerns as there are. 

The Trustees' position

10.      The Trustees had taken a decision to distribute all the assets of the T Trusts through the Final Distribution Plan.  It was that decision which the Trustees asked the Court to bless, and in doing so they made it plain that they did not surrender their discretion to the Court.  Accordingly, following Re S and other authorities, Advocate Santos-Costa contended that:

(i)        the Trustees had formed their opinion in good faith;

(ii)       the decision which the Trustees had reached was one which a reasonable trustee, properly instructed, could have reached; and

(iii)      there was no conflict or potential conflict of interest which had or might have affected the decision of the Trustees.

The First Respondent's position

11.      The First Respondent agreed to accept the Revised Distribution Plan.  However, she had a number of criticisms to make of the Final Distribution Plan, and for the purposes of this interim judgment, the essential criticism was that the Trustees were wrong to have departed in the Final Distribution Plan from a decision which they had taken in the Revised Distribution Plan to reduce her share of the Trust assets by approximately a quarter of a million pounds through what has been described as the French write off, details of which appear below.

The Second Respondent's position

12.      The Second Respondent accepted that the Trustees were correct to take the decision that they had in relation to the French write off, and therefore the Final Distribution Plan was an improvement on the Revised Distribution Plan as far as that went.  However, in practical terms the criticism was raised that the intended Distributions to the Second Respondent had not in fact been increased by the sum to which she should be entitled.  Advocate Sharp KC spent some time with us explaining how he could not understand the figures which the Trustees had put before us in this respect, and his Skeleton argument indeed contained these paragraphs:

"24.     One cannot help but be concerned by the lack of clarity and underlying explanation about these figures which are not reconcilable with the admissions made by the Trustees in [the fourth affidavit of the Trustees], far less the evidence set out in ["C"'s] affidavit.

25.      The Court is respectfully invited to put a line through the benefit figure attributable to [C] in respect of the French write off and / or otherwise reject these aspects of the Trustees' Plans."

The Third Respondent

13.      The Third Respondent also contended that the figures in the Final Distribution Plan were far from clear.  The Third Respondent objected to the Trustees' about turn on the French write off and objected to the extent of costs which had been incurred by the Trustees in relation to the administration of the Trusts, and in particular the allocation of those costs to the Third Respondent.  Accordingly, the Third Respondent challenged the decisions of the Trustees regarding the Final Distribution Plan, not on grounds of a lack of good faith or conflict of interest, but on the basis of reasonableness.

The Fourth Respondent

14.      In his Skeleton Argument on behalf of the Fourth Respondent, Advocate Thomas indicated that his client was broadly supportive of the application.  The main issue of contention was the structure by which the Fourth Respondent was to receive his share of the Distributions.  His position was made plain in this respect at paragraph 11 of the Skeleton:

"["E"] is not proposing that the Court re-write the Trustees' Revised Distribution Plan.  [E') objection is to the mechanism by which Ocorian proposes to allocate assets to him.  That aspect of Ocorian's decision is obviously severable from the core issue in this hearing, which is to give Ocorian the comfort it seeks in having a blessing of its overarching decision to terminate the Trusts and to allocate the assets between the beneficiaries as it has proposed."

15.      It is apparent, therefore, that the Fourth Respondent did not challenge the French write off, and indeed he has expressed no interest in it.

The French write-off

16.      Midway through the submissions of Advocate Mistry, which had largely been focused upon the lack of clarity as he put it in relation to the figures the Trustees had produced, the Court indicated that it was not willing to bless the decision because of the treatment of the French write off which seemed to us to be wrong in principle.  In those circumstances, there seemed little point in hearing further detailed submissions on other matters.

17.      For the purposes of achieving an equitable split of the Trust assets, the Trustees, in accordance with the Settlor's letters of wishes, sought to equalise the benefits which the Settlor's four children receive from his bounty.  It might well have been preferable for an earlier equalisation exercise to have been carried out, which was last done in or about 2004.  The result is that today the equalisation process will leave some marked disparity between the amounts which the First to Fourth Respondents will receive.  In essence, the equalisation process works by the Trustees taking into account all gifts of any substance made to the first four Respondents since the last equalisation.

18.      In some cases the Trustees have made such gifts by loans either directly or through wholly owned companies to one or other of the Respondents.  In the process of winding up the Trusts, those loans would be forgiven and the amount of the loan treated as a gift.  All that seems to us to be perfectly appropriate in pursuing the equalisation exercise.

19.      The Second Respondent has deposed an affidavit to the effect that in 2005 she and the Third Respondent discussed together the possibility of a proposed move of residence from the Country 2 to Europe.  She says that the main reason for the move was that her sister's Country 2 immigration status had expired, and if she left Country 2 she would not be able to return for at least five years.  In consequence, she would be unable to travel for equestrian competitions where she hoped to compete to a very high standard.  The move was far from straightforward because the Third Respondent had over a hundred animals (including eighteen horses and at least seventy cats and ten dogs) which would have to be housed.  At all events, a property was found in Normandy in the proximity of [Redacted] (the "French Property") which seemed to fit the bill.  Normandy was seen as an expanding equestrian area and this particular property would form a good base for equestrian commercial activity and through the generation of rental income from its gîtes.  At that time, the Second Respondent was expressing an interest in a possible career in real estate. 

20.      The French Property was purchased for Euros 3,570,000 (£2,450,240 using the exchange rate at that time).  Advocate Santos-Costa told us that originally the Trustees were going to purchase the French Property in a structure owned by one of the Trusts.  It would be a Trust investment.  However, the Trustees obtained tax advice which suggested that this would be an inefficient way of acquiring the property and, as it turned out, the property was acquired by a French company, the shares of which were beneficially held by the Second Respondent as to 99%, and by the Third Respondent as to 1%.  The money for the purchase was provided by the Trustees as a loan to the Second Respondent.

21.      During the course of their ownership of the French Property (we use the term 'their' because it is slightly unclear as to where the beneficial ownership lay as between the Second and Third Respondents), there were various improvements carried out to it, both in terms of the equestrian activity and in terms of the.  These improvements again were funded by loans provided to the Second and Third Respondents by the Trustees. 

22.      Unfortunately, all did not work out as well as had been anticipated and it was decided that the French Property should be sold, which occurred in or about 2013.  The sale price was Euros 1,802,267 (net) (£1,504,398, using the exchange rate at that time).  The net proceeds of sale were ultimately paid to the Second Respondent reflecting her 99% shareholding in the company which owned the property.  There is no dispute that the extent of the loan reflecting the net proceeds of sale is to be treated as a benefit to the Second Respondent for the purposes of the equalisation process;  there remains the possibility of some dispute as to whether the loans made to the Second and Third Respondents for application within the French Property are also to be treated as benefits for them respectively and to be brought into account in the equalisation process.

23.      The area of contention concerns the loss.  That has been put by the Trustees at £945,842.  Advocate Sharp spent some time with us seeking clarity as to how that been calculated because, as he saw it, there was a discrepancy in the figures which had not been properly explained by the Trustees.  For the reasons which we will explain shortly, it does not seem to us that this matters.

24.      In the Initial Distribution Plan as circulated to the first Four Respondents as a consultation document in the summer of 2022, the Trustees had treated the benefit to the Second Respondent as the amount of the sale proceeds of the French Property; but had not included as her benefit the loss which had been sustained or indeed the other loans made in connection with that property.  Following representations received, the Trustees took a different approach (and it appears without any great consultation with the Second Respondent) in the Revised Distribution Plan - in this Plan the amount of benefit was calculated so as to include the loss and the other loans.  In the Final Distribution Plan, the Trustees reverted in part to the first approach and excluded the loss from the amount of the Second Respondent's benefit.  This was achieved by writing off the loan to the Second Respondent to the extent of the loss of £945,842 (the "French write-off").

25.      In our judgment, this approach is wrong in principle.  The justification advanced by Advocate Santos-Costa on behalf of the Trustees is that it was only for French tax reasons that the company owning the French Property was beneficially owned by the Second and Third Respondents.  Other than for those reasons, the Trustees would have owned the company in question themselves.  Accordingly, the loss should be split between all the beneficiaries.  Furthermore, the Settlor was informed about the loss and the write-off of the loan to that extent and did not object.  We were told that the Trustees considered the French Property to be a Trust asset, albeit we were not shown any trust accounts which so described the position - and indeed that would be inconsistent with the inclusion of the loans in those accounts.

26.      The difficulty with these submissions is that they do not sufficiently seem to relate to the facts.  There has been no dispute before us that if the French Property had been sold for a profit, that profit would have been taken by the Second and possibly Third Respondents.  In our judgment, it is impossible to say in those circumstances that the French Property was a Trust asset - the asset was the loan to the Second Respondent which enabled the French Property to be bought.

27.      One can well see how the Trustees, with the approval of the Settlor, would write off the loan to the extent of the loss: but that is not the same thing as saying that, for the purposes of the equalisation process, the amount of the loss should not be treated as a benefit which the Second Respondent has received.  That is because she did in fact receive that benefit through the amount of the loan to purchase the French Property.  That it turned out to be a poor investment is undoubtedly a pity, but it does not affect the analysis of how the transaction should be treated.  By way of comparison, the First Respondent also received a loan for the acquisition of property by her in her own name.  She acknowledges that any gain or loss on that property is for her account.  Her benefit was the amount of the loan to enable her to acquire it.  In our judgment, that is the right approach in law and the common sense approach as a matter of equity.

28.      We have received submissions from the Third Respondent which, perhaps tangentially, are not entirely consistent with the Second Respondent's account of how the property came to be purchased in the way it was.  We have no way of reaching any firm conclusions in this respect and there is, for the purposes of the decision we have to make, much to be said in the approach taken by Advocate Sharp that there is nothing in the affidavit evidence which suggests that the Second Respondent's account is incorrect.

29.      Because we think the principle applied by the Trustees in ignoring the French write-off for the purposes of the equalisation process was wrong, it does not matter whether Advocate Sharp's complaints on behalf of his client as to the lack of clarity on the figures in question are right or not.  The amount of the loans is not in dispute.  The notional gift for the purposes of equalisation should not be reduced by the amount of any write-off, whatever it might be, insofar as that takes account of the loss on the sale of the property.  By taking the write-off of the loss into account, the Trustees have not reached a reasonable decision and accordingly we would not bless the Final Distribution Plan on that basis.

30.      It may be thought that the change of heart on the part of the Trustees has influenced us in these conclusions.  It has not.  The fact that the approach changed from the Initial Distribution Plan in the Revised Distribution Plan and then reverted in the Final Distribution Plan is a matter that required explanation and we were advised by Advocate Santos-Costa that the reason was a change of personnel in the Trust company, and that change had led to fresh eyes being applied to the question.  The explanation has a mark of authenticity which we accept, but it does not make the decision any the more reasonable.

Communication between Trustees and beneficiaries

31.      There have been complaints from both the Trustees and the beneficiaries about the apparent failure of the other party to engage with this process.  We make no findings about that.  When the decision in relation to the French write-off was given to Advocate Santos-Costa, he indicated that the Trustees would come back to Court with a Revised Distribution Plan.  We have suggested that it be designated the "Distribution Plan" as distinguished from the Initial Distribution Plan, the Revised Distribution Plan and the Final Distribution Plan.  What we very much hope will not be in issue when the Trustees seek a blessing of the Distribution Plan takes place, is to have arguments about a lack of clarity in the figures which have been produced.  One can well see that there can be arguments about the principles which have been applied in the process leading to the Trustees' decision, but, in applications of this nature, there really should not be arguments about the actual figures, which are questions of fact which should be easily ascertainable by disclosure of all the relevant documents.

32.      The vesting date has been set for the end of September.  In the light of the fact that there is more work yet to be done on the transfer of the estate and the giving of indemnities, as well as the recasting of the figures in the light of the re-calculations  following a different treatment of the French write-off, there will need to be a further hearing.  We have directed counsel to attend upon the Judicial Secretary to find a date in the first week of September.  Having ourselves consulted with the Acting Judicial Secretary, it is apparent that September 7 and 8 would be the appropriate days to fix for further argument, and those are fixed accordingly.

33.      We accept that a blessing application on 7 and 8 September may leave insufficient time before the vesting for completion of the necessary arrangements.  That would have severe repercussions for the First Respondent, and in our view these should be avoided if at all possible.  We therefore anticipate that there will be an application for a further postponement of the vesting date, albeit for no longer than is absolutely necessary.

Costs

34.      One of the objections which has been raised to the figures presented to us is the extent of the costs which have been incurred by the Trustees and their advisers.  It does not seem to us that disagreement between the Trustees and the beneficiaries as to the extent of costs should prevent a blessing application proceeding.  It is entirely possible to agree some form of mediation or arbitration process, such that a sum of money is retained until such time as the process has been completed to cover the disputed quantum of fees and expenses, as well as the costs of the arbitration or mediation process.

35.      As we understand it, the costs which are incurred by the different parties have been paid by the Trustees and are then debited against their notional shares of the Trust Funds.  Until his death, the Settlor would approve the Trustees' fees and expenses.  In relation to the W Trust, which is largely for the benefit of the Third Respondent, substantial fees and expenses have been incurred since about 2008.  The Trustees, in their Final Distribution Plan, have allegedly debited these fees and expenses as a benefit to the Third Respondent which clearly reduces substantially her share of the distributable funds.  Advocate Mistry understandably says on behalf of his client that he needs to review the invoices in question.  There are two ways of approaching this, as it seems to us.  One is to look at all the fees up to the date of the Settlor's death as being past history, to come off the gross of the distributable funds; and the other is to allocate them as has been proposed in the Final Distribution Plan.  We have not reached any conclusions on this as yet, other than the conclusion that if the latter approach is taken, then it will be necessary if he or she so desires for the beneficiary in question to see all the relevant invoices which cover those notional credits to their benefits received.  We have expressed the view that if the Trustees were to conclude that fees paid up to the date of the Settlor's death and approved by him were to be taken off the gross of distributable funds, and thus not debited as notional benefits to the respective beneficiaries, that would not be an unreasonable approach.

36.      The costs of and incidental to the hearing on 17 and 18 May have been left over until the Court its again in this case in September.

Authorities

Trusts (Jersey) Law 1984.

Re S Settlement [2001] JRC 154.

Re Otto Poon Trust [2015] JCA 109.

Re HSBC Trustees (CI) Limited [2023] JRC 006.