LORD BRIGGS:
1.
Mohamed Aly Rangoonwala (“MAR”) died intestate on 12 June 1998, aged 74,
after a long and, despite vicissitudes, successful business career in Pakistan,
London, Hong Kong, Malaysia and elsewhere. He left behind him his second wife
Banu, four sons, (in age order) Salim (now deceased), Tariq, Asif and Khalid
(born between 1948 and 1960), and one daughter Zorin, born in 1952.
2.
In September 1982 MAR caused to be established a discretionary trust,
with himself, his wife, children and their spouses as the main beneficiaries, called
the ZVM Trust (“the Trust”). In November 1993 MAR, as appointor under the
Trust, caused the first appellant Gany Holdings (PTC) SA (“Gany”), a company he
had incorporated in the British Virgin Islands, to become the sole trustee of
the Trust. Gany remained in office as sole trustee until March 2017 when it was
removed by order of the British Virgin Islands Commercial Court, pursuant to an
order of the Court of Appeal in March 2016.
3.
On MAR’s death Asif succeeded him as appointor under the Trust. By an
instrument in writing executed pursuant to a resolution of the directors of
Gany on 22 December 1998 (“the 1998 Appointment”) Gany as trustee purported to
appoint the whole of the trust fund, as then constituted, to Asif beneficially.
4.
There are two main issues in the litigation which have led to this
appeal, instituted by Zorin, her husband and daughter Sasheen in January 2012.
They are, first, what constituted the property of the Trust when MAR died and,
secondly, whether the 1998 Appointment was voidable, because of a misconception
on the part of Gany as trustee as to the identity and value of the trust
property. A third issue, the resolution of which turns on the outcome of the
first two, was whether Asif should be ordered to account in relation to trust
property received by him from Gany pursuant to the 1998 Appointment, if
avoided. Gany and (later) Asif were therefore both joined as defendants to the
claim, and are the appellants on this appeal.
The First Issue - What was the property of the Trust when
MAR died?
5.
Central to an understanding of the development of this dispute is the
undoubted fact that (as the judge found), beginning in the 1980s and
accelerating in and after 1992, MAR delegated the management and then the
control of increasing proportions of his business interests and affairs to Asif
to the extent that, by the time of MAR’s death in 1998, Asif was in de facto
control of substantially all of them, to the exclusion of his siblings, save to
the extent that, thereafter, he chose to involve them. Importantly for present
purposes, Asif was, immediately following MAR’s death, the sole appointor under
the Trust, the sole surviving director of Gany and claimed to be in possession
of Gany’s single bearer share. As appointor Asif had power under the terms of
the Trust to appoint and remove trustees, and to appoint successor appointors.
As sole shareholder and director of Gany he was in a position to control
(subject to its fiduciary obligations) the exercise of the wide discretions and
other powers conferred by the terms of the Trust upon its trustee.
6.
Shortly after his father’s death, Asif did appoint members of his family
to formal roles in connection with Gany and the Trust. Thus, in July 1998 he
appointed his brother Khalid and a Mr Mohamed Salim as successor appointors in
the event of his death. He appointed his mother Banu, Salim and a Ms D’Cruz as
directors of Gany.
7.
Thereafter, and in two distinct phases, Asif went out of his way to make
it appear to his siblings, and to Zorin in particular, that there was
substantial property held by Gany on the terms of the Trust amounting in value
to many millions of dollars. The first phase (shortly before the 1998
Appointment), consisted of Asif telling Zorin, Khalid and Tariq at a family
meeting in London that they would each receive US$2m from the Trust in return
for letters from them waiving any further claims against the Trust or against
MAR’s estate. Those payments were in due course made (although not, as the
judge held, from property of the Trust) and the waiver letters signed. Asif
also arranged for payment of US$1m to his half-brother Salim.
8.
The second phase consisted of an extended series of negotiations between
2005 and 2011 during which Asif and Khalid proposed to their siblings that the
Trust would be reconstituted by the establishment of sub-trusts for each
sibling. The clear implication conveyed by those discussions, and documents
presented during them, was that the Trust was possessed of property with an
aggregate value in excess of EUR90m, consisting of interests in a lengthy list
of specified companies.
9.
Following the breakdown of those negotiations, Gany informed solicitors
acting for Zorin, for the first time, that the whole of the Trust’s property
had been distributed by 2000 following the payments to each of the siblings in
1998. In February 2012 Gany, through solicitors, informed Zorin’s solicitors
that, to the best of its then director’s knowledge, no companies had ever been
held by the Trust.
10.
In its original form, the respondents’ claim sought (against Gany only)
disclosure of information and documents about the Trust and its property,
including interests in companies. Gany’s initial response (in the form of an
affidavit sworn by its director Khalid on its behalf) in April 2012, was that the
Trust had never held any property other than an initial settlement sum of
US$100, that it had never had any interest in any corporate entities, and that
the payments made in 1998 to the children had not come from the Trust. This
case was repeated in Gany’s original defence, served in February 2013. In
short, Gany’s case was that the Trust was, and always had been, an empty shell.
11.
By the time of trial both Gany and (after his joinder) Asif had conceded
that the shareholding in one company, namely European Commodities Hong Kong Ltd
(“ECL HK”) had been vested in Gany on the terms of the Trust, but it was said
that ECL HK owned no assets of its own of significant value, although it had,
purely as nominee, held shares in another company, Valson International Limited
(“Valson”), initially for MAR and later for Asif.
12.
In the witness statement which constituted his evidence in chief at the
trial, Asif said that in the early 1990s MAR had agreed to transfer all his
business assets to him (Asif). This was to be (and was) achieved in around 1994
and 1995. He said “the mechanism we used to transfer these assets to me was to
place them all in the name of Gany and then to give me control of Gany both at
shareholder and board level”. Among the assets thus transferred to Gany Asif
listed the following: ECL HK and the following three companies (“the three companies”):
European Commodities BVI Limited (“ECL BVI”), Schweizer
Holdings SA (“Schweizer”) and Cedilla Investments SA (“Cedilla”). All three
companies were incorporated in the British Virgin Islands.
13.
The judge’s conclusion as to the identity of the property of the Trust
as at MAR’s death, after a four-day trial which included cross-examination of
Asif, was that no evidence had been adduced by the respondents to falsify Gany’s
account, which limited the Trust’s property to the initial settlement sum and
the shares in ECL HK. At para 65 of his reserved judgment he said:
“In this case there is no evidence
that any property, other than the ECL HK shares, was the subject of a gratuitous
transfer to any of Schweizerisch Finance Ltd, Maly International SA or Gany
while each was Trustee of the Trust.”
Accordingly, Gany and Asif succeeded at trial on the
first issue.
14.
The Court of Appeal held that the conclusion of the judge, quoted above,
had clearly been wrong, since there had been evidence from Asif, which the
Board has summarised above, that the shareholdings in each of the three companies
had been transferred to or otherwise vested in Gany while it was a trustee of
the Trust. Basing its reasoning on In re Curteis’ Trusts (1872) LR 14 Eq
217, the Court of Appeal concluded that there was a rebuttable presumption in
law that property gratuitously transferred to a person or persons who were, at
the time of the transfer, trustees of a trust previously established by the
transferor, was to be regarded as transferred subject to the terms of that
trust. Since the judge had rejected Asif’s case that MAR had intended thereby
to transfer beneficial ownership of those companies to Asif, and since there
was no evidence that MAR intended to retain beneficial ownership of those
companies for himself, it followed that the three companies were to be regarded
as having become property of the Trust by the time of MAR’s death. Accordingly,
by para 2 of its Order made on 14 March 2016 (“the March 2016 Order”) the Court
of Appeal directed that Gany’s account of the assets of the Trust be amended so
as to include the shares in each of the three companies.
15.
Both Gany and Asif appeal that part of the Court of Appeal’s Order.
Their grounds are, in summary, that:
i)
There is no such presumption in law as that identified by the Court of
Appeal as being derived from In re Curteis’ Trusts.
ii)
The reversal by the Court of Appeal of the judge’s decision on the first
issue was therefore an illegitimate interference with unimpeachable
fact-finding by a judge who had heard all the evidence, based upon an error of
law.
The First Issue - Analysis
16.
The opinion of the Board is that both the judge and the Court of Appeal
went wrong in their analysis of the first issue. In summary, the judge was (as
the Court of Appeal rightly held) wrong to conclude that there had been no
evidence probative of a conclusion that the three companies were property of
the Trust. The Court of Appeal was wrong to decide that the issue could be
resolved by reference to any legal presumption, whether derived from In re
Curteis’ Trusts or otherwise. Nonetheless, for the reasons which follow,
the Board has decided, on a re-consideration of the available evidence and of
the inferences which ought to be drawn from it, that the decision of the Court
of Appeal, namely that the three companies did become property of the Trust
during MAR’s lifetime, was correct.
17.
It is convenient to begin with a re-statement of the basic principles by
which equity (which in this respect is shared by England and Wales and the
British Virgin Islands) provides for identification of beneficial interests
arising from a gratuitous transfer of property. First, if either the transferor
or the transferee makes a written (or oral) declaration as to those beneficial
interests, or they do so together in an agreed form, that will generally be
decisive, regardless of the subjective intentions of either of them: see for
example Whitlock v Moree [2017] UKPC 44. Secondly, and in default of any
such declaration, the court looks for evidence from which a common intention as
to beneficial ownership may be inferred. This may include evidence of
statements made by either party before, at the time of or even after the relevant
transfer, the parties’ conduct, and the factual context in which the transfer
takes place. Sometimes, a choice between possible conclusions as to beneficial
interest may properly be arrived at by a process of elimination, whereby the
most unlikely conclusions are first removed, leaving the least unlikely as the
correct one. Finally, recourse may be had to time-honoured presumptions, such
as the presumption of advancement or the presumed resulting trust, where there
really is no evidence from which an inference as to common intention may
properly be drawn. But these are, in modern times, a last resort, now that
historic restrictions on the admissibility of evidence have been removed, and
the forensic tools for the ascertainment and weighing of evidence are more
readily available to the court.
18.
Gratuitous transfers of property between persons who are, respectively,
the settlor and the trustees of a trust previously established are only a
sub-set of cases of this kind, but the existence of that relationship of
settlor and trustee between them may, and frequently will, form a powerful
contextual basis for the drawing of common sense inferences as to mutual
intention.
19.
This is exactly what happened in In re Curteis’ Trusts. The
Reverend C T Curteis directed his bankers to invest £2,000 standing to the
credit of his account in consols and to hold them in the name of four persons
who were the trustees of his earlier-established marriage settlement. The
question arose after his death, whether the investment was to be held by them
as trustees, as an augmentation of the trust fund, or upon resulting trust for
him beneficially. In a short, trenchant, judgment Sir James Bacon VC said, at
pp 220-221:
“I do not say that this case is so
clear as to be beyond a doubt, but the evidence seems to me sufficient to
enable me to pronounce an opinion as to the intention of the testator. When he
directed the sum of £2000 to be invested in the names of the four trustees he
did not communicate to them what he had done, and it must therefore be presumed
that he intended them to take it in the character of trustees only. He placed
the fund in their names by a deliberate act. What was his purpose in doing
this? Why did he select these four persons out of all the rest of the world? It
is contended that he intended a resulting trust for himself. What reason is
there for supposing this? If he had meant the fund for his own benefit, he
would have told the trustees of his intention. As he did not do so, it must be
presumed that he intended it to be held upon the same trusts as the trust fund
to which it was added. A considerable time elapsed before his death, and he did
no act during that period to shew any contrary intention …”
20.
While it is true that the Vice-Chancellor twice used the word “presumed”
in that short passage, it is clear that he was not speaking of a legal
presumption, but rather of an inference to be drawn from the facts about what
the transferor said and did, set in the context of the pre-existing
relationship between him and his marriage settlement trustees. It is not a case
of a competition between competing legal presumptions (including for that
purpose the presumed resulting trust) but a pragmatic analysis of the
alternatives, and a sensible deduction as to what the transferor intended.
21.
The case was so described in Vandervell v Inland Revenue and Customs [1967] 2 AC 291, where Lord Upjohn was describing how easily the presumption of a
resulting trust could be rebutted by evidence of intention. At p 313D he said:
“A very good example of this is to
be found in the case of In re Curteis’ Trusts where Bacon VC, without
any direct evidence as to the intention of the settlor, drew a common-sense
deduction as to what he must have intended. In reality the so-called
presumption of a resulting trust is no more than a long stop to provide the
answer when the relevant facts and circumstances fail to yield a solution.”
22.
This analysis was adopted in the Grand Court of the Cayman Islands by
Smellie CJ in JF& MF Hexagon Investments (2015-16) 18 ITELR 470 at
paras 172-174. By contrast, the opinion of the editors of Lewin on Trusts (19th
ed) (2014) at para 9-034, that In re Curteis’ Trusts
establishes a presumption is, in the Board’s view, wrong.
23.
The Court of Appeal was nonetheless correct to conclude that an error in
the judge’s fact-finding on this issue was sufficient to enable the question to
be re-examined on appeal. It is of course true that an appellate court will not
lightly depart from a judge’s findings of fact, all the more so where the judge
has had the benefit, of which the appellate court is deprived, of seeing and
hearing the witnesses, in particular under cross-examination, and considering
the case over an extended trial, at a level of detail unlikely to be
practicable on appeal. Nonetheless, a plain error on a threshold finding of
fact may disable the first instance judge from a reliable analysis of the
factual issue. In the present case, the judge concluded (in the passage quoted
above) that there was simply no evidence to show that shares in any of the
three companies had been transferred to or vested in Gany at a time when it was
a trustee of the Trust, that is, from 15 November 1993 until (at least) MAR’s
death in June 1998. On the contrary, there was such evidence in the form of clear
statements in Asif’s witness statement, deployed as evidence in chief, as to
ECL BVI in paras 58 and 71, as to Cedilla in para 71 and as to all three
companies in para 87, where Asif described them as subsidiaries of Gany. In
relation to ECL BVI, Asif said that this occurred on 18 March 1994 by way of a
share allotment to Gany. He provided no dates in relation to Cedilla or Schweizer,
beyond the general assertion that the transfer or vesting of shares in all
three companies to or in Gany was part of the same process undertaken by MAR in
“around 1994 and 1995”: see para 57. Taking those paragraphs of Asif’s witness
statement together, it is clear that he was describing the transfers as having
been made by way of gift, ie as being gratuitous. There was supporting
documentary evidence as to the date of the allotment of the share in ECL BVI,
but nothing at all in relation to the other two companies. There was abundant
documentary evidence to show that the transfer of shares in ECL HK to Gany, two
days earlier on 16 March 1994, was effected, expressly, on the terms of the
Trust.
24.
By concluding that there was simply no evidence of a gratuitous transfer
of shares in any of the three companies to Gany while it was a trustee of the
Trust, the judge disabled himself, in the Board’s view, from conducting a
reliable analysis of such evidence of MAR’s intention as there was, set against
the relevant background, namely the pre-existing relationship between MAR and
Gany as, respectively, the effective settlor and the recently appointed trustee
of the Trust. Consideration of the question whether a common-sense deduction of
the type carried out in In re Curteis’ Trusts thus never arose for the
judge, because the necessary predicate for it, namely a gratuitous transfer by a
settlor to an existing trustee of the settlement, was not focused upon. Nor was
that analysis carried out, at least expressly, by the Court of Appeal, because
it decided the question on the basis of a wrongly assumed legal presumption.
25.
It therefore falls to the Board, if it properly can, to carry out that
analysis for the first time. None of the parties suggested that this issue
should be directed to be re-tried at first instance. So little is known about
the assets of the three companies that a re-trial (necessarily before a
different judge since Bannister J has retired as a judge of the British Virgin
Islands) would risk the incurring of costs and effort which might prove to be
gravely disproportionate to the economic value of the issue to any, or all, of
the parties. Furthermore, the Board is no more disabled than any appellate
court from deciding this question of fact, even though fact-finding forms a
very small part of its routine activities.
26.
This is not a case in which the relevant issue necessarily turns upon
scrutiny of the demeanour of witnesses when giving oral evidence. The only
witness whose oral evidence has any significant bearing on this issue is Asif.
Since he went to great efforts, over an extended period of time, between his
father’s death and his contribution of evidence to these proceedings in seeking
to persuade Zorin and other siblings of his that the Trust was possessed of
very substantial and valuable property, before presenting a diametrically
opposed version of events in his evidence, it requires no face to face
encounter with Asif for a court to conclude that little weight can be given to
his uncorroborated oral evidence, where directed to a self-serving conclusion.
Furthermore, the Board has no reason to reject the judge’s firm conclusion that
Asif’s evidence that MAR intended to make a gift to him of the three companies in
the early 1990s was untrue.
27.
In the Board’s view, the determination of the first issue turns
essentially upon the making of an appropriate common-sense deduction as to
MAR’s intention, to be derived from a review of the largely unchallenged
evidence about the relevant parties’ conduct at the time, assisted by the
judge’s findings of primary fact, to the extent that they have not been challenged
successfully on appeal. MAR’s intention is sufficient, because he was also the
governing mind of Gany at the material time, as its only director and
shareholder. The Board will summarise that evidence of primary fact in broadly
chronological order.
28.
The starting point is that, looking at the matter as a question of
substance rather than form, MAR was the settlor of the Trust. Formally, the
settlor was Anita Lee Yuen, who established the Trust by executing the deed of
settlement dated 24 September 1982 together with the first trustee Schweizerisch
Finance Limited (which MAR controlled), and contributing the nominal initial
trust property of US$100. But it is common ground that Ms Yuen, a lawyer at
Johnson Stokes & Master in Hong Kong, was acting in that capacity for, and
at the direction of, MAR.
29.
The following points need to be noted about the terms of the Trust, as
set out in the deed of settlement. First, both MAR and any spouse of his were
named discretionary beneficiaries. By contrast with some tax-driven family
settlements, a dedication of property by MAR to the Trust did not therefore
deprive him or Banu of an expectation of benefit. Secondly, MAR’s status as the
first appointor under the Trust conferred on him the power to remove and
appoint trustees, thereby securing to him, for the remainder of his life,
significant de facto influence over the exercise of discretion as to the
beneficial distribution of the trust property. In fact, the three successive
trustees, between 1982 and MAR’s death, namely Schweizerisch Finance Limited,
Maly International SA (“MISA”), and Gany, were all companies owned and
controlled by MAR.
30.
Apart from the appointment of Asif (and then Asif and Khalid) as his
successor appointors, to take effect on his death, and the change of trustee to
MISA (in March 1983), MAR appears to have done nothing to put flesh on the
bones of this family trust structure during the remainder of the 1980s. It
remained during that period, an empty shell. To this picture of apparent
inactivity there may be one important exception. ECL HK had been incorporated
in Hong Kong in July 1975, and became the corporate vehicle by which MAR
conducted the bulk of his activities from Hong Kong. At some time after MISA
became a trustee of the Trust in March 1983, nominee holders of the bulk of the
shares in ECL HK were directed to hold them for MISA as trustee. This
sufficiently appears from MISA’s written instruction to those nominees Wai Chiu
Co Ltd (of Hong Kong) dated 15 February 1994, instructing them to transfer
those shares to Gany. This instruction bears MAR’s signature as a director of
MISA. It is impossible to ascertain from the evidence when, between 1983 and
early 1994, the shares in ECL HK became property of the Trust.
31.
Subject to that uncertainty, all the steps taken by or at the directions
of MAR by which he sought to divest himself of personal ownership and control
of his businesses during his lifetime occurred during the five-year period
between November 1989 and January 1995. Thus, Gany was incorporated by MAR in
November 1989 in the British Virgin Islands and he became its first director in
December. Although it is not clear when MAR formed the intention that Gany
should replace MISA as trustee, the significant difference (also reflected in
other steps described below) between Gany and MISA was its British Virgin
Islands registration. MISA had been registered in Panama.
32.
Schweizer was incorporated in October 1990, again in the British Virgin
Islands and MAR became its first and sole director in November. ECL BVI was
incorporated in the British Virgin Islands in December 1992 and MAR became its
first director during the same month. Cedilla was incorporated in the British
Virgin Islands in March 1993.
33.
Shortly before that, MAR established the MA Foundation (“MAF”) in the
form of a Jersey based trust in December 1992. MAF was designed to make
provision for him during his lifetime, with a gift over on his death to the
Rangoonwala Foundation (“RF”) which was a charity set up by MAR to help the
poor and needy and, in particular, the Memon Muslim community.
34.
As already noted, Gany became trustee of the Trust in place of MISA in
November 1993. The bulk of the shares in ECL HK were, on MAR’s instructions as
a director of MISA, transferred by nominees to Gany on 16 March 1994, expressly
to be held upon the terms of the Trust. Two days later on 18 March ECL BVI
(then controlled by MAR) allotted its only share to Gany. It is not known when
the shareholdings in Schweizer and Cedilla were issued or transferred to Gany,
but the only evidence about the timing of those events tendered at trial was
that they had occurred by the end of 1994.
35.
On 1 July 1994 MAR made a hand-written declaration, which may loosely be
described as a letter of wishes, which began as follows:
“I hereby declare that I have
given and already allocated whatever I wanted to give to my family members and
nothing is pending.
I do not owe anything to anyone.”
36.
Following the writing of the letter of wishes, MAR took a series of
steps which appear to have been consistent with his retirement from active
participation in the management of his business. In July 1994 he appointed Asif
as an additional director of Gany and in October appointed him as his successor
appointor under the Trust. In December 1994 Gany appointed VM Finance &
Holdings AG to be Trust Manager.
37.
Minutes of a board meeting of ECL HK on 3 January 1995 record Asif
stating that shares in Valson held by ECL HK were held for his benefit as from the
beginning of 1995, having previously been held for the benefit of MAR. Valson
was the corporate vehicle for business and property activities undertaken by
MAR in the United Kingdom.
38.
There is much to be said for addressing the intended beneficial
ownership of the three companies, upon the issue or transfer of their shares to
Gany, together. They were all owned and controlled by MAR, and set up in the
British Virgin Islands within a short time after the incorporation of Gany
there in November 1989. Nothing was disclosed to the court about the assets or
businesses which they owned. The only thing which sets them apart is that the
evidence produced a precise date for the vesting of ECL BVI’s shares in Gany,
whereas it did not for Schweizer or Cedilla. For reasons explained later, this
does not require them generally to be treated separately.
39.
The first question is whether the shares in the three companies were
indeed vested in Gany. Notwithstanding the appellants’ submission to the
contrary, it makes no difference in the Board’s view whether they were vested
by way of transfer or allotment, because MAR both owned and controlled each of
the three companies. Allotment might be said to be the exercise of control
whereas transfer is the exercise of a right of ownership. But both point in the
same direction, so far as concerns the ascertainment of MAR’s intention.
40.
Written evidence from Asif that the shareholdings of the three companies
were vested in Gany is not the same as proof, bearing in mind in particular the
inevitable reservations which the Board must entertain about his reliability as
a witness. His evidence was that the vesting of those shareholdings in Gany was
part and parcel of an agreed plan between him and MAR to transfer beneficial
ownership to him, and this the judge roundly rejected, for good reason. The
assertion by Asif that there was a plan to transfer beneficial ownership of the
three companies to him (eventually by giving him the bearer share in Gany) was
of course self-serving. But his evidence that the shareholdings in the three
companies were vested in Gany, viewed separately, was not self-serving. On the
contrary, it constituted a necessary plank in any case, hostile to his, that
the shares in the three companies were property of the Trust. Nor was his
evidence of the vesting of those shares itself a matter of challenge, although
of course his case that there was an agreement that he should become beneficial
owner of them was vigorously, and successfully, disputed at trial. There is
documentary corroboration of the vesting of ECL BVI’s shares in Gany, and no
evidence to place in the scales against Asif’s evidence that this was true in
relation to the shareholdings in each of the three companies. Accordingly the
Board considers that the vesting of those shares in Gany before the end of 1994
should be regarded as proved to the requisite standard.
41.
The next question is whether this vesting occurred while Gany was a
trustee of the Trust. It was submitted for the appellants that no finding or
inference could be made to the effect that either Schweizer or Cedilla were
vested in Gany after it became trustee of the Trust in November 1993. There was
a three-year period following the incorporation of Schweizer and an eight-month
period following the incorporation of Cedilla before Gany became trustee.
Either or both of them might have been vested in Gany before it became trustee.
This is of course possible, but the Board’s view is that the vesting of the
shares of those two companies in Gany probably occurred after it became trustee
in November 1993. Even if not, it occurred at a time when MAR planned that Gany
should take over as trustee from MISA. Their incorporation and the transfer of
their shares to Gany was all part and parcel of an exercise by MAR to re-locate
part of his business interests, in terms of corporate ownership, in the British
Virgin Islands, which began with the incorporation of Gany in November 1989.
That uncertainty as to timing does not, in the Board’s view, significantly
detract from the other factors which point towards determining this issue by
considering the three companies together.
42.
What then are the possible alternative conclusions about MAR’s intention
with regard to the beneficial ownership of those shares once vested in Gany?
There are really only three possibilities. The first is that MAR intended Gany
to hold the shares beneficially. The second is that he intended the shares to
be held by Gany as trustee on the terms of the Trust. The third is that he
intended to retain beneficial ownership of the shares himself.
43.
A beneficial transfer to Gany was, of course, stage one of Asif’s
two-stage case about a plan to transfer beneficial ownership to him, rejected
by the judge. No other evidence was adduced as to why MAR should have intended
to make the three companies (all registered in the British Virgin Islands)
wholly owned subsidiaries of another British Virgin Islands company. The only
evidence about MAR’s use of Gany, apart from the vesting of the shareholding in
the three companies, was that he wished it to be trustee of the Trust, and he
caused to be vested the much more important shareholding of ECL HK in Gany as
trustee, only two days before the vesting of the shares in ECL BVI. It is
material to note, in that context, that no evidence was produced to the court
that Gany ever prepared or kept company accounts, which it might have been
expected to do if it beneficially owned assets of its own rather than held them
purely as trustee.
44.
The second alternative, namely vesting in Gany on the terms of the Trust
is, in the Board’s view, plainly the most likely common-sense deduction, just
as it was in In re Curteis’ Trusts. MAR had (or contemplated) a
relationship with Gany as settlor and trustee of the Trust when the shares were
vested in Gany. There is clear evidence, summarised above that MAR intended
Gany to hold the important shareholding in ECL HK on the terms of the Trust.
There is no sensible reason why he should have entertained a different
intention in relation to the shares of the three companies. It is, in this
context, nothing to the point that there is clear documentary evidence in
relation to the shares of ECL HK, but no similar evidence in relation to the
shares in the three companies. Prior to vesting in Gany, the bulk of the shares
in ECL HK were held by a third-party entity, not controlled by MAR, to which
MAR needed to give clear and specific instructions. He had no such need in
relation to the three companies’ shares, since he both owned and controlled
those companies himself.
45.
The third possibility, namely that MAR intended to retain beneficial
ownership of the shares in the three companies notwithstanding their vesting in
Gany may be said to derive some support from the judge’s observation, at para
66 of his judgment that:
“I think that MAR retained
beneficial ownership, or ultimate beneficial ownership of his businesses, down
to the date of his death.”
The judge was there dealing with Asif’s case that MAR
agreed to give him all his business interests in the early 1990s and the judge
drew support for his observation from the fact that MAR retained beneficial
ownership of his stake in a Malaysian joint venture, and did not transfer it,
beneficially or otherwise to Asif. But the judge’s observation was also based
upon his conclusion that it was “highly unlikely” that MAR had transferred any
of his business assets other than ECL HK to any of the successive trustees of
the Trust. Finally, he read MAR’s declaration of 1 July 1994 as reinforcing his
conclusion.
46.
The Board has considered carefully whether it should depart from that
conclusion of the judge, and has decided that it should, for the following
reasons. First, it is undermined by the mistake, already identified,
constituted by the judge’s incorrect conclusion that there was no evidence of a
gratuitous vesting of the shares in any of the three companies in Gany, while
it was a trustee. It was not, as the judge thought, “highly unlikely” that MAR
had transferred any of them to a trustee of the Trust.
47.
Secondly, the judge’s reliance on evidence about the ownership of MAR’s
Malaysian interests appears to have been misplaced, because it was not part of
Asif’s case that MAR had intended to give them to him. They were vested in MAF.
Thirdly, the Board takes a different view of the inferences to be drawn from
MAR’s 1 July 1994 declaration. Far from supporting a conclusion that, by the
beginning of 1995, MAR had retained beneficial ownership of all his business
interests, it rather suggests, in the Board’s view, that MAR had indeed
divested himself of some, at least, of those interests in favour of the
children, and divestment by transferring them to his existing family settlement
in which the children were named beneficiaries, seems a natural and probable
way of doing so.
48.
In conclusion therefore, there is sufficient evidence from the facts about
MAR’s conduct, in particular during the period 1989-1995, to lead to an
inference that, when transferring or otherwise vesting the shares in the three companies
in Gany he intended to do so upon the basis that Gany was to hold the shares as
an accretion to the property of the Trust.
The 1998 Appointment
49.
An independent ground for Gany’s and Asif’s defence of the proceedings
was that, whatever may have been the property of the Trust on MAR’s death, it
was all appointed out to Asif by Gany by means of the 1998 Appointment. The
respondents challenged this at trial, seeking a declaration that the 1998
Appointment was void or liable to be set aside on a number of grounds,
including sham, and a challenge to the validity of the board meeting of Gany at
which the Appointment had been resolved to be made. Those grounds were rejected
by the judge, and are not live issues before the Board.
50.
But the main ground for challenging the 1998 Appointment was that it had
been executed by Gany under a misconception on the part of the directors who
resolved upon it as to what then constituted the property of the Trust. The
case advanced was that the relevant directors thought that there existed no
Trust property of any significant value, so that the 1998 Appointment was
nothing more than a tidying up exercise, conferring no benefit of substance
upon Asif, or depriving the other beneficiaries of anything of value.
51.
The judge rejected this ground of challenge as well, upon the basis that
that perception of Gany’s directors was correct. He found that the only
property of the Trust by 1998 was the shares in ECL HK, but that there was no
evidence that those shares were of any significant value.
52.
The Court of Appeal reversed the judge’s decision on the issues of
misconception, on two grounds. The first was that even if the only property of
the Trust in 1998 consisted of the shareholding in ECL HK, that company had,
according to its accounts, beneficially owned assets valued at US$357,891.24,
so that the shares in ECL HK were of significant value. Secondly, flowing from
its conclusion about the first issue, Gany as trustee had (through its
directors) acted under a misconception in failing to appreciate that the Trust
property also included the shareholdings in the three companies.
53.
Before the Board, the appellants challenged this conclusion of the Court
of Appeal on the main ground that it was an impermissible interference with the
judge’s unimpeachable findings of fact. More specifically the appellants
submitted that there was nothing to show that the directors had, in 1998, been
unaware of the item in ECL HK’s audited accounts or that, whatever its cost, it
had any significant value by 1998. Secondly, of course, the appellants
submitted that the Court of Appeal had been wrong to conclude that the Trust
property included the three companies. Even if it did however, there was
nothing to show that, by 1998, the shareholding in the three companies was
worth anything of significance.
54.
There is no dispute about the applicable legal principles. Although the
Court of Appeal based its analysis on In re Hastings-Bass deceased [1975]
Ch 25, it is common ground that for the purposes of the law of the British
Virgin Islands, they are now to be found in the judgment of the Supreme Court
in Pitt v Holt [2013] 2 AC 108. It is unnecessary to set out those
principles in full. The following points are sufficient for present purposes.
First, the court’s discretion to set aside a disposition in exercise of the
trustee’s powers on the basis of misconception depends upon it being shown that
the relevant misconception amounted to, or came about as the result of, a
breach of fiduciary duty. Secondly, if that condition is satisfied, the court
has a flexible discretion whether to set aside the challenged disposition, in the
exercise of which the question whether, if properly informed, the trustees (or
reasonable trustees) would or might have acted differently will be relevant,
but not decisive. The appellants did not base the main thrust of their appeal
on a submission that the Court of Appeal had made errors of law in addressing
this issue.
55.
The Board’s conclusion that the appellants fail on the first issue,
relating to the beneficial ownership of the three companies, necessarily means
that Gany’s directors, Asif and Banu and Mr Salim, acted under a misconception
about the extent of the trust property in believing, as they said they did,
that it was limited to the shareholding in ECL HK. Mr Jonathan Crow QC for the
appellants sensibly conceded that this would be so, if the Board reached the
conclusion which it has reached upon the first issue.
56.
The extent to which the directors laboured under a misconception about
the value of the ECL HK shares when making the 1998 Appointment is less
straightforward. There is some force in the appellants’ submission that the
Court of Appeal was over-simplistic in its departure from the judge’s findings
of fact, in assuming that, because the directors’ evidence was that they
regarded the Trust as having property of no significant value, they were
necessarily unaware of the entry in ECL HK’s audited accounts attributing a
value of US$357,000 odd to those shares. It was pointed out by reference to the
transcripts of the trial that, contrary to the Court of Appeal’s assumption,
the judge had been aware of those accounts. It was submitted that, if so, he
may have concluded either that the attributed value (based on a historical cost
convention) was unreliable, or that the directors could properly regard that
sum as insignificant in the context of dealing with what had been MAR’s
business assets amounting to many millions of dollars.
57.
If the matter had rested upon issues as to the value of the shares in
ECL HK, the Board might have regarded the appeal on this issue as finely
balanced. But the inclusion within the ambit of the directors’ misconception of
the shares in the three companies is, in the Board’s view, amply sufficient to
swing this issue against the appellants. Mr Crow valiantly submitted that it
made no difference because the shareholdings in the three companies had not
been shown to be of significant value in themselves. There was, he said, no
evidence that the three companies were, in 1998, more than mere shells. But the
absence of evidence about the assets of the three companies cannot, in the
Board’s view, be of assistance to the appellants. On the basis that the three companies
were part of the Trust’s property at all material times, Gany was duty-bound to
inform itself about the nature and value of their assets, and cannot fairly
shield itself under the cloak of a submission that no evidence was deployed to
demonstrate valuable assets. Following his father’s death, Asif had plainly
been in the driving seat so far as the affairs of Gany and the Trust were
concerned and, in particular, having regard to what he now describes as
repeated deceptions of his siblings about the nature and extent of the Trust
assets over many years, can be in no better position than Gany.
58.
The Board is in no doubt that the failure by Gany’s directors in 1998 to
appreciate that the shareholdings in the three companies formed part of the
Trust’s property amounted to a serious breach of fiduciary duty on the part of
Gany, sufficient to trigger the court’s discretionary power to set aside the
1998 Appointment. It was submitted for the appellants that, nonetheless, the
“would not/might not” causation test was not satisfied, and that no useful
purpose would be achieved by setting aside the 1998 Appointment, which would
otherwise simply cause an injustice to Asif. The Board disagrees. For the
reasons already given, it does not lie in the appellants’ mouths to make this
submission. It was submitted that the Court of Appeal’s use of the word “void”
rather than voidable in para 101 of the judgment of Blenman JA revealed a
misconception that the court had no discretion in the matter. The Board is
satisfied that this was no more than a judicial slip of the tongue. Read as a
whole the Court of Appeal’s reasoning, and the terms of its March 2016 Order,
sufficiently demonstrate that it was aware that it was exercising a
discretionary power. The Board has not heard anything in the appellants’
submissions which would cause it to doubt that the discretion was correctly
exercised in the circumstances and, in particular, having regard to the Court
of Appeal’s conclusion on the first issue, with which the Board agrees.
Asif’s Liability to Account
59.
The Court of Appeal, reversing the judge, ordered Asif to account for
any assets he received as a result of the 1998 Appointment. The claim for an
account had originally been made, in the pleadings, on the basis of knowing
receipt but, in opening, also on the basis of knowing assistance. Both the
judge and the Court of Appeal rejected those grounds, in particular because
there was no allegation, let alone finding, of dishonesty against Asif. Ms Sue Prevezer
QC for Asif submitted on appeal that there was therefore no basis upon which
the Court of Appeal could make an order for an account against Asif.
60.
The Board disagrees. Asif was not a bona fide purchaser of the property
which he received by virtue of the 1998 Appointment. On the contrary, he was a
volunteer. Nonetheless, until set aside, the 1998 Appointment conferred upon
him both legal and beneficial ownership of the assets transferred. But the
effect of the setting aside of the 1998 Appointment is to re-vest the
beneficial ownership of the assets transferred in the beneficiaries of the
Trust. If Asif still holds property transferred in 1998, he must return it to
the trustee of the Trust. If not, he must give an account of what he has done
with it.
61.
The main submission made for Asif on this issue was that the Court of
Appeal had somehow imposed upon Asif the liability of a constructive trustee,
under a remedial (and therefore illegitimate) constructive trust. In the
Board’s view the Court of Appeal’s order that Asif account did no such thing.
It imposed no personal financial liability on him, and it is no part of the
respondents’ submissions that it did. In particular, it imposed upon him no
personal liability to compensate the Trust or its beneficiaries in respect of
property received pursuant to the 1998 Appointment of which Asif disposed
before it was set aside.
62.
For those reasons the Board’s opinion is that the Court of Appeal’s
order that Asif account in respect of property received under the 1998 Appointment
was correctly made.
Costs
63.
There remains a narrow issue of construction, relating to the costs
order made by the Court of Appeal in its March 2016 Order. The essential
background is that the judge, by para 2 of his Order made after trial on 13
June 2014 ordered the claimants (ie the respondents to this appeal) to pay
Gany’s costs of the action and, by para 3, ordered the claimants to pay Asif’s costs
of the action. The Court of Appeal’s March 2016 Order provided, so far as is
relevant to this issue:-
“1. The appeal is allowed…
6. Gany Holdings (PTC) SA
shall pay Zorin Sachak Khan’s costs both in this Court and in the court below
to be agreed within 21 days, failing which, costs to be assessed by a
commercial court judge.”
64.
An issue arose between the parties whether the Court of Appeal thereby
set aside the judge’s costs order in favour of Asif. Following a short further
hearing before a differently constituted Court of Appeal on 20 July 2016, in
which (among other things) that issue was argued, the Court of Appeal ordered,
at para 5, as follows:
“On the Construction Issue, the
effect of the March 2016 Order is that the entirety of the Order made at first
instance by Mr Justice Bannister is set aside.”
The effect of this further order was that the judge’s
costs order in favour of Asif was itself treated as having been set aside by
the Court of Appeal’s March 2016 Order. Asif appealed the further order of the
Court of Appeal, submitting that it had got the construction of the March 2016 Order
wrong.
65.
This is a very short point of construction, which requires the Court of
Appeal’s March 2016 Order to be interpreted as a whole, and in the light of its
conclusions on the appeal.
66.
The Board’s opinion is that, on this last issue, the respondents are
again correct. Their appeal to the Court of Appeal clearly and expressly
included an appeal against the costs order against them in favour of Asif made
by the trial judge. Paragraph 1 of the Court of Appeal’s March 2016 Order
allowed their appeal in full. It follows, despite the brevity of the language
used, that the appeal against the costs order against Asif was allowed.
67.
It is not to be inferred from the fact that, in exercising its own costs
jurisdiction, the Court of Appeal only ordered Gany, rather than Asif, to pay
the respondents’ costs, that it thereby left the judge’s costs order in favour
of Asif in place. It follows that, at the hearing on 20 July 2016, the
differently constituted Court of Appeal construed the March 2016 Order
correctly.
68.
For all the above reasons the Board will humbly advise Her Majesty that
this appeal should be dismissed.
