“As discussed, we shall be happy to assist with the following: 1. Provision of directors to the new company. 2. Consider entering into a JV arrangement so that since the company shall be connected with Hatstone (although not Hatstone labelled) it may be possible to use Hatstone’s address removing the requirement for a trust company to provide registered office services and directors. 3. Prepare the legal documentation; and 4. Consider the provision of escrow services to assist with the lending arrangement; and 5. Make introductions to trust companies in Jersey and Switzerland who may be able to assist if the intention is for the EBTs to be moved to a new trustee. In addition, we have an English law firm (Hatstone Lawyers (UK) Limited which is regulated by the SRA in England, and a Jersey law firm, Hatstone Lawyers, and so can assist with English law and Jersey law aspects.”
“With regard to Jersey trust companies with interesting EBT books, the main players are PraxisIFM, JTC, Elian (affiliated with Ogier law firm), Crestbridge (affiliated with Carey Olsen law firm), Vantage, Plectron and RBC. Vantage and Plectron I believe have been reducing their books and RBC, being a bank, may not be one of the better options. Overall, the most likely interested parties would appear to be PraxisIFM and JTC, from a Jersey perspective.”
“In addition, we have been considering the impact of the April 2019 loan charge (“2019 Loan Charge”), which is now barely 10 months away. The 2019 Loan Charge will deem the full amount you owe to the trustees to be income on5 April 2019 . This will be subject to PAYE and NIC. Consequently, the trustees are required to consider what is in the best interests of the numerous beneficiaries of the EFRBS.”
“Many thanks for your email with attachments. I am currently travelling and will let you have my comments as soon as possible. I was half expecting the communication to be a little stronger, but guess this will be the first communication following 5 April. As we have discussed, now that 5 April is behind us we need to consider the options which are available to the trustee. During a recent call, Mark mentioned that consideration is being given to purchasing the loans from the trustee. Should we have a call early next week to have an initial run through the options.”
“Could you please prepare an invoice (guess there are no tax consequences for this for Pinotage?) for the amount of the commission we are due for the above project. The invoice should be addressed to Reid & Co from Pinotage, but with the account details for Hatstone office account provided. The narrative should be Payment in respect of the proposed purchase of the outstanding loans They have asked for it be structured this way. Happy to discuss.”
“Further to our recent meetings, please now find attached an invoice in relation to the above. This has been calculated from the information we hold and so I hope is correct. We considered that the invoice needed to be issued by Hatstone since if issued by Pinotage, with the included narrative, then arguably the fee should be held by Pinotage as trustee of the various trusts, which does not work. Happy to reconsider the narrative and to whom it is issued and from which entity. Please just let me know. As discussed, it would be great if the invoice could be settled at your earliest convenience so we can arrange to reimburse both the former trustee and Pinotage who are chasing. I look forward to hearing from you.”
“2. We agreed that marrying up his and our requirements would mean that Hatstone would reissue the invoice to Reid & Co and the narrative would refer to Reid & Co’s clients acquisition of the debt books. This would mean that Hatstone had received the funds on behalf of Pinotage and Hatstone would then bill Pinotage so that funds were with Hatstone. Carl is to check internally whether anyone objects to this. 3. Hatstone has all the raw data on the debt books so it seemed sensible for Hatstone to draw up the deeds of assignment and we can get Richard to review on our behalf.”
“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”
“Please kindly arrange for a payment on account to be made in relation to the non-refundable part payment of the purchase price of the loan book being purchased by your client from our client Pinotage Trustees Sarl.”
“This report sets out the current position of Pinotage Trustees SARL (“Pinotage”) in its capacity as trustee of a number of trusts which are Employee Benefit Trusts (“EBTs”) and Employer Financed Retirement Benefit Schemes (“EFRBS”). Pinotage became trustee of a number of EBTs and EFRBS prior to5 April 2019 . In all cases, the beneficiaries of the trusts owed the trusts money as part of what HM Revenue & Customs consider to be disguised remuneration schemes, including contractor loan schemes. Pinotage now has significant liabilities, as trustees of these trusts, and needs to realise assets in order to fund the trust liabilities. The aim of this report is to set out for Hatstone the options it may wish to discuss with Pinotage with regard to the trusts with a view to bringing the trusts to a close in the short term. This is to minimise the exposure of the trustees to reporting obligations and the beneficiaries to changes in tax legislation.”
“In view of the problems engaging with beneficiaries, the trustees may consider it appropriate to sell the debt book. The proceeds (after settling the trustee liabilities) could then be appointed to beneficiaries, who would then have cash to pay any tax charge arising thereon. In addition, for those beneficiaries where having an outstanding debt would be a benefit (such as those contemplating an IVA for example) the debt would remain outstanding to an independent third party who would have a significant role in any proceedings, thus taking power away from HMRC which is likely to be the second biggest creditor. A sale would therefore be in the interests of such beneficiaries.”
“Pinotage is a member of ARIF [the Swiss regulatory authority] and has to comply with its directives. Non-compliance with the directives can result in monetary penalties and may lead to ARIF revoking Pinotage’s membership. On review, the trusteeship of the following three trusts is putting Pinotage at risk of being non-compliant: The Prime Contractor Solutions Employer-Financed Retirement Benefit Scheme; The Contractor Solutions Employer-Financed Retirement Benefit Scheme 2012; and The Trustee Of The Hyrax Resourcing Employer-Financed Retirement Benefit Scheme, The Contractor Solutions Employer-Financed Retirement Benefit Scheme 2012; and Together (the “Trusts”) The purpose of this discussion is for Hannes, who is knowledgeable about both the ARIF directives and Pinotage’s day to day operations, to advice on the risks that Pinotage is facing, and possible solutions.”
“After Pinotage took on trusteeship of the Trusts, we sent out various emails to the many beneficiaries, requesting them to provide certified copies of their identity documents and an up to date proof of address. Many beneficiaries have failed to respond, and as Hannes pointed out, this non-compliance of the beneficiaries causes Pinotage to be in the unfortunate position of not being able to comply with the directives of ARIF from a regulatory and compliance perspective. It is clear that prompt and remedial action is necessary, and Hannes strongly recommends that Pinotage takes corrective action before30 June 2019 , as this is the cut-off date for the 2019 ARIF audit. Hannes further suggested two possible remedial actions that Pinotage could take. This is to either transfer the Trusts to another trustee or terminate them. Both remedies will ensure that Pinotage is not penalized for being non-compliant, as the Trusts will remain in the Trustee Register of Trusts, but they will no longer be listed under the “active trust” section”, and they will therefore not be scrutinized in the same stringent manner as if they were. We have a fiduciary duty towards our other trusts and will consider Hannes’s advice and act in a way that will best protect Pinotage’s standing with its governing body. It was noted that it was unlikely, if not impossible, that another trust company would take on these trusts due to the apparent compliance issues. It is also not possible to terminate the trusts. A potential solution would be to set up a PTC to run the trusts. This would solve the upcoming Swiss audit and compliance issue and provide more time for hopefully obtaining the missing due diligence and dealing with the Trusts for those who are engaged. It was suggested that Carl look into this and, if possible, to arrange prior to30 June 2019 .”
“As discussed, Pinotage has been considering whether or not it shall be an issue to be trustee of the various contractor solutions at the time it is next audited by its regulator in Switzerland. The audit will happen in the coming months. On the basis many beneficiaries have failed to engage with the trustee and provide up to date client due diligence then it will have an issue. When taking on these trusts, Pinotage had a grace period to obtain the client due diligence, but that period has now passed. A solution we have been considering is establishing a private trust company for each contractor trust. Each PTC may bear the name ‘Pinotage’ in order to keep continuity for the purposes of the borrowers/clients and will be administered by Pinotage. This change would take the trusts outside the scope of the audit. It shall be possible to sell the shares of each PTC to a willing buyer. It [will] not be possible to repeat this for the EBTs. I look forward to your comments/thoughts and would be happy to discuss by phone.”
“DG mentioned that as far the beneficiaries were concerned, the original trustees had received “lifetime fees” in advance and as such, no further trustee fees were anticipated. DG acknowledged that the lack of interaction between the trustees and beneficiaries, despite the best efforts of Pinotage, resulted in a “zombie population” of beneficiaries who intentions were completely unknown. SRE proceeded to set the scene in respect of Pinotage’s position and their intentions. In the pre-April 2019 environment, Pinotage were effectively a “white knight” coming in to take over the trusts with the belief that the beneficiaries would either settle with HMRC and look to write off the loans, in which case Pinotage would charge a modest fee, or repay their loans using the Pyrrhus financing option. It was anticipated that Pinotage would take over up to 1000 EBT/EFRBS, however progress with obtaining signed DORAs was slow and in the event, only around 100 trusts were transferred. Pinotage suffered a commercial cost in these transactions, as the retiring trustees required payment and Pinotage had their own internal compliance “take on” costs as well. The so-called “lifetime trustee fees” were never part of any commercial discussions - Pinotage were unaware of such fees and received nothing in respect of them. Following the Peak conferences and roadshow events, attended by Carl O’Shea of Pinotage (“CO”), the message changed and there was a divergence of views. The defence of the underlying schemes collapsed and there was little subsequent communication between the trustees and beneficiaries, despite a regular stream of email updates from Pinotage. By5 April 2019 , it became apparent that very few beneficiaries had settled with HMRC or repaid their loans using the Pyrrhus facility, or any other method and it appears that the vast majority of beneficiaries did nothing at all. Pinotage were therefore left with a large book of outstanding debt (creditor rights and loans) and a refusal by the beneficiaries to communicate with the trustees making a difficult situation worse. Pinotage were left in a position where they needed to recoup their costs and therefore started looking at options. In addition, the external auditors are coming to visit Pinotage shortly and the trustees are faced with explaining the lack of KYC and engagement with the beneficiaries on three large schemes. Behind the scenes, the South African trustees are feeling very uncomfortable and want an exit. CO approached SRE and MMR for assistance and it was decided that the best exit route for Pinotage was to remove the trusts from the balance sheet, to avoid the potentially serious regulatory issues. SRE stated that there have been developments since he last spoke to DG and it is now the intention for the trusts to transfer to an entity connected to SRE and MMR, with the administration of the trusts to remain with Pinotage. The parties are well down the road to agreeing the terms for this transaction and it will be completed shortly. The new entity will therefore own the creditor rights/loan book.”
“Hello Mark Sorry, just thinking – did we get a rough valuation of the loan book? I guess it may be helpful to have a rough idea what£1m of old and arguably bad debt is worth. It is the kind of information which may be good to include in the trustee resolution approving the sale.”
“Following our conversation yesterday concerning the books of debt being purchased from Hyrax et al, the Trustees would appear to have ample reason to sell this debt at a level sufficient to recoup most of their their outlay and costs in respect of acting as trustees of the Trusts on the basis the Trustees have deemed, if not actual, knowledge that circa 99% of the debtors are insolvent. The Trustees reasoning is as follows:- When Pinotage become Trustees, the April 2019 loan Charge, as set out in Schedule 11 of the Finance (No.2)) Act 2017, had not taken effect and the Trustees through a series of road shows in London, Birmingham, Manchester and Edinburgh sought to urge debtors either to settle with HMRC on or before5th April 2019 and have their loans written off for a fixed fee, or repay their loans to Trustees on or before5th April 2019 ; The Trustees are aware that none but a small handful of debtors either repaid their loans or entered into settlements with HMRC on or by 2019; Even if there are a number of debtors still in negotiation with HMRC, this number, to the best of the knowledge of the Trustees, is very small in comparison to the total number of debtors; More to the point, as the vast majority of debtors did not repay their loans on or by5th April 2019 , then not only has the April 2019 Loan Charge taken effect but debtors also remain liable for the underlying tax planning they entered into - a point emphasised by HMRC. In short, the Trustees, contrary to their expectations when they became trustees, consider that these books of debts have nothing but a notional value at best, that there are unacceptable regulatory and reputational issues concerned with continued associations with such Trusts and that the only reasonable course of action open to the Trustees to recoup their costs is to sell the book of debts as soon as practicable. I also had a long chat (they come in no other form) with David Gill today. He says people will want debts written off but wish to settle first. I said we would welcome dialogue with such persons as and when but must proceed with the purchase of the debts as previously advised.”
“A huge commercial opportunity is being lost if these 800 individuals referred to below, supposedly in the throes of settling with HMRC, are not transferred to FS Capital. We have been in dialogue with David Gill on this matter over recent weeks and our message to him now appears at variance with the position of Pinotage. David will seek to exploit any inconsistency for his own ends.”
“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.”
“I will split the Initial and the Deferred Consideration equally between the Trusts albeit I thought you would divide the Consideration based on the quantum of debt being assigned by each Trust. I will also put the name of the Trust on the face of each SPA and Deed of Assignment. Thanks. Yes, the consideration is not linked to the value of the loans for the purposes of the trustee – it is calculated by reference to the amount owed to creditors”
“IT WAS RESOLVED that: (i) the Trustee has the power to sell the Debts and thereby taking into account the above approves the sale of the loans to FS Capital; (ii) it is in the best interest of the creditors (and arguably the Beneficiaries too) to sell the Debts; (iii) the Trustee (acting in its capacity as such) shall conclude the Agreements; and (iv) any authorised signatory of the Trustee be authorised to sign the sale agreement.” (i) the Trustee has the power to sell the Debts and thereby taking into account the above approves the sale of the loans to FS Capital; (ii) it is in the best interest of the creditors (and arguably the Beneficiaries too) to sell the Debts; (iii) the Trustee (acting in its capacity as such) shall conclude the Agreements; and (iv) any authorised signatory of the Trustee be authorised to sign the sale agreement.”
“The purported sale and assignment of the Loan Assets to FS Capital from the 2011 and 2012 Trusts by Pinotage PTC (acting by and through Mr O’Shea) was a fraud on the power, such sale and assignment being intended not for the benefit of the beneficiaries but instead to facilitate the Trusts being brought to an end in a manner which benefitted FS Capital, Pinotage Sarl, Pinotage PTC, and Hatstone Jersey at the exclusion of the beneficiaries and/or for a purpose otherwise foreign to the power.”
“17. The legal system of Jersey derives from Norman customary law but has developed under the influence of French civil law and, more recently, English common law. The principal sources of law are customary law, legislation and judicial decision. Where legislation makes no provision and there is an absence of Jersey judicial authority, the greatest weight is attached to writers on the law of Jersey, such as Poingdestre, Le Geyt and Le Gros. Other writers of distinction have been influential insofar as their writings on the law of Normandy or the law of France before the introduction of the Code Civil in 1804 provide useful guidance as to Norman customary law; among such writers Pothier is pre-eminent. Modern French law may be of assistance but is used with caution: unless it can be seen to rest on principles derived without great change from the old customary law, its significance will lie only in a comparative consideration of how another legal system has addressed common problems. (On this, see the observations of Birt DB in Re Esteem Settlement and the No. 52 Trust[2002] JLR 53 (“Esteem”) at paras 167-168.) In more recent times, substantial areas of English law have been closely followed by legislation or by judicial decision; among these, and relevant to this case, are the laws relating to companies, trusts and torts. Other areas of law retain their distinctive character derived from Norman and French customary law: for example, land law, wills and succession, and contract.”
“18. The court of first instance in Jersey is the Royal Court, where a Judge (the Bailiff, the Deputy Bailiff, or a Commissioner) sits with two assessors of fact (Jurats). The Master of the Royal Court is a procedural and interlocutory judge, from whose decisions an appeal lies as of right to the Royal Court. Appeals from the Royal Court go to the Jersey Court of Appeal. The final court of appeal is the Judicial Committee of the Privy Council. 19. Jersey courts are not bound by precedent in the same manner as are English courts, but the role of precedent has become increasingly important. The Royal Court is not bound by its own earlier decisions on points of law but will only depart from such a decision if satisfied that it was wrongly decided. The Royal Court will follow a decision of the Jersey Court of Appeal and a decision of the Privy Council sitting as an appeal court in a Jersey case; decisions of the Privy Council on appeal from other jurisdictions are persuasive only. The Jersey Court of Appeal is not bound by decisions of the Royal Court, though where such decisions have remained unchallenged for a period of time it will not depart from them unless persuaded that they were contrary to earlier authority or are the cause of practical injustice. Decisions of the courts of other jurisdictions may be persuasive but are never binding.”
“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.”
“(I) It is intended that the property now in the Settlement and the Sub-Funds, whether comprised of income or capital as specified in the First Schedule herein (the “Trust Fund”), shall forthwith be transferred to, or placed under the control of, the New Trustee.”
“5. The New Trustee hereby consents to be and act as trustee of the Settlement and shall stand possessed of the Trust Fund with and subject to the trusts, powers and provisions declared and contained in the Settlement Instrument so far as the same are now subsisting and capable of taking effect.” “10. Subject to the Retiring Trustee’s right to retain reasonably security for liabilities (but without prejudice to the terms of clause 7 above) the Retiring Trustee hereby covenants at any time and from time to time to do all such acts and things and execute all such documents as may be necessary to vest all of the Trust Fund in the New Trustee.”
“145.It is accordingly necessary to consider the terms of the 2012 appointment. So far as material, they are as follows. (i). Recital (B): “Pursuant to the Twelfth Clause of the Trust the Trustees have power at any time or times and from time to time before the Distribution Date and without infringing the rule against perpetuities at the absolute discretion of the Trustees by any irrevocable deed or deeds to resign as Trustees and to appoint a New Trustee or New Trustees outside the jurisdiction at that time applicable to the Trusts thereunder as Trustees thereof and to declare that the Trusts thereof shall be read and have effect according to the laws of the country of the residence or incorporation of such New Trustee or Trustees and upon such appointment being made the then Trustees shall immediately stand possessed of the Trust Fund upon trust for the New Trustee or Trustees as soon as possible …”. (ii) Recital (G): “It is intended that the assets subject to the trusts of the Trust (the "Trust Fund") shall forthwith be transferred into the name of, or under the control of, the New Trustee …”. (iii) Clause 4: “The parties hereby declare that the property comprised in the Trust Fund shall upon execution hereof vest in the New Trustee and the Outgoing Trustees hereby covenant and undertake to execute all documents and take all such other action as is necessary for the vesting of the Trust Fund in the New Trustee, following which the New Trustee shall hold the Trust Fund upon the trusts and with and subject to the powers and provisions of the Trust so far as the same are now subsisting and capable of taking effect” (all emphasis added).”
“146. In our judgment, as a matter of construction the 2012 appointment constitutes an immediate assignment of such trust property as is capable of assignment. This is the effect of clause 4, which in terms speaks of the trust property vesting in Appleby Mauritius on execution of the 2012 appointment. That is consistent with recital (G), which expresses an intention that the trust property shall be forthwith transferred to Appleby Mauritius – as, so far as it is capable of assignment, it is by the effect of clause 4. The reference in the latter part of clause 4 to the execution of documents and the taking of action necessary to vest the trust fund in Appleby Mauritius applies only to assets that require some further action before title is transferred: for example, the registration of shares and the delivery of chattels. Thus title to the Promissory Note as a physical document would pass only upon delivery to Appleby Mauritius, and until then would be held on trust by BNP Jersey for Appleby Mauritius as contemplated by Recital (B); but title to the chose in action represented by the Promissory Note, which could be assigned by appointment of Appleby Mauritius as mandataire, passed on execution of the 2012 appointment by virtue of clause 4. In consequence, title to the right to recover the sums due under the Promissory Note passed to Appleby Mauritius forthwith on execution of the 2012 appointment; and, subject to notice being given to Croci BV, thereafter the only person entitled to receive those sums was Appleby Mauritius.”
“Whether, before there has been a formal vesting of assets, a new trustee can effectively act in relation to an asset without the involvement of the old trustee, in whom title is vested, will depend upon the circumstances. For example, where a contract has been entered into by the old trustee expressly as trustee of a trust, it may be that the counterparty to the agreement will accept the new trustee as having taken the place of the old trustee and become entitled to act in relation to the contract without the need for a formal assignment. This may well depend upon the proper law of contract.”
“15.. So far as we know there was, as I have already indicated, no express assignment by him of the benefit of that judgment before September of this year. But the underlying principle in equity is, as one knows only too well, that equity treats as done, that which ought to be done. And where there is already in existence by operation of law, by virtue of the office, a fiduciary and equitable obligation to hold the benefit of the legal chose in action for the officer holder's successors in title, that seems to me to be a strong basis for an assumption that the intention was to effect an assignment in equity once that office holder comes to retire and his successor is appointed. 16.. It was submitted to me, on behalf of Mr Coulter by Mr Stubbert, that there has to be some outward manifestation, or some transaction between assignor and assignee before that legal consequence can occur. But in my judgment, the only effect of a contract, for example, would be to give rise to an equitable obligation, enforceable by the courts, for the transfer of the property from assignor to assignee. If, for the reasons which I have given, an obligation to hold that property in trust and eventually to transfer it to the benefit of subsequent office holders already exists, then the conditions for an equitable assignment are already there. What, in my judgment, acts as the trigger, if trigger is needed, is the manifest event of the resignation or retirement of the existing office holder, and the assumption of office by his successor. That is, as I see it, a sufficient outward manifestation of an intention that the successor office holder should obtain the benefits of any property held on trust by a predecessor, for there to be an equitable assignment of the benefit of the judgment.”
“IT IS RESOLVED THAT all acts, deeds, documents, instruments, resolutions and any other things done by PTC in its purported capacity as trustee of the Trust be and are hereby approved, ratified and confirmed.”
“At Completion the Seller shall sell and the Buyer shall buy all the Seller’s rights, titles and interests in the Debt and the Loan Agreement (including without limitation all rights and claims against the Original Lender as trustee and/or any other legal owner of the Loan Agreements and/or Debt) free from all Encumbrances, together with all rights attached or accruing to them.”
“2.1 At Completion, the Seller shall sell and the Buyer shall buy all the Seller’s rights, titles and interests in the Debt and the Loan Agreements (including without limitation all rights and claims against the Original Lender as trustee and/or any other legal owner of the Loan Agreements and/or Debt) and free from all Encumbrances, together with all rights attached or accruing to them. 2.2 In the period between the date of this agreement and the Completion Date the Seller may in its absolute discretion release any of the Borrowers (Released Borrowers) from that part of the Debt owed by them in which event: 2.2.1 The names of the Released Borrowers shall be deemed for all purposes of this agreement removed from the list set out in Schedule 2 and shall not form part of the sale and purchase contemplated by this agreement; and 2.2.2 The Seller may retain any consideration payable to the Seller by the Released Borrowers as consideration for such release.” 2.2.1 The names of the Released Borrowers shall be deemed for all purposes of this agreement removed from the list set out in Schedule 2 and shall not form part of the sale and purchase contemplated by this agreement; and 2.2.2 The Seller may retain any consideration payable to the Seller by the Released Borrowers as consideration for such release.”
“4.2 To the extent that any Debts remain in the Trusts for whatever reason, the Trustees, and each of them (as the case may be), hereby confirm the transfer of all rights, title and interest in and to the Debts to the Buyer with effect from15 December 2019 .”
“51. It is not in dispute that the powers conferred on the GRT trustee under clause 8 of the GRT trust deed are fiduciary powers. As such, their exercise is subject to duties and restrictions imposed by equity. The issues raised by what are the most significant duties for the purposes of the present appeal were summarised by Clarke P in his judgment at para 168: “(a) Whether the way in which it has been exercised is not within, or contrary to, the express or implied terms of the power (the scope of the power rule); (b) Whether the trustee has given adequate deliberation as to whether and how he should exercise the power; and (c) Whether the use of the power by the GRT Trustee, although within its scope, was for an improper purpose i.e. a purpose other than the one for which it was conferred (the improper purpose rule).” 52. This summary, based on a submission of Grand View, is derived from the judgment of Lord Walker in Pitt v Holt[2013] UKSC 26 ,[2013] 2 AC 108 at paras 60- 61. It is, in the view of the Board, a helpful and accurate summary of three major duties and restrictions applicable to the exercise of fiduciary powers, save only, as regards paragraph (c), that a power may have more than one proper purpose.”
“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.” “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.”
“120. In the Board’s view, it is generally the case that fiduciary powers conferred on a trustee of a trust with identified beneficiaries must be exercised to further the interests of the beneficiaries. This is clearly the case with essentially administrative powers, such as the powers of investment. It should be noted that both Cowan v Scargill and Lord Nicholls’ article were concerned with powers of investment.”
“5. The Z II and Z III Trusts are insolvent. To talk of an insolvent trust is, of course, a misnomer. A trust is not a separate legal entity and cannot, as a matter of law, be insolvent. The accounts of the trusts have been drawn up as if they were separate legal entities, but the assets and liabilities disclosed by those accounts are, in fact, the assets and liabilities of the trustees and it is to them that creditors will have recourse, unless security has been granted by the trustees over the trust assets. However, it is a useful form of shorthand, and we will continue to use it.”
“30. As stated at paragraphs 24 and 28 of Del Amo, in relation to estates, insolvency brings about a shift towards the interests of the creditors analogous to that seen in company law and a trust that becomes insolvent should thereafter be administered on the basis that it is insolvent, treating the creditors, rather than the beneficiaries, as the persons with the economic interest in the trust. As a matter of logic and principle, it is difficult to see how else an insolvent trust should be administered by the trustee and supervised by the Court. We note that this approach accords with the advice of Elspeth Talbot-Rice QC given to Barclays on 10th May, 2013, in relation to the insolvency of the Z III Trust.” “32. We conclude, therefore, that once there is an insolvency or probably 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. The trustee or fiduciary of such a trust would be wise therefore to exercise their powers either with the consent of all of the creditors or under directions given by the Court.”
“81 Where the company is insolvent or bordering on insolvency but is not faced with an inevitable insolvent liquidation or administration, the directors’ fiduciary duty to act in the company’s interests has to reflect the fact that both the shareholders and the creditors have an interest in the company’s affairs. In those circumstances, the directors should have regard to the interests of the company’s general body of creditors, as well as to the interests of the general body of shareholders, and act accordingly. Where their interests are in conflict, a balancing exercise will be necessary. Consistently with what was said in Kinsela at p 733 (para 33 above), and with the reasoning in paras 48—59 above, it can I think be said as a general rule that the more parlous the state of the company, the more the interests of the creditors will predominate, and the greater the weight which should therefore be given to their interests as against those of the shareholders. That is most clearly the position where an insolvent liquidation or administration is inevitable, and the shareholders consequently cease to retain any valuable interest in the company. 82 I agree with Lord Briggs JSC that there is much to be said for an approach to these issues which is sufficiently fact-specific to “take account of differences, according to particular circumstances, in what it may be reasonable and responsible for directors to do when they find that the company is in a sufficiently weak financial situation that a conflict of interest between its creditors and its shareholders appears to arise”, as Lt Bailiff Hazel Marshall QC said in Carlyle Capital Corpn Ltd v Conway (Judgment 38/2017) (unreported)4 September 2017 (Royal Court of Guernsey), para 456.”
“176 In my view, prior to the time when liquidation becomes inevitable and section 214 becomes engaged, the creditor duty is a duty to consider creditors’ interests, to give them appropriate weight, and to balance them against shareholders’ interests where they may conflict. Circumstances may require the directors to treat shareholders’ interests as subordinate to those of the creditors. This is implicit both in the recognition in section 172(3) that the general duty in section 172(1) is “subject to” the creditor duty, and in the recognition that, in some circumstances, the directors must “act in the interests of creditors”
“56. The right of indemnity entitles a trustee both to be reimbursed for any liabilities properly incurred in the execution of the trust which it has paid from its own resources and to pay or seek payment of such liabilities from the trust assets without first making payment out of its own resources. These two aspects of the right of indemnity are commonly described as a right of reimbursement (or recoupment) and a right of exoneration.”
“61. Second, it follows from the first proposition that it is inaccurate to speak of an insolvent trust. Since a trust is not a legal person and all liabilities incurred by the trustee acting as such are personal liabilities of the trustee, it is only the trustee who can become insolvent, whether on account of trust liabilities or its personal liabilities or both. It is likewise inaccurate to speak of “trust creditors”
“102. Second, the lien or equitable charge conferred by the right of indemnity does not itself confer a power to sell any trust property: Hewett v Court (supra): Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCA 40 (the Full Court of the Federal Court of Australia) at para 44 per Allsop CJ. If the trust assets include liquid assets, a trustee, or a former trustee still in possession of such liquid assets, can itself apply those liquid assets in exoneration or reimbursement. In respect of other assets, the trustee or former trustee must have a power of sale from some other source which it can use for this purpose. This will not usually present a problem for a trustee who is in office, who will normally be able to rely on powers conferred by the trust instrument or by statute. If, however, the trustee has ceased to hold office, it will no longer have those powers available to it, even though it remains in possession of, or the legal owner of, trust property. In those circumstances, the former trustee will have to apply to court for an order for sale or for the appointment of a receiver with a power of sale. For a discussion of these issues, see Apostolou v VA Corpn Aust Pty Ltd [2010] FCA 64 (Finkelstein J) at paras 38-48, Jones (Liquidator) v Matrix Partners Pty Ltd (supra) at paras 89-91.”
“21. We have not been provided with any minutes setting out the Trustee’s decision or the reasons for it. However, the affidavit of Ms Miller suggests that the main consideration is that the Trust is cash-flow insolvent and cannot pay its creditors, of which the Trustee itself is the largest because of outstanding fees. The Trustee acknowledges the desirability of retaining the Property where some of the beneficiaries wish to do so, but asserts that it has explored whether this is possible by way of the siblings buying out the elder son’s interest and agreement has not proved possible; the siblings have not formulated any sufficiently concrete and workable proposal. In these circumstances, the Trustee considers that there is no alternative to a sale.”
“52. Secondly, the Trustee did not consider the tax consequences of its decision at the time it made its decision. It has explained that it did not feel it could incur the costs of seeking tax advice because it had no liquid funds. In the circumstances of this case, we would reject that as a proper excuse. The Trust has a substantial asset in the form of the Property and there is no question but that the Trustee will at some stage be able to obtain reimbursement for its reasonable fees and expenses out of the trust property. This is not a case of an impoverished trustee who could not afford the outlay in obtaining advice or of a situation where there are no assets from which the outlay can eventually be recovered.”
“Q. Right. So Mr O'Shea had explained to you and Mr Reid exactly what the basis was for calculating the cap that was agreed, had he not? A. He had. Q. You knew that the very precise figure of£1,176,033.93 was selected by Mr O'Shea to correspond precisely to the sum said to be owing to the trustee. A. We did. Q. You knew, did you not, that the so called insolvency of the trusts was being used by him as a justification for setting aside the best interests of the beneficiaries of the trusts. A. Yes. Q. You knew that the whole purpose of the way that this transaction was structured was to raise funds to pay those creditors but then leave nothing by way of surplus for the beneficiaries, which would allow the trust to be terminated. Correct? A. Correct.”
“Q. Yes. You knew, did you not, that the alleged insolvency of the trust was being used as a justification for setting aside the interests of the beneficiaries and acting in (inaudible), yes? A. Yes. Q. And you knew that the purpose of the way that this transaction was structured was to raise funds to pay the creditors up to that level maximum, but then leave nothing else in surplus to terminate the trust, yes? A. Yes.”
“Q. The very precise figure of£1,176,033.93 was selected by you to correspond exactly with the sums said to be owing to the trustee and the trustee’s creditors. A. Correct. Q. Yes? That meant that the insolvency of the trusts, as you saw in your email, could be used as a justification for setting aside the interests of the beneficiaries. Correct? A. Correct, the trusts insolvent. Q. So the whole purpose of the way this transaction was structured was to raise funds to pay the creditors but leave nothing for the beneficiaries and to be able to terminate the trusts, yes? A. Nothing would be left for the beneficiaries. Q. Yes. So the purpose, the purpose of this structure, was to raise the funds to pay the creditors and then leave nothing left for the beneficiaries to terminate the trusts. That is correct. A. It was not designed for the purpose that nothing would be left for the beneficiaries, but the result is there’s nothing left for the beneficiaries.”
“Q. Let us just quickly look at it. Sorry, I (inaudible) because everyone needs a break, but the amount of the deferred consideration corresponded exactly to the amounts owed to the creditors. The point of setting it at that level - it is very clear - is that, assume when you get to the full cap the creditors will have been paid off in full, yes? A. Correct. Q. There will then be nothing left beyond that, and therefore nothing for the beneficiaries and the trust will terminate for want of assets. A. Correct. Q. That was an intentional structure. Leaving aside, you know, whether you feel you are being criticised for taking that decision, that was the decision taken with that purpose in mind, was it not? A. Yes, I thought that was the best approach.”
“36. In respect of paragraph 51(b) it is denied that FS Capital is able to rely on article 55 of the Trusts (Jersey) Law 1984 in defence of the Claimants’ claim to recover the Loan Assets: 36.1. In relation to the purported purchase of the Loan Assets, FS Capital (i) was not a bona fide purchaser, and (ii) had notice (actual or alternatively constructive) of the breaches of trust set out in the Amended Particulars of Claim. Paragraph 48 of the Amended Particulars of Claim is repeated.” 36.1. In relation to the purported purchase of the Loan Assets, FS Capital (i) was not a bona fide purchaser, and (ii) had notice (actual or alternatively constructive) of the breaches of trust set out in the Amended Particulars of Claim. Paragraph 48 of the Amended Particulars of Claim is repeated.”
“36.1.In relation to the purported purchase of the Loan Assets, FS Capital (i) was not a bona fide purchaser because there remained at the commencement of these proceedings a contingent liability to pay deferred consideration under the First Sale Purchase Agreement as set out in paragraph 24I.2 of the Re-Amended Particulars of Claim, and (ii) had notice (actual or alternatively constructive) of the breaches of trust set out in the Amended Particulars of Claim. Paragraph 48 of the Amended Particulars of Claim is repeated.”
“Secondly, are the plaintiffs bound by the equity to rectify? In the light of my decision on the first issue, this issue does not now arise. I shall, nevertheless, give my opinion very shortly on it. The plaintiff company first received notice of the defendants' claim for rectification on December 17 1980, that is, between the date of the plaintiff's contract to purchase the lease for£17,500 , which was November 7 1980, and the date of the assignment, which was December 31 1980, which was when the purchase price was paid. It is not disputed that a bona fide purchaser of an equitable interest without notice of an equity to rectify takes free from it. See Westminster Bank Ltd v Lee[1956] Ch 7 . It is also not disputed that the plaintiff acquired an equitable interest on entering into the contract of December 7 1980. See Shaw v Foster (1872) LR 5 HL 321. The question is, was the plaintiff a bona fide purchaser for the value on that date? I do not think so. The plaintiff had not then paid the purchase price and could not be regarded as a purchaser for value until the full price was paid. See Tourville v Naish (1734) 24 ER 1077.”
“The first objection was, That there is not a sufficient denial of notice, because it is not averted the purchase money was [631] paid before notice, but only that the purchaser had no notice, at or before the time of the execution of the deeds. As it stands upon this plea, the money might not be paid before notice. And if it be the established rule of this court, that notice must necessarily be denied at or before the execution of the deed, and at or before the payment of the money; Then there is not a proper averment here, and therefore I am of opinion this denial of notice is not sufficient, unless it had gone farther, and shewn that the purchaser had no notice before he paid the money. (Vide Fitzgerald v. Burk, ante, 397. Hardingham v. Nicholls, post, 3 vol. 304.)”
“Now until recently I do not think there had been any classification of "knowledge" which corresponded with the classification of "notice." However, in the Baden case, at p. 407, the judgment sets out five categories of knowledge, or of the circumstances in which the court may treat a person as having knowledge. Counsel in that case were substantially in agreement in treating all five types as being relevant for the purpose of a constructive trust; and the judge agreed with them: p. 415. These categories are (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. If I pause there, it can be said that these categories of knowledge correspond to two categories of notice: Type (i) corresponds to actual notice, and types (ii), (iii), (iv) and (v) correspond to constructive notice.”
“Actual notice includes actual knowledge. Actual notice no doubt also includes knowledge which would have been acquired but for wilfully shutting one’s eyes to the obvious, or wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make. However notice is not confined to knowledge of this kind. Actual notice also includes a fact indicated by some document in the possession of the purchaser, whether or not read or remembered. A purchaser may be treated as having actual notice of interests in land through registration, though if he has actual knowledge of some matter which requires to be registered in order to be protected then he does not have notice.”
“(1) Subject to paragraph (2), where a person (in this Article referred to as a constructive trustee) makes or receives any profit, gain or advantage from a breach of trust the person shall be deemed to be a trustee of that profit, gain, or advantage. (2) Paragraph (1) shall not apply to a bona fide purchaser of property for value and without notice of a breach of trust. (3) A person who is or becomes a constructive trustee shall deliver up the property of which the person is a constructive trustee to the person properly entitled to it. (4) This Article shall not be construed as excluding any other circumstances under which a person may be or become a constructive trustee.”
“Our short point, my Lord, is different wording, different jurisdiction, different point in time, and that limited assistance can be derived from a different statute in a different jurisdiction and a different point in time in trying to inform the court what the Jersey statute meant.”
“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 difference is apparent on comparing the order of the Court of Appeal in Topham v. Duke of Portland (3) (Seton, p. 1742) declaring simply that the fraudulent appointment is void with that in cases of deeds procured by fraud at p. 2312, directing the deeds to be set aside and delivered up to be cancelled. 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 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. In the present case the children. have vested equitable estates or interests in remainder expectant on their surviving parents' death; the appointment purports to interpose an equitable estate or interest in priority thereto; both are of the same nature, and the argument founded on Phillips v. Phillips (1) does not arise, nor is there anything in Carver v. Richards (2) opposed to this view: it is true that in that case the estates were limited to uses, but nothing turned on the legal estate: the question was whether the third appointment (which was unobjectionable, and was to the same appointees as the two first) was effectual in equity; it was immaterial whether the legal estate had passed by the former appointments or by the third, and the question was therefore not discussed.”
“Having completed this exercise, the plaintiffs claim a continuing beneficial interest in the insurance money. Since this represents the product of Mr Murphy's own money as well as theirs, which Mr Murphy mingled indistinguishably in a single chose in action, they claim a beneficial interest in a proportionate part of the money only. The transmission of a claimant's property rights from one asset to its traceable proceeds is part of our law of property, not of the law of unjust enrichment. There is no "unjust factor" to justify restitution (unless "want of title" be one, which makes the point). The claimant succeeds if at all by virtue of his own title, not to reverse unjust enrichment. Property rights are determined by fixed rules and settled principles. They are not discretionary. They do not depend upon ideas of what is "fair, just and reasonable". Such concepts, which in reality mask decisions of legal policy, have no place in the law of property.”
“The term “fraud” in this context does not necessarily denote any conduct on the part of the donee 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.259 Such an exercise is void.260”
“As the authorities now stand, an exercise of a power which is vitiated as a fraud on a power is void in equity,337e.g. (in the case of a dispositive power) it does not alter the beneficial interests; it is not merely voidable, e.g. an exercise which does have such an effect though it can be set aside on application by those interested in the trust. The exercise is outside the scope of the power and is treated as not having taken place. Hence an assignee from an appointee under a fraudulent appointment will rank behind those entitled to challenge the exercise, unless he can raise a recognised equitable defence.338 If a power in a pension trust to make a transfer payment is exercised fraudulently, only the legal and not the beneficial interest in the funds transferred passes to the recipient trust.339 It has been said that the rule that a fraudulent appointment is void may have to be revisited;340 but it remains binding at all levels below the Supreme Court.341”
“62 There is Court of Appeal authority that a fraudulent appointment is void rather than voidable: Cloutte v Storey[1911] 1 Ch 18 . In that case the appointee under an improper appointment had charged his equitable interest as security for a loan (and in doing so made two false statutory declarations as to the genuineness of the appointment). It was held that the lender had no security, even though it had no notice of the equitable fraud. It is an authority which has bedevilled discussion of the true nature of the Hastings-Bass rule. Lightman J in Abacus Trust Co (Isle of Man) v Barr[2003] Ch 409 , para 31 found the judgment of Farwell LJ problematic and Lloyd LJ shared his reservations[2012] Ch 132 , para 98. So do I. It is hard to know what to make of Farwell LJ’s observations[1911] 1 Ch 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.”
“149. Cloutte v Storey[1911] 1 Ch 18 is a decision of the Court of Appeal of England and Wales that establishes that an appointment resulting from a fraud on the power is void in equity, not voidable – a conclusion that, although not universally accepted, we are content for the purposes of this judgment to accept. The case concerned a claim by a purchaser of a reversionary interest to have acquired title to the interest as a bona fide purchaser for value of it without notice of the fact that the interest had been appointed to the vendor in breach of trust. The claim failed because the interest acquired by the purchaser was an equitable interest, not a legal estate. The terminology of the leading judgment, delivered by Farwell LJ, is founded on the distinction between legal and equitable interests that is a product of the development of English law and has no direct parallel in Jersey law, and for present purposes is further complicated by the fact that the judgment relates to the law as it stood before the 1925 property legislation, including theTrustee Act 1925 . It nevertheless appears to us that the following passage from the judgment of Farwell LJ at pages 30-31 draws precisely the distinction between an appointment that involves the passage of title to a trust asset and one that does not is relevant in the present case:”
“345. 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 Stroey[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.”
“(i) An exercise of a power to appoint a new trustee which is a fraud on the power is void: Lewin on Trusts at 14-067; Re Bird Charitable Trust at paragraph 71.”
“108. Historically, the rule on which the claimant relies has been expressed as a presumption that, in the absence of evidence to the contrary, foreign law is presumed to be the same as English law. For example, in Dynamit AG vRio Tinto Co Ltd[1918] AC 260 , 295 , Lord Dunedin said: “I am clear that it is for those who say that the German law is different from the English to aver it as fact and to prove it. This they have not done, and that being so the German law must be presumed to be the same as the English.”
“Until the contrary be proved, the general law of a foreign state is presumed to be the same as the law of this country.”
“It is trite law that foreign law in our courts is treated as a question of fact which must be proved in evidence. In the absence of any evidence to the contrary, it is to be assumed to be the same as English law.” “I am clear that it is for those who say that the German law is different from the English to aver it as fact and to prove it. This they have not done, and that being so the German law must be presumed to be the same as the English.” “It is trite law that foreign law in our courts is treated as a question of fact which must be proved in evidence. In the absence of any evidence to the contrary, it is to be assumed to be the same as English law.”
“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)?”
“I confess that I do not find everything in Farwell LJ’s judgment on this point as cogent as that judge’s decisions so often are. I share the reservations expressed on this by Lightman J: see para 87 above. It is not necessary to go into the point in more detail for present purposes, but although we are bound to hold that the effect of an appointment being found to have been made in fraud of the relevant power is that it is void, not merely voidable, I am not willing to apply that decision more extensively, by analogy, to cases to which it does not relate directly as a matter of decision.”
“If it can ever be shewn that this deed was executed from improper motives, those who are interested in doing so can apply to set it aside. There is nothing whatever to justify this Court in not giving effect to it at present.”
“Holding, therefore, as I do, that the appointment has been made by Lord Mornington, not for the benefit of his son but for his own benefit, it seems to me consistent with the whole class of authorities, and to follow the principle of the class of authorities in which the object of the power was capable of entering into a bargain with the father, which this unfortunate gentleman was not, to hold that this is a fraud upon the power, that it is an exercise of the power by which the father endeavoured to obtain a benefit for himself, which of course the Court will not allow him to retain; and the consequence is that the deeds must be set aside, and Lord Mornington must pay the costs of this suit.”
“This brings me to the consideration of the effect of the deed of the1st Jan. 1854 , and this raises two questions: Was this a transaction capable of confirmation? and, if it was, has it been confirmed? On the first question I think it clear that 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 were made that renders them invalid and this purpose must be proved by the persons 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. The next question is, Has·this deed of the1st Jan. 1854 [the deed of confirmation], confirmed these two appointments? I have no doubt that it has, provided that it has been duly executed by every person who is a party thereto understanding its true purport and effect.”
“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 difference is apparent on comparing the order of the Court of Appeal in Topham v. Duke of Portland (3) (Seton, p. 1742) declaring simply that the fraudulent appointment is void with that in cases of deeds procured by fraud at p. 2312, directing the deeds to be set aside and delivered up to be cancelled.”
“474. Having further reflected on the void versus voidable point for the purposes of this judgment, I can see that my tentative observation during closing submissions was not entirely misplaced: see Cloutte v Storey[1911] 1 Ch 18 , 31, per Farwell LJ (where, unlike Neville J in the court below, the judge refrained from citing his own leading textbook on powers). In that case, the power which had been exercised on the back of a secret arrangement between appointor and appointee was an equitable one (not capable of passing the legal interest in the property which was still held in reversion but instead a “mandate to the trustees”) and its fraudulent exercise meant the appointment was void, as there was no transfer to be set aside or cancelled. However, the Court of Appeal held that “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.”
“If a power is purportedly exercised beyond its scope, the purported exercise is in principle a nullity, and any action taken pursuant to such a purported exercise of a power will be ipso facto beyond its scope and amount to a breach of duty (unless otherwise justified) with all the consequences that flow from such a breach.140 However, the operation of equitable defences may preclude a particular claimant from successfully making such an allegation and so give some effect to the purported exercise of the power. Furthermore, other rules of law may well apply to the acts which constitute the purported exercise of the power, and those rules may mean that the acts have some legal effect or consequences. Some examples serve to make these points clearer.”
“The seeming exception to these principles concern improper exercises of directors’ powers to allot new shares.157 In those cases, the improper exercise of the directors’ powers has been held voidable, rather than void. But on closer examination, these cases are perfectly consistent with principle. Any exercise of that power operates to create an asset recognised as the object of legal property rights (i.e. shares).158 Equitable doctrine has nothing to say about the nature and scope of a statutory power. Once the statutory power is exercised, and in consequence a person is put on the register of members, he becomes a member of the company, again by virtue of statute,159 even though the directors’ decision (as distinct from their action) to allot and issue the shares would be void as taken in breach of fiduciary duty.160 Equally, equity cannot remedy the situation by continuing to recognise a pre-existing equitable right to the shares, in order to justify reversing the transaction at law: there neither was, nor could be, any such right because the shares are a new item of property created by the allotment and issue. Nor can equity treat the shares as property improperly lost to the company and consequently held on trust for it: the shares never were, and never could lawfully be, issued to the company.161 So the best equity could do was to hold that the transaction could be reversed—that is, to render it voidable.162 In fact, this is the consequence precisely presaged in Cloutte v Storey.163 That case considered (albeit strictly obiter) the exercise of a power to appoint a legal estate in land, as was possible before 1926,164 rather than a power to allot and issue shares. Still, the key point for present purposes is that Farwell LJ explicitly addressed the improper exercise of a legal power—a power which operates to create a legal proprietary interest. He confirmed that such an exercise of the power would be voidable: as a matter of authority, equitable doctrine did not go to define the scope of the power, so equity had to recognise the effect of the power to create new legal property and then reverse that effect.”
“The principle, therefore, is this. The basic response of equitable doctrine to a fiduciary who acts beyond the scope of his power is to regard his decision, and his consequent action, as a nullity, but only in so far as that is possible given the context. Sometimes the scope of a power is not limited by equitable doctrine: for example, where the power is conferred by statute. Sometimes a power may allow the creation of new legal property. If a power has both of these characteristics, and it is exercised within its terms, it will create new legal property. Even if the power was exercised improperly by equitable standards, those standards do not limit its scope and effect at law. So a court cannot ignore what has happened; nor can it treat the property as subject to continuing rights or rights raised in favour of former owners. All it can do is to render what has happened voidable.”
“In the Courts below the question of the validity of the appointment was a question of fact to be determined on evidence. On the evidence before them those Courts could come to no other conclusion than that the appointment was void as constituting a fraud on the power. Their Lordships, however, have to determine the question as a question of law independent of the evidence which was before the Courts below, and in their opinion the appointment was in all respects a good and valid appointment within the scope and intention of the power and cannot be impeached as constituting a fraud thereon.”
“I have made these observations, not of course for the purpose of a mere verbal criticism on the enunciation of a rule, but in order to ascertain and illustrate the real meaning of the rule itself. And I think the meaning is this: that, in a contest between persons having only equitable interests, priority of time is the ground of preference last resorted to; i.e., that a Court of Equity will not prefer the one to the other, on the mere ground of priority of time, until it finds upon an examination of their relative merits that there is no other sufficient ground of preference between them, or, in other words, that their equities are in all other respects equal; and that, if the one has on other grounds a better equity than the other, priority of time is immaterial. In examining into the relative merits (or equities) of two parties having adverse equitable interests, the points to which the Court must direct its attention are obviously these : the nature and condition of their respective equitable interests, the circumstances and manner of their acquisition, and the whole conduct of each party with respect thereto. And in examining into these points it must apply the test, not of any technical rule or any rule of partial application, but the same broad principles of [79] right and justice which a Court of Equity applies universally in deciding upon contested rights.”
“Where there is a conflict between two equitable interests in property other than registered land the rule that the first in time prevails applies only where the equities are equal. In this instance, however, it is not so much a matter of estoppel or gross negligence as of the positive conduct of the prior owner or his trustee 171 in relation to the equitable interest claimed.172 The inequality of the equities provides the justification for altering the usual rule as to priorities.173Therefore, although the prior interest will not be lightly postponed in favour of the subsequent interest,174 it will be postponed if the owner of the prior interest or his trustee has been guilty of inequitable behaviour.”
“This brings me to the large and important question whether Messrs. Houlditch and Clapp can be held responsible for the breach of trust committed by the present trustees in selling the house, surrendering the policies, and spending, it matters not how, the produce of the two transactions. To the parties concerned the question is both large and important. As regards those not concerned in the particular case the amount involved is immaterial, but the alleged liability of the former trustees is of vast importance, affecting, as it does, not only the two large classes to one or both of which most men belong, trustees and cestuis que trust, but also all members of the legal profession to which the position and duties of trustees are a source of constant anxiety.”
“The case made against Messrs. Houlditch and Clapp may be thus fairly stated. “You had exhausted all the trust property except this house at Seaton and the policies. You knew that this remaining property was barely sufficient to provide the plaintiff's portion, even assuming that the policies were maintained; and you further knew that the income derived from the house was not more than sufficient to maintain those policies. You were urgently pressed to make further advances to Mrs. and Miss Head, and you asserted with perfect truth that no further advances could properly be made, that is to say, could not be made at all without a breach of trust far more serious in fact and in its consequences than any that had yet been committed. In order to relieve yourselves and to indirectly assist Mrs. and Miss Head you suggested, or if you did not suggest assented to, the appointment of new trustees who you knew would be more accommodating, and contemplated, if they did not actually intend, that which you had properly declined to do.”
“This doctrine, to the authorities in support of which I will presently refer, is based, according to a passage in Lewin on Trusts (9th ed. page 752) on agency, and the retiring trustee is treated as actually doing what he does not do in person, because his successor is treated as his agent for this purpose. This view is also taken by Stuart V.-C. in one of the cases to which I have to refer. Far be it from me to say that it is not a sound and satisfactory view, but I venture to think that a different and equally satisfactory explanation of the doctrine can be given. 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. This explanation will, I think, be found consistent with all judicial utterances on the subject, and haply aid to make them consistent with themselves.”
“As regards the rule laid down by the Master of the Rolls in Palairet v. Carew, and supported, I think, by both judgments in Clark v. Hoskins, the case is still clearer in favour of Messrs. Houlditch and Clapp. What their successors did was to convert the whole remaining trust property and improperly to spend it. They knew that G. D. Gould was reflecting on some possible mode of assisting Mrs. Head, and he had told them, by his letter to Mr. Clapp of November 2, 1894, that he was turning his attention to some means of doing this; but apparently he was as conscious as Messrs. Houlditch & Clapp themselves of the difficulty of doing this, and he certainly never hinted at doing it in the manner ultimately adopted. On reflective study of the evidence and correspondence, and notwithstanding suspicious criticism of some unhappy expressions in Mr. Clapp's letters, I do not believe that Messrs. Houlditch and Clapp contemplated any breach of trust at all, and I am convinced that they never contemplated that actually committed.”
“With the judgment of the Court of Appeal in Clark v. Hoskins before us it is easy to understand the Master of the Rolls as meaning what he probably intended to express—that in order to make a retiring trustee liable for a breach of trust committed by his successor you must shew, and shew clearly, that the very breach of trust which was in fact committed was not merely the outcome of the retirement and new appointment, but was contemplated by the former trustee when such retirement and appointment took place. That is clearly the doctrine of Clark v. Hoskins . It will not suffice to prove that the former trustees rendered easy or even intended, a breach of trust, if it was not in fact committed. They must be proved to have been guilty as accessories before the fact of the impropriety actually perpetrated.”
“Q. Okay. So this all shows that SARL is the entity that is going to continue to do the work necessary for the administration of the trust. Is that right? A. It's going to support PTC acting as trustee. Q. It is going to do all the back office work? A. All the back office, yeah.”
“I am just back today after my latest operation – straight into an all day meeting with accountants. Can we please speak about this update tomorrow as obviously it is not what we expected after our last conference call? ie. change of trustees. We have been encouraging engagement and for people to appreciate their limited options – and face up to reality. Clearly, we need a sensible timetable to allow people to make arrangements – this will control the flow of information and prevent unnecessary distress – this update will have the effect of an Exocet missile. I look forward to hearing from you.”
“I wasn’t involved in that call, but I understood that the sale of the debts was raised with you, and that you had acknowledged that action needed to be taken (and there would be costs involved). The sale of the debt book is a fait accomplis, so the beneficiaries need to be informed; therefore the trustees will issue this communication next week. Whilst I am of course happy to discuss this with you, I’m not sure anything can now be changed. Mark is also happy to discuss this with you. He is in the office today. As I’ve said before, the current situation could not continue to exist. There are regulatory, commercial and reputational reasons why. People need to be realistic regarding their options. None of the options are ideal but this is a fair way forward.”
“Q. The reality is that the decision had been made by this stage to sell the loan assets to FS Capital and it was just simply the finer details of the draft documentation that remained. Is not that right? A. Yes, but deals can fall over on finer details so in theory yes, we’re close to doing a deal, but deals fall over at the last minute all the time, so there’s still a way to go because otherwise if it was that done we would have signed there and then, we wouldn’t have had to wait until 30 October. Obviously there’s quite a lot more to do if the agreements are not signed until 30 October. Q. So is your evidence really that what you are saying is that you consider that a deal is not finally done until it is executed effectively, until you sign on the dotted line. A. Because deals always fall over at the very last minute. Q. But your intention – and as far as you knew the intention of everyone around you – was that that sale would proceed. That is what everyone wanted and expected to happen. A. We were going through the process to do the sale. We were a motivated seller, so… Q. But the decision had been taken in principle, all things being well, that that would happen. A. To go through the sale process, correct. Q. So it is not accurate to suggest, if that is right, that either Pinotage Sarl or PTC was in that sense still considering its options at30 June 2019 , let alone30 October 2019 . It was of the mind that the sale would go ahead. It had decided that, all being well, that would happen. A. It was proceeding, yes. We were proceeding with the sale. Q. The reason, I suggest, you are keen to say a decision was not taken by 30 June is to try and avoid the second defendant being liable in this action, is it not? A. I don’t think that’s possible, because if you look later on, Pinotage does actually ratify the – Pinotage ratifies the sale anyway. So it’s being proposed that Pinotage are trying to step out because it doesn’t want to go through the sale, but Pinotage is forced to step out, but if it hadn’t been forced to step out I think it probably would have gone through the sale. Q. So if Pinotage Sarl had not stepped out for the reasons you are saying it stepped out – you say that for now – it would have been Pinotage Sarl that went through with it instead. Yes? A. Yes, unless something peculiar happened between May – you know, dealing with the May, June, July, August, September, and signing the deal on 30 October – unless something sort of scuppered the deal, which does happen a lot, then yes. If Pinotage didn’t have to step up because of non-compliance, then it – all things being what they were – Pinotage probably would have gone through the deal and ratified the deal anyway, so… Q. So you knew then when Pinotage Sarl decided to resign and Pinotage PTC was appointed on30 June 2019 that that sale, all being well, would occur. That was what was planned. A. It was going to go ahead, yes, so -- Q. And your intention at the time was that this would happen. A. It was going to go ahead, yes, so -- A. I’d still carry on, yes.”