“57. Before addressing article 32, some preliminary observations need to be made. The TDT is a discretionary trust established under the law of Jersey. In their modern form, trusts are a creation of equity judges in England. There are of course concepts in other legal systems, notably in Roman law and in the civil law of France, which have some features in common with an English law trust. But they do not have the elaboration and detailed prescription which the existence of a large and coherent body of case law has given to the English trust law. The law of trusts in Jersey is a comparatively recent import from England. Its widespread use in the custody and management of wealth dates from the rise of a significant financial services industry in the 1960s. The international appeal of Jersey trusts is to a significant extent dependent on the certainty which it derives from the English case law. Naturally, English trust law must be modified where it conflicts with established principles of Jersey customary law, and it has also been modified by Jersey statutes. These general remarks apply equally to the trust law of Guernsey. 58. The TJL is the principal indigenous source of Jersey trust law. It is not a complete code of the law of trusts. But it gives statutory effect to some principles already well established in England and significantly modifies other principles. English trust law therefore serves as the background against which the provisions of the TJL fall to be construed.”
“However the 1984 Law is not a codification. Trusts were recognised and enforced by the Jersey courts well before the passing of the 1984 Law and, in doing so, they looked to English law for guidance on trust matters and, by and large, adopted English principles save where it was appropriate to differ. A Jersey trust is essentially the same animal as is found in English law, subject to certain local modifications.”
“. . . (1) The position is not as absolute as stated in Z Trusts at [32]. There is no absolute rule that, once there is an insolvency or probable insolvency of a trust, the trustee and all those holding fiduciary powers in relation to the trust can only exercise those powers in the interests of the creditors. A Jersey court would take account of the decision of the Supreme Court in Sequana, and would adopt a more nuanced approach to this question. (2) In a situation of insolvency or probable insolvency a trustee should primarily exercise their fiduciary powers and duties in the interests of the creditors. (3) Whether and, if so, to what extent the residuary interests of the beneficiaries should be taken into account in the exercise by the trustee of their fiduciary powers and duties in a situation of insolvency is a fact sensitive question which depends upon the circumstances of the particular case. (4) In answering the question at (3) above, the court should adopt the approach set out by Lord Briggs in Sequana, at [176]; that is to say a balancing exercise. The extent to which the interests of the beneficiaries can and should be subordinated to the interests of the creditors will depend upon all the circumstances of the case and, in particular, on the question of whether the situation is one where there is light at the end of the tunnel or one where the insolvency situation is irreversible.”
“205. In cross examination Mr O'Shea claimed that he had carried out his own mental valuation process of the Loan Assets and valued the Loan Assets “at probably next to zero”
“. . . that the situation was not one where Mr O'Shea considered that it was legitimate to exclude the interests of the Beneficiaries. I find that Mr O'Shea made the decision to confine the consideration payable on the Disposal to what he calculated as being due to the Second Defendant [Pinotage] and Hatstone Jersey, regardless of what the Loan Assets were worth, and with the intention that there should be no surplus for the Beneficiaries, whatever the Loan Assets were worth. I find that the intention thus to exclude the Beneficiaries was a primary or dominant purpose and a primary or dominant cause of the Disposal. The intention to exclude the Beneficiaries was not a subordinate purpose or subordinate cause of the Disposal.”
“. . . [A]pplying the relevant law, the situation was not one where the interests of the Beneficiaries could simply be disregarded in favour of the creditors. This however was what occurred. The value of the Loan Assets was unknown. The principal actors in relation to the Disposal, namely Mr Emblin, Mr Reid and Mr O'Shea did not know the value of the Loan Assets, but did know that the value of the Loan Assets might be substantial. They also knew that the purpose of the Disposal was to pay the creditors without leaving any surplus for the Beneficiaries, so that the Trusts could be terminated. All this follows from the findings which I have already made. The interests of the Beneficiaries were disregarded in the Disposal or, putting the matter another way, the interests of the Beneficiaries were effectively excluded from the Disposal. This would have been justifiable, if there had been no light at the end of the tunnel, and it was clear that the value of the Loan Assets was not going to be adequate to do more than meet the sums owed to creditors. This was not however the position. No one knew what the Loan Assets were worth. What was known by the principal actors (Mr Emblin, Mr Reid and Mr O'Shea) was that the value of the Loan Assets might be substantial.”
“237. In summary therefore, and in answer to the first question identified in Grand View, and in answer to the second part of the second question identified in Grand View I conclude (i) that a disposal for a purpose which involved the exclusion of the interests of the Beneficiaries was not, in the circumstances as they existed at the time of the Disposal, a proper purpose of the power of sale contained in the Trusts, and (ii) that the Disposal, which was a disposal for a purpose which involved the exclusion of the interests of the Beneficiaries, was effected for a purpose which fell outside the permitted purposes of the power of sale contained in the Trusts. 238. In summary, and for the reasons which I have set out in the relevant previous sections of this judgment, I reach the following conclusions, in relation to the question of whether the Disposal was effected for an improper purpose: (1) In the circumstances which existed at the time of the Disposal the proper purposes of the power of sale did not include a disposal of the Loan Assets for a consideration which ensured that there would [be] no surplus left for the benefit of the Beneficiaries. The circumstances were not such that the interests of the Beneficiaries could be disregarded, or excluded in this way. (2) In effecting the Disposal the purposes of the principal actors, Mr Emblin, Mr Reid and Mr O'Shea (and in particular Mr O'Shea) were, in each case, to ensure that the consideration payable on the Disposal would leave no surplus for the Beneficiaries. (3) This purpose was not a subsidiary purpose, but was central to the purpose of the Disposal, whether judged on the basis of purpose or on the basis of causation. The whole point of the Disposal was to confine the consideration to what was calculated as due to the creditors. If the consideration was not so confined, the purpose of the Disposal would been defeated. Confining the consideration in this way ensured, to the detriment of the Beneficiaries, (i) that the Trusts could be terminated, (ii) that the First Defendant [FS Capital] would obtain the benefit of the Loan Assets, free of the obligations of the Trusts, at a price which might well turn out to be a substantial undervalue, (iii) that Hatstone Jersey and the Second Defendant would be paid what was calculated as due to them, and (iv) that the Beneficiaries would get nothing.”
“297. I have already made a number of findings in relation to Mr Emblin and Mr Reid, in my discussion of whether the Disposal was made for an improper purpose. In particular, I have made the following findings: (1) At the time of and prior to the Disposal, Mr Emblin and Mr Reid did not know the true value of the Loan Assets. They did know that the Loan Assets could have had substantial value. (2) At the time of and prior to the Disposal Mr Emblin and Mr Reid knew that the purpose of the Disposal, as demonstrated by the existence of the Cap, was to pay the creditors without leaving any surplus for the Beneficiaries, so that the Trusts could be terminated. (3) In effecting the Disposal the principal purpose of each of the principal actors, whom I have identified as Mr Emblin, Mr Reid and Mr O’Shea, was to ensure that the consideration payable on the Disposal would leave no surplus for the Beneficiaries. 298. Other findings follow from these findings and from what was conceded by Mr Emblin and Mr Reid in cross examination. First, at the time of and prior to the Disposal, Mr Emblin and Mr Reid also knew or must be taken to have known that there was a real possibility that the Beneficiaries still had an economic interest in the assets in the Trusts. Second, at the time of and prior to the Disposal, Mr Emblin and Mr Reid also knew or must be taken to have known that the interests of the Beneficiaries were being disregarded in the Disposal, in the sense that, if the Beneficiaries did have any economic interest in the assets in the Trusts, this would not be reflected in the terms of the Disposal. 299. Mr Morgan sought to argue that Mr Emblin and Mr Reid had no reason to think, at the time of the Disposal, that the Disposal was being made for an improper purpose. His argument was that Mr Emblin and Mr Reid were entitled to take the view, and were in fact advised that it was legitimate to put the interests of the creditors first. On the facts of this case, I cannot accept this argument. It seems quite clear to me (and I so find), both from the evidence of Mr Emblin and Mr Reid and from the evidence of the contemporaneous documents, that neither Mr Emblin nor Mr Reid was or could have been satisfied that it was legitimate to disregard the interests of the Beneficiaries. The reality was that Mr Emblin and Mr Reid, in concert with Mr O’Shea, designed the Disposal in a way which would achieve what they wanted to achieve; namely payment of the creditors and termination of the Trusts. The history of their dealings together demonstrates that they were looking for ways to justify their design of the Disposal, but I do not accept that any of them, at the time of the Disposal, considered that they had achieved a position where it was clear that the interests of the Beneficiaries could be disregarded in the Disposal.”
“303. First, it seems to me that Mr Miall is right to draw attention to the fact that the burden is upon the First Defendant [FS Capital] to establish that the First Defendant [FS Capital] did not have actual notice of the breach of trust. The evidence of Mr Emblin and Mr Reid was not presented on the basis that, while they may have known of the facts which constituted the breach of trust, they were unaware that those facts constituted a breach of trust. In those circumstances I find it difficult to see how Mr Miall can be criticised for cross examining Mr Emblin and Mr Reid on the basis of their knowledge of the facts which, as I have decided, constituted the breach of trust. Ultimately, I do not consider that it has been established, on the evidence, that this is a case where Mr Emblin and Mr Reid, despite being aware of the facts which constituted the breach of trust, were ignorant of the fact that these facts constituted a breach of trust. 304. Second, I am not convinced that the facts of the present case justify the separation which Mr Morgan sought to make between the facts which constituted the breach of trust, and the breach of trust itself. This does not seem to me to be a case of wilful shutting of eyes or of wilful and reckless failure to make such inquiries as an honest and reasonable man would have made. The reason for this is that the eyes of Mr Emblin and Mr Reid were not shut, and there was no need to make the inquiries. I refer back to my findings on the question of whether the Disposal was made for an improper purpose, and to the narrative section of this judgment. It is clear from all the evidence that Mr Emblin and Mr Reid, on the one side, and Mr O’Shea, on the other side, did not deal at arm’s length, as would have been the case in a normal sale transaction. Instead, as I find, Mr Emblin, Mr Reid and Mr O'Shea collaborated in the design of the Disposal and, in particular, in the design of the components of the Disposal which resulted, as I have found, in the Disposal being made for an improper purpose. Given this position, I think that Mr Miall was right in his submission that, at least on the facts of the present case, the actual knowledge which the First Defendant, [FS Capital] by Mr Emblin and Mr Reid, was required to possess, in order to be fixed with actual notice, was knowledge of the facts which constituted the impropriety of the Disposal, as opposed to knowledge that the impropriety was, as a matter of Jersey law, a breach of trust.”
“305. . . . I have found that Mr Emblin and Mr Reid, in concert with Mr O’Shea, designed the Disposal in a way which would achieve what they wanted to achieve; namely payment of the creditors and termination of the Trusts. I have found that Mr Emblin and Mr Reid could not have been satisfied and were not satisfied that it was legitimate to disregard the interests of the Beneficiaries in this way. Given this state of knowledge it strikes me that it would have been perverse, if this had been the evidential position, that the First Defendant could have escaped being affected by the breach of trust which resulted from the design of the Disposal, on the basis of evidence from Mr Emblin and Mr Reid that they did not know that their design of the Disposal would constitute a breach of trust under Jersey law.”
“325. The facts of the present case are very different to Brownlie. In the present case there is ample evidence of the state of Jersey law, both from the experts and from the researches of counsel. In addition to this, the experts are agreed that the position is not settled in Jersey law, on the question of whether a fraud on a power is void or voidable. In these circumstances I can see no room for the operation of a presumption that Cloutte v Storey should have the same status under Jersey law as it has under English law; that is to say a binding decision of the Court of Appeal, unless it can be shown to be distinguishable. It may be that this is the position, as a matter of Jersey law, but I do not think that this position can be achieved by the operation of any presumption.”
“352. Drawing together all of the above discussion on the void/voidable issue, I reach the following conclusions. (1) I do not think that Cloutte v Storey can be distinguished in the present case. (2) Cloutte v Storey is Court of Appeal authority which binds me as a matter of English law. (3) I would expect a Jersey court to follow Cloutte v Storey, as a matter of Jersey law. Accordingly, I consider that Cloutte vStorey remains good law, so far as Jersey law is concerned. (4) I therefore conclude that, in the present case, the Disposal was void rather than voidable, in so far as it constituted a transfer of the Beneficial Interest.”
“370. I am of course considering the question of whether the Disposal should be set aside on a hypothetical basis. I have already decided that the Disposal was void, with the consequence that the Beneficial Interest will have remained in the Trusts. If however I had decided that the Disposal was voidable, I can summarise the decision which I would have made, on the question of whether the Disposal should be set aside, in the following terms: (1) I would have rejected the first three reasons advanced by the First Defendant for not setting aside the Disposal. For the reasons which I have set out above, I do not consider that any of these reasons have merit. (2) I would have required to hear further argument on what I should do, given the apparent absence of anyone available to act as trustee of the Trusts. I stress that this further argument would have been confined to the merits or otherwise of the fourth reason advanced by the First Defendant for not setting aside the Disposal. This would not have been a licence to re-open the first three reasons. (3) I would not have made a decision at this stage, to set aside the Disposal. I would have reserved that decision until I had heard the further argument from the parties on what I should do, given the apparent absence, at least as matters stand, of anyone available to act as trustee of the Trusts.”
“394. This evidence demonstrates, or more accurately confirms what can also be derived from the contemporaneous documents, namely that when the Second Defendant came to resign as trustee, it did so in circumstances where the intentions of the parties, namely the Second Defendant and the First Defendant, as represented by Mr O’Shea, Mr Emblin and Mr Reid, were (i) that the Disposal should proceed, (ii) that the Second Defendant would continue to be involved in an administrative role, and (iii) that Pinotage PTC would be put in place as trustee/vendor of Loan Assets in order to avoid the regulatory difficulties which might result from the Second Defendant continuing as trustee of the Trusts. To use the language of Head v Gould , the evidence demonstrates that the Disposal was very clearly contemplated by the Second Defendant, at the point when it resigned, or purported to resign in favour of Pinotage PTC.”
“. . . The breach of trust which, as I have found, was constituted by the Disposal, was not merely the outcome of the retirement of the Second Defendant as trustee. The whole purpose of putting Pinotage PTC in place as new trustee was to allow the sale of the Loan Assets, on terms which excluded the interests of the Beneficiaries, to proceed to completion, with the Second Defendant still dealing with the administration of the sale, but not having to deal with the regulatory issues which would or might arise if it continued as the actual trustee of the Trusts. Put more simply, Pinotage PTC was put in place as trustee in order to ensure that the Disposal would proceed, and would not be frustrated by the Second Defendant's regulatory concerns. These facts seem to me to be about as far from the facts of Head v Gould as they could be. 396. These facts also seem to me to demonstrate, and I so find, that the Second Defendant contemplated the very breach of trust which was in fact committed, namely the Disposal, at the time when the Second Defendant resigned, or purported to resign as trustee of the Trusts in favour of Pinotage PTC. These facts also seem to me to demonstrate, and I so find, that the Second Defendant retired in order to facilitate the breach of trust which was committed, namely the Disposal.”
“The First Defendant shall, upon receiving notice of the appointment of a new trustee of the Trusts from (i) the Claimants or (ii) a new trustee of the Trusts, take all steps necessary to transfer the Loan Assets to that new trustee, save that if upon receiving such notice the First Defendant within 14 days makes an application for directions pursuant to paragraph 7 of this order, the First Defendant shall not be required to take any steps prejudicing any equitable lien it may hold over the Loan Assets.”
“100. In the present case, as at the three dates identified in para 95 above, TPL’s case is that the banks ought to have appreciated that the transfers of money effected on, or as at, those dates was “probably improper” on the ground that the money was beneficially owned by TPL, or at least that the banks ought to have made inquiries before accepting the money. It is accepted by both TPL and the defendants that the issue is to be determined by asking what the banks actually knew, and what further inquiries, if any, a reasonable person, with the knowledge and experience of the banks, would have made, and, in the light of that, whether it was, or should have been, obvious to the banks that the transaction was probably improper.”
“104 In my view, despite what was apparently assumed in the Belmont Finance Corpn case, it seems to me that it is not possible to be as categorical as Mr Miles suggests. Just as in some cases but not in others a defendant ought to make further inquiries as to the facts, so in some cases but not in others it may be that a defendant should be taken to know the law. In my opinion, once a person knows certain facts, he should only be treated as appreciating the legal consequences if he actually knew of those consequences, or if in all the circumstances he ought reasonably to have appreciated those consequences. 105 That conclusion seems to be consistent with the principles referred to in paras 98 and 99 above, although the cases referred to there were concerned with facts and factual inferences rather than legal consequences. . . . 106 It is true that, like the Belmont Finance Corpn case[1980] 1 All ER 393 , the Carl Zeiss case[1969] 2Ch 276 was not a notice case. It is also true that different standards may be appropriate for assessing what constitutes knowledge or notice in knowing receipt, constructive trust, and notice cases: see per Megarry V-C in In re Montagu’s Settlement Trusts[1987] Ch 264 and Bank of Credit and Commerce International (Overseas)Ltd v Akindele[2001] Ch 437 . However, all such cases ultimately involve the question whether a recipient of money to which another person has a proprietary claim can properly retain the money, in the face of a claim by the other person, given what the recipient knew or ought to have appreciated at the time he received the money. 107 Even if different standards are appropriate to those different equitable claims (as to which I express no view), it would be surprising if a wholly different approach was taken when assessing whether the recipient of the money should be assumed to appreciate the legal consequences of the facts he knows or ought to know. It seems to me that the question whether one attributes to the recipient of the money knowledge of the legal consequences of the facts that he knows should be determined by reference to the same standard as is applicable to the facts. Thus, in the present case, the proper approach to the issue should be as laid down in the passages cited in paras 98—100 above.”
“Apologies for the delay, I have just had a chance to discuss the matter with general legal counsel for Pinotage. It is suggested that the issues with regard to either Hatstone being seen as holding the funds on escrow for Pinotage or the funds being held as part of the trusts remain. In addition,£100k for a potential£300m to£400m loan book is hard to justify from a trustee perspective. Having discussed the matter, it is clear there shall be good reasons for the trustee to proceed down the path of selling the loan book, but the sale amount must be appropriate. We have therefore come up with an alternative approach which it is hoped achieves all parties objectives: 1. Hatstone issues the invoice for£106k with the original narrative – facilitating the sale of the loan book. This way it is clear there is no escrow arrangement or funds forming part of trust property. 2. Hatstone invoices Pinotage for all time incurred to date on this matter – that will total between£750k to£1m . 3. The trusts will therefore arguably be ‘insolvent’ being another key reason why Pinotage will wish to sell the loan book – to help it satisfying such professional fees. 4. Pinotage agrees to sell the loan book to the SPV on the basis the SPV agrees to pay Hatstone from any proceeds it recovers. Hatstone will agree to this. The value to be paid for the loan book can be agreed, but can be up to£1m , which can be a more realistic purchase price. Any balance can be written off by Hatstone. The SPV shall not be taking on the debt – it is just agreeing to pay Hatstone from any proceeds recovered (or there could be a side agreement where Hatstone agrees to replace this for a 50% interest etc). This way: A. Hatstone cleanly receives its£106k B. The SPV does not need to pay anything upfront for the loan book C. The trustee has a good additional reason to sell the loan book and the value will be potentially more reflective of the market etc D. The proposed 50/50 split remains the same.”
“The consideration here is calculated based on time engaged by Hatstone and Pinotage for dealing with the contractor structures – it has not been calculated to include time on the EBTs. In terms of the consideration for the EBTs, it is suggested that this can be on a wholly deferred basis or I can try to calculate an increased consideration now (but not sure how that works when the PTC is not the trustee). To try to explain a little more, from the trustee's perspective, the trustee of the trust calculates the “consideration” by asking its creditors (the trustee and Hatstone) for their outstanding charges and approval to proceed with the disposal with the creditors agreeing to accept the deferred consideration in lieu of outstanding fees. This is the main way the trustee can justify the sale and the setting aside of the best interests of the beneficiaries, as the creditor rights arguably usurp those of the beneficiaries.”
“Has the appellant, the present vendor, shewn – as the burden is upon him to shew – that, having bought this land for value, he bought without notice of this incumbrance?”
“On the authority of Lord Browne-Wilkinson’s speech in the O’Brien case[1994] 1 AC 180 and on well-established equitable principles, the burden is not on Mrs Boulter to plead and prove that the bank had constructive notice: it is on the bank to plead and prove that it did not have constructive notice … It is well-established at this level of decision that the doctrine of bona fide purchaser for value without actual or constructive notice is a defence which can be raised to defeat a claim of an equitable right or interest and that the burden is on the person raising that defence to plead and prove all its elements: it is a ‘single defence’…”
“It means no more than this, that during the trial of an issue of fact there will often arrive one or more occasions when, if the judge were to take stock of the evidence so far adduced, he would conclude that, if there were to be no more evidence, a particular party would win. It would follow that, if the other party wished to escape defeat, he would have to call sufficient evidence to turn the scale. The identity of the party to whom this applies may change and change again during the hearing and it is often convenient to speak of one party or the other as having the evidentiary burden at a given time. This is, however, no more than shorthand, which should not be allowed to disguise the fact that the burden of proof in the strict sense will remain on the same party throughout, which will almost always mean that the party who relies on a particular fact in support of his case must prove it. I do not see how this fact of forensic life bears on the present case.”
“104. In my view, despite what was apparently assumed in the Belmont FinanceCorpn case, it seems to me that it is not possible to be as categorical as Mr Miles suggests. Just as in some cases but not in others a defendant ought to make further inquiries as to the facts, so in some cases but not in others it may be that a defendant should be taken to know the law. In my opinion, once a person knows certain facts, he should only be treated as appreciating the legal consequences if he actually knew of those consequences, or if in all the circumstances he ought reasonably to have appreciated those consequences.”
“125. A third important factor is that the presumption of similarity does not itself determine any legal issue. It only ever operates unless and until evidence of foreign law is adduced. Nor does the presumption alter the legal burden of proof. Where the presumption applies, it merely places the burden of adducing evidence on a party who wishes to displace it. It is always open to a party to adduce evidence of the applicable foreign law showing that it is in fact materially different from English law on the point in issue. 126. These factors provide good pragmatic reasons for applying the presumption in a range of cases, but they also determine its proper limits. There is no warrant for applying the presumption of similarity unless it is a fair and reasonable assumption to make in the particular case. The question is one of fact: in the circumstances is it reasonable to expect that the applicable foreign law is likely to be materially similar to English law on the matter in issue (meaning that any differences between the two systems are unlikely to lead to a different substantive outcome)? . . . 143. Because the application of the presumption of similarity is fact-specific, it is impossible to state any hard and fast rules as to when it may properly be employed. In light of the authorities discussed above, however, the following observations may be made. 144. First, for reasons already given, as a matter of broad generalisation the presumption is more likely to be appropriate where the applicable foreign law is another common law system rather than a system based on Roman law. There are, however, “great and broad” principles of law which are likely to impose an obligation in all developed legal systems. 145. Second, also as a matter of broad generalisation, the presumption is less likely to be appropriate where the relevant domestic law is contained in a statute, but this depends on the nature of the statute and, more specifically, the relevant statutory provision. There is a difference between a statute which codifies general principles and one which introduces a local scheme of regulation. The fact that the events in question are not actually within the scope of the domestic statute, for example because it does not have extraterritorial effect, is not a bar to relying on the presumption - as the question is not whether the domestic statute itself applies but whether it is reasonable to presume, unless and until the contrary is shown, that the foreign system of law contains a materially similar rule. That may depend upon the particular aspect of the statutory rule on which a party is seeking to rely. . . . 146. Third, it is in the nature of the test that its application may often be uncertain so that it is difficult to predict whether a judge will consider that the presumption can be relied on in a particular case. I do not think this problematic, however, given that reliance on the presumption is always a matter of choice. It is always open to the party who is asserting a claim or defence based on foreign law to adduce direct evidence of the content of the relevant foreign law rather than take the risk of relying on the presumption. Equally, it is always open to the other party to adduce such evidence showing that the foreign law is materially different from the corresponding English law rather than take the risk that the presumption will be applied. . . . 149. The essential point is that the presumption of similarity is only ever a basis for drawing inferences about the probable content of foreign law in the absence of better evidence. . . .”
“Now the power in this case is equitable only; i.e., it has no direct operation on the legal interest and could not have been enforced or challenged in any common law Court; the trustees in whom the legal title is vested must have transferred the property in order to give legal effect to the appointments. In such a case the difference between void and voidable is of little, if any, importance. Equity administers the trusts of the settlement and has regard only to equitable interests and equities: the appointments operate only in equity and are mandates to the trustees as to the mode of dealing with the legal title: there is nothing to be set aside or delivered up to be destroyed before effect can be given to the rights of the parties, because the Court has all the materials in its own hands and deals with the parties according to their rights in equity only. It would be otherwise if the power enabled dealings directly affecting the legal estate— . . . Any questions of a fraud on the power would be for equity only: Sugden on Powers, 8th ed., pp. 602 and 606. In such a case the appointee would have the legal estate, and it would be necessary to set aside the appointment in order to get rid of the legal estate which had passed thereunder ; and in an action for that purpose the plea of purchase for value without notice passing the legal estate would be a good defence : M’Queen v. Farquhar.(l) But in equity the appointment is void, not voidable : see Duke of Portland v. Topham (2), where the order of the Court of Appeal was affirmed by the House of Lords, and in the second case of Topham v. Duke of Portland (3) ; although by reason of the immateriality of the distinction in equitable transactions “voidable” is sometimes used when “void” would be more accurate.”
“The law may be stated thus: an appointment under a common law power, or a power operating under the Statute of Uses by which the legal estate has passed, is voidable only, and a purchaser for value with the legal estate and without notice is not affected by the fraudulent execution of the power; but an appointment in fraud of an equitable power, i.e., not operating so as to pass the legal estate or interest, is void, and a purchaser for value without notice but without the legal title can only rely on such equitable defences as are open to purchasers without the legal title who are subsequent in time against prior equitable titles.”
“55. By contrast, the proper purpose rule, which Clarke P called the improper purpose rule, involves identifying the purpose for which the power has been exercised and asking whether such purpose is a purpose for which the power has been given. While identification of the purpose of a power may well be relevant to the construction of the provision conferring it, the question raised by the proper purpose rule arises only once the scope of the power has been determined and once it has been determined that the exercise of the power was within the terms, or “scope”, of the power. This was made clear by Lord Sumption in Eclairs Group Ltd v JKX Oil & Gas plc[2015] UKSC 71 , [2015] Bus LR 1395 (Eclairs) at paras 15 and 30: “15…The important point for present purposes is that the proper purpose rule is not concerned with excess of power by doing an act which is beyond the scope of the instrument creating it as a matter of construction or implication. It is concerned with abuse of power, by doing acts which are within its scope but done for an improper reason.” “30…The rule is not a term of the contract and does not necessarily depend on any limitation on the scope of the power as a matter of construction. The proper purpose rule is a principle by which equity controls the exercise of a fiduciary’s powers in respects which are not, or not necessarily, determined by the instrument.”
“The term fraud in connection with frauds on a power does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power. Perhaps the most common instance of this is where the exercise is due to some bargain between the appointor and appointee, whereby the appointor, or some other person not an object of the power, is to derive a benefit. But such a bargain is not essential. It is enough that the appointor's purpose and intention is to secure a benefit for himself, or some other person not an object of the power. In such a case the appointment is invalid, unless the Court can clearly distinguish between the quantum of the benefit bona fide intended to be conferred on the appointee and the quantum of the benefit intended to be derived by the appointor or to be conferred on a stranger: see Sadler v. Pratt (1) and In re Perkins. (2)”
“The donee of a limited power must exercise it bona fide for the end designed by the donor, which requires that the power can be exercised only in favour of the objects of that power and in furtherance of the purpose for which was conferred. If the donee, in good faith, exercises a power in favour of a stranger or in some other way which is not consistent with the terms and scope of his power, such exercise is excessive. If, however, the donee deliberately attempts to secure the effect of an excessive execution without actually making one, the exercise of the power is not simply excessive; it is fraudulent and void. The donee:- “……. must act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power and not for the purpose of accomplishing or carrying into effect any bye or sinister object (sinister in the sense of being beyond the purpose and intent of the power).”” “……. must act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power and not for the purpose of accomplishing or carrying into effect any bye or sinister object (sinister in the sense of being beyond the purpose and intent of the power).””
“An excessive execution, being outside the scope of the trustees’ powers, is void (Lewin 29-240) and as the English authorities now stand, a power which is vitiated as a fraud on the power is void in equity. That authority is Cloutte v Storey[1911] Ch 18 , which Lord Walker at paragraph 93 of Pitt v Holt described as a difficult case without overruling it, but none of the parties before us sought to argue that we should not follow it. Article 47(H) of the Trusts Law allows the Court to declare the exercise of the power as voidable and having such effect as the Court may determine, or as having no effect from the date of its exercise.”
“[54] Without farther dwelling on the matter, inasmuch as your Lordships concur in opinion, I think we must all feel that the settled principles of the law upon this subject must be upheld, namely, that the donee, the appointor under the power, shall, at the time of the exercise of that power, and for any purpose for which it is used, act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power, and not for the purpose of accomplishing or carrying into effect any bye or sinister object (I mean sinister in the sense of its being beyond the purpose and intent of the power) which he may desire to effect in the exercise of the power. I think it would be endangering the whole of the established principles of our law upon this subject if we were to permit a transaction of this kind to stand, or to hold that it is a transaction which can be reconciled with the faithful, sincere, just, and honest exercise of the power committed to the appointor, and which he is to exercise as a trustee. . . .”
“though this was neither a contempt nor an act altogether void, yet it imposed upon the trustees the necessity of proving, by the strictest evidence, and at their own expense, that what had been done was perfectly right and proper and the case not appearing altogether clear, the appointment was set aside and the trustees were ordered personally to pay all the extra costs occasioned by their act.”
“…the appointment was not ipso facto void, but that it was only voidable. As the appointments stand alone on the deed polls they are good and valid; it is only the discovery of the purpose for which they are made that renders them invalid, and this purpose must be proved by the person who seeks to impugn the appointments. I therefore hold it to be clear that they were only voidable and consequently that they were capable of being confirmed.”
“I think a Court of Equity would hold such a deed to mean that it was an assignment of their interest by the persons entitled in default of appointment and a release of his power by the appointor, because, as we know, the appointor is not a trustee of the power and can release it if he pleases. In the deed in Preston v. Preston (1) the appointor had actually released the power, and I think the intention of the parties under that deed was sufficiently plain, and the conclusion must have been precisely the same whether such appointment is void or only voidable.”
“. . . It is hard to know what to make of Farwell LJ’s observations[1911] 1Ch 18 , 31: “If an appointment is void at law, no title at law can be founded on it; but this is not so in equity: the mere fact that the appointment is void does not prevent a Court of Equity from having regard to it: e g, an appointment under a limited power to a stranger is void, but equity may cause effect to be given to it by means of the doctrine of election.”
“The appointment was void, and so created no equitable title to the fund. The Court of Appeal recognised, however, that if legal title to the trust assets had been transferred to the purported appointee, that would have been effective, and an assignee of that legal title might be able to make out a defence of bona fide purchaser of the legal title for value without notice, so as to defeat the equitable rights of the beneficiaries in default of appointment.” “If an appointment is void at law, no title at law can be founded on it; but this is not so in equity: the mere fact that the appointment is void does not prevent a Court of Equity from having regard to it: e g, an appointment under a limited power to a stranger is void, but equity may cause effect to be given to it by means of the doctrine of election.”
“395. Returning to Mr Flavin's argument, it is true, as I have said, that the Second Defendant retired as trustee by reason of its regulatory concerns. This is however, as I have said, an incomplete statement of what occurred. The breach of trust which, as I have found, was constituted by the Disposal, was not merely the outcome of the retirement of the Second Defendant as trustee. The whole purpose of putting Pinotage PTC in place as new trustee was to allow the sale of the Loan Assets, on terms which excluded the interests of the Beneficiaries, to proceed to completion, with the Second Defendant still dealing with the administration of the sale, but not having to deal with the regulatory issues which would or might arise if it continued as the actual trustee of the Trusts. Put more simply, Pinotage PTC was put in place as trustee in order to ensure that the Disposal would proceed, and would not be frustrated by the Second Defendant's regulatory concerns. These facts seem to me to be about as far from the facts of Head v Gould as they could be.”
“[T]o make a retiring trustee liable for a breach of trust committed by his successor, it must be proved that the very breach of trust which was in fact committed was not merely the outcome of or rendered easy by the retirement and new appointment, but was contemplated by the former trustee when the retirement and appointment took place.”
“It is the duty of trustees to protect the funds intrusted to their care and to distribute those funds themselves or hand them over to their successors intact, that is, properly invested and without diminution, according to the terms of the mandate contained in the instrument of trust. This duty is imposed on them as long as they remain trustees and must be their guide in every act done by them as trustees. On retiring from the trust and passing on the trust estate to their successors —and this whether they appoint those successors or merely assign the property to the nominees of those who have the power of appointment—they are acting as trustees, and it is equally incumbent on them in this ultimate act of office to fulfil the duty imposed on them as at any other time. If therefore they neglect that duty and part with the property without due regard to it, they remain liable and will be held by the Court responsible for the consequences properly traceable to that neglect.”
“Trustees denuding themselves of trust funds, if they did so under circumstances that warranted any reasonable belief of the insecurity of the trust funds in the hands of those to whom they committed them, should not be considered in this Court as having validly discharged themselves of the custody of the trust funds, or released themselves from responsibility. About the principle of the Court there could be no doubt.”
“That, no doubt, is correct to this extent: - If a trustee be called upon to commit a breach of trust and refuses, and his cestuis que trust say, “There is A. B. who will; will you resign and surrender your trust to him ?” and, the old trustee accede to that proposal, and transfers the property to the new trustee, for the purpose of enabling him to commit a breach of trust, in that case the old trustee would probably be visited very severely by the Court.”
“it was not in their contemplation that such a fraud was to be perpetrated, but it was in their contemplation simply that a sum was to be raised as against cestuis que trust which it would be improper for the trustees in the execution of their duty to raise.”
‘No point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void.’