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You are here: BAILII >> Databases >> England and Wales High Court (Family Division) Decisions >> ND v SD & Ors [2017] EWHC 1507 (Fam) (21 June 2017) URL: https://www.bailii.org/ew/cases/EWHC/Fam/2017/1507.html Cite as: [2017] 3 FCR 809, [2017] EWHC 1507 (Fam), [2018] 1 FLR 1489 |
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This judgment was delivered in private. The judge has given leave for this version of the judgment to be published on condition that (irrespective of what is contained in the judgment) in any published version of the judgment the anonymity of the children and members of their family must be strictly preserved. All persons, including representatives of the media, must ensure that this condition is strictly complied with. Failure to do so will be a contempt of court.
FAMILY DIVISION
Strand, London, WC2A 2LL |
||
B e f o r e :
____________________
ND |
Applicant |
|
- and - | ||
SD | 1st Respondent | |
Y TRUSTEES LIMITED | 2nd Respondent | |
PH | 3rd Respondent | |
____________________
Mr Michael Glaser, Miss Emma Hargreaves and Miss Rachael Cassidy (instructed by Stewarts Law LLP) for the 1st Respondent
Mr Mark Warwick QC (instructed on a direct access basis) for the 2nd and 3rd Respondents
Hearing dates: 13th to the 21st December 2016
____________________
Crown Copyright ©
Mrs Justice Roberts :
Representation
A. The Background
Date of separation: difficulties emerge in the marriage
"I still considered that we were very much a couple and I wanted to work through our differences. We were still sleeping together and holidaying together; we had been a team for 25 years and were going to work through the strains of our relationship."
The private agreement
"The spouses recognise the existence of problems in their marital cohabitation and aiming both to prevent tensions and frictions from these problems, but also aimed at protecting the mental health and tranquillity of their children and of achieving as far as possible the harmonious coexistence for the good of all members of the family, decided after discussion between them, to make the following arrangements: …."
The creation of The ABC Trust
"After N Limited was incorporated [the husband] discussed with me ways how to give part of his beneficial interest in C Limited and [D Limited], another property investment company in England that he had an interest in, to his two children … I met [him] several times when he was in X country, on occasions with Mrs R (who resides in X country), at my office and socially."
The 2006 Trust Deed
The execution of The ABC Trust on 3 August 2007
"During the meeting and the discussions held, the trust deed was amended so that the beneficiaries of the trust will only be the children and not [the husband] and the children. Few other not important amendments were made and a new version of the trust was signed by [the husband] as Settlor, PH as an alternate director of N Limited and myself as director of Y Trustees Limited."
He goes on to explain how, and by whom, the signatures on the Trust Deed were formally witnessed.
"Whilst I was at [EW's] offices on 3 August 2007, the young solicitor made some further amendments to the trust deed; [EW] advised me these were necessary so that the deed more properly reflected my wishes to transfer C Limited entirely to the girls. I had also decided that I wanted to transfer my share of D Limited to the girls (I obviously could only transfer 50% as [the wife] owned the other 50%.) This would mean that all of the capital owning companies I had previously had an interest in (as opposed to the companies which do not own any significant capital – other than cash in the bank – and are essentially income generators, for example, B Limited) were then beneficially owned by the girls. I felt happy that this would mean the legacy I had built for them was secured."
"I remember signing in [EW's] office that deed and leaving it there like a back-up. I said, "If anything happens to me, use it, all signed" – I said we never executed it but when he faxed it to me, it was unsigned. I signed it again. I put my passport number. I took it to [EW's] office and then it was finalised in 2007."
The activities of TU and the 2002 Trust Deeds (undisclosed until receipt of EW's statement of evidence in June 2016)
"[The wife] did sign a deed of trust that she held/holds 50% of the shares of C Limited and this document is still valid and the original is in the safe of [EW's office]. The ABC trust was prepared in 2014 (as can be evidenced by a search on the file) and not in 2007."
"I appreciate that you need physical proof about the validity of the trust and the true beneficial ownership of C Limited . I may not have access to such evidence because of its location. I will see what can be obtained."
"The documents I would like to provide you with copies of (the trust deeds signed in 2002 with [the husband and the wife] confirming that 50% of the shares in C Limited were held by [Mr R] for [the husband] and 50% by [Mrs R] for [the wife] are held in the office safe of [EW]. I do not have access to this safe. I have an electronic copy of both documents but these are undated and unsigned. I also have an electronic copy of the ABC Trust which shows it was created in 2014 by [EW].
In essence all the allegations you have raised about the trust being asham
are correct."
"[The wife] would have the benefit of being given half of the assets of [the husband] which she should have as she never did legitimately cease to be a beneficial owner of 50% of C Limited which owns dozens of properties in London (I think the estimate of £50m is conservative) and I will lose everything and I have three dependants. I am not asking for money. I am asking for secrecy. I need some form of guarantee that my identity will not be revealed. If you were in my position what would you do ?"
"You have a very good case and have done a good job but since [the husband] has changed his legal representation from ordinary solicitors to serious players I suggest you go further. His de facto legal advisor [EW] … has said [the husband] has been lucky that you have not challenged him on the trust itself (irrespective of the fact that it is asham).
Assuming that the trust was created in 2007 where has the income of the underlying companies gone since then ? How can the husband demonstrate since 2007 that he had no interest in the trust or the underlying companies ? You should also refer to the X country law firm which originally established C Limited with J Nominees Limited holding 50% of the shares for [the wife]. At the time it was a requirement that non-residents have their shares held by resident nominees by permit from the central bank so an application would have been made to the central bank in the names of [the husband and the wife]. When the company was transferred to the office of [EW] the shares were held by YR (sister of [the husband]) for [the wife] and her husband QR for [the husband] 50/50."
"I have reason to believe that [the husband] is now anxious for a settlement given the direction the case is taking and has already discussed this with his elder daughter, [M]. If I am right the offer amounts to something in the region of GBP10m in the unencumbered property and the rental income therefrom. In return for any and all shares [the wife] holds in any [family]-related entity. One of the conditions of the settlement is that [the husband] is to be made third beneficiary of the alleged trust he created for his two daughters. This 2007 trust was an afterthought and asham
and a way of seeking to gain approval for the alienation of considerable assets by alleging these assets were held in trust for the two daughters of [the husband and wife]. There was never any trust in 2007, simply the desire of [the husband] to alienate assets from his wife. As I have said, the company C Limited was created by a law firm in X country with two nominee shareholders for two nominee non-residents – J Nominees Limited and J Secretarial Limited and a search on the records of either the incorporating law firm or the central bank … or the Registrar of Companies will bear this out. If the shares were only ever meant to be held by [the husband] why two nominees ? Subsequently the shares (500 and 500) were transferred to the brother in law and sister of [the husband] and there are trust deeds evidencing that these were held for [the husband and wife] in equal proportions. The originals of these trust deeds are now in an unknown location however electronic copies are on the computer system of [EW]. At no point to my knowledge or from a search on the files did [the wife] relinquish or transfer her half share in the company C Limited and I firmly believe no evidence that has not been fabricated can exist of such transfer. I would need access to the records to confirm but to the best of my knowledge C Limited owned dozens of properties, predominantly in London and therefore GBP10m would be perhaps one tenth of the actual worth of the portfolio. In order to be more precise I would need access to certain files. If I were [the wife] I would not accept such offer on the basis that the children who have been dragged into this sorry affair and are being used as pawns by the father, find it "reasonable" according to him."
"I have to say that I do not appreciate your stance given that I unilaterally initiated this correspondence in an effort to see justice done.
If you wish to know the latest position and accept the above please let me know. Otherwise I will assume I am to be sacrificed for someone richer than me, as is usually the case for all whistleblowers."
Written evidence from EW
- (para 6) listing the various documents he holds in relation to C Limited whilst noting that he was not involved in the original incorporation of the company in 1994;
- (para 8) confirming that his law firm was and remains the lawyer for C Limited on matters of X country company law with Y Trustees Limited providing services in relation to C Limited 's obligations, for example, to submit company accounts;
- (para 9) noting that C Limited has been very active in terms of acquisitions to its (mainly London) property portfolio with the result that his firm and Y Trustees Limited have several thousands of pages of documents relating to the work undertaken for C Limited spread over eight ring binders. None of that material relates to the ownership of C Limited or The ABC Trust;
- (para 10) such documents as are relevant to ownership and title have been extracted and exhibited to his statement;
- (para 14) Mr and Mrs R throughout their legal ownership of the shares treated the husband as the sole beneficial owner of the shares and the power of attorney which he held meant that EW's firm did not have to go behind any of the instructions which were received from the husband.
"In 2002 [the husband] made enquiries in order for the shares in C Limited to be held in trust for both [the wife] and himself and therefore [the firm] prepared two draft trust deeds in order for the 500 shares held by Mrs R to be held in trust for [the wife] while the other 500 shares to continue to be held in trust for [the husband]. Later we received new instructions not to proceed as instructed and therefore no steps were taken to finalise those draft trust deeds. I note that it is common practice the trust deeds to be executed [sic] in two counterparts one to be held with the trustee (registered shareholder) and the other with the beneficial owner and thus, if the aforementioned trust deeds were executed [the wife] and [the husband] respectively should have had the executed version of the trust deeds."
"The Grantor [i.e. the wife] for consideration given is beneficially interested and entitled to Five Hundred shares (500) fully paid up shares (hereinafter called "the said shares") numbered from 001 to 500 of the nominal value of []1. – each, in the undertaking called C LIMITED a Company incorporated in X country, now held by the Trustee.
"A. I can't remember going with [her] to a solicitors, signing, as [she] explaining Q City, any documents. They all been done with I & Co by fax and with envelopes. They send me over whatever was needed to open the bank account, and is the same bank account with (inaudible) until they close in 2015.
Q. Does it follow that you also say that her description of a signing where there was four of you, you and [the wife] signing as the principal parties and your sister and brother-in-law also signing, she has told the learned judge that very clearly, and do you say that must be deliberately not true, in other words … lying ?
A. Yes." [Transcript: 16.xii.16 – page 105]
(i) She was entirely conversant with almost all of the detail of the financial remedy proceedings which were ongoing in London and, in particular, the issues flowing from the preliminary issue in relation to the wife's assertion that she had a beneficial interest in the C Limited shares;
(ii) Her reference to the creation of The ABC Trust in 2014 as opposed to 2007 demonstrates an incomplete knowledge of the structure and/or the import of various documents and a willingness to draw (sometimes incorrect) inferences from those documents which she has seen. (I will return to the 2014 Deed of Trust in due course.);
(iii) Whether as a result of seeing emails or hearing conversations, she had clearly been privy to discussions or exchanges between EW and the husband about this case.
"We have been instructed by our colleagues in T City to inform you that [the wife], beneficial holder of a 50% stake in the aforementioned company, would like to visit your offices next Friday, 20 June 2008, to discuss issues relating to herself and the aforementioned company.
We would therefore kindly ask you to schedule an appointment for the visit, and to inform us which member of staff she will be having a meeting with."
"For the avoidance of doubt, I deny that [the wife] was not aware of the Trust prior to these proceedings. I recollect that in or before 2008 I received a telephone call from [EW] advising me that [she] had contacted him through her X country lawyers raising questions about the trust. He had no authority to assist her attorneys at that time with her enquiries and they were not pursued."
It is not without note that the husband could readily have provided that authority. By his own admission, he never told the wife about the Trust. He told me that he had presumed that RS & Co would have informed her about the trust arrangements which had been set up in 2007. However, it is clear that their enquiries went no further than the formal company searches they were requested to undertake. Despite the letter asking for an appointment to visit EW's offices, there was – as is accepted – no response from EW. As the husband has made clear, he was contacted by EW at the time but did not give him any authority to take the matter further or communicate with the wife or her X country lawyers (acting as agents for the firm in T City). In these circumstances, I have no hesitation in finding that the wife knew nothing about the Trust or the various changes in share ownership other than those revealed by the formal searches in 2008. I accept her evidence that she raised these matters with the husband informally but that he, too, provided her with no information.
Financial restructuring in 2014: the 'sham'
Trust dated 21 March 2014
"4. By way of guidance only my Estate included (but not limited to) at the time of preparing my Will:
(1) 100% of the beneficial interest in C Limited a company registered in X country ….. whose shares are held in trust on my behalf by PH (and previously N Limited Holdings Ltd) … such beneficial interest having been transferred on 3rd August 2007 to The ABC Trust for the benefit of my children should be disregarded for the purposes of my Estate together with its following interest….. [there are then listed the five corporate entities wholly owned within the C Limited structure]
"I was stunned by this discovery of his 100% asserted ownership [of C Limited] and the clear implication from [him] that I had nothing to do with our family assets. This led me to commence divorce and financial remedy proceedings later that month."
"Our client accepted that the marriage has broken down irretrievably, nevertheless he does not accept that he has behaved in such a way that [the wife] cannot reasonably be expected to live with him. He does so because he has been separated by agreement between the parties since 2006 or thereabouts, with him based in England and your client resident in Z country. Indeed we are instructed that he has only seen your client once since then, in 2010 or thereabouts, when he attended his youngest daughter."
"In addition our client states that your client has never worked and describes the assertion that a business partnership exists or ever existed as nonsense. Your client is an individual of considerable assets and each and every asset that she holds has been given to her by our client.
….. Apart from the fact that your client has never worked, let alone worked in the purported 'family business'. Our client has never offered work to [her] either in England or in Z country. He points out that [she] has neither training nor experience to undertake any such work. In addition it is also difficult to see how she could work in both England and Z country at the same time.
The contents of your letter and pleadings indicate to our client that [your client] is being irrational and not in control of her full mental faculties. We are instructed that [she] has historically suffered from a number of mental issues which border between clinical depression and bipolar disorder. We are informed that your client did originally seek psychiatric assistance, but chose not to take her prescribed medication, believing the same to be damaging to her. It is a matter for you to consider when taking instructions from this lady and in particular securing from her large sums of money by credit card."
"Our marriage collapsed over the four year period [i.e. 2002 to 2006] we were together in Z country for various reasons, including (but not limited to) my constant commuting, my disillusionment with Z country, my inability to conduct business there, and what appeared to me to be the Petitioner's increasing irrational behaviour."
"The extent to which (if any) the parties' shareholdings in various companies, i.e. the Petitioner's shareholding in [D Limited], the parties' equal shareholding in [B Limited] …. should be redistributed. It is the Respondent's case that he built up these businesses without contribution from the Petitioner and whilst he does not wish to deprive [her] of the shareholdings that she holds, sufficient shares should be transferred to him to enable him to operate these companies without intrusion from the Petitioner. In addition having given his shares in [C Limited ] and [D Limited] to the children in 2007 the Respondent will seek equality in the shareholdings in [D Limited] and a transfer of 25% of the shares."
"The Respondent recollects that the Applicant prepared an alternative agreement which to the Respondent's recollection was a truer reflection of what had been agreed between them. Unfortunately the Applicant has only produced the first draft of the agreement and has resisted request [sic] to disclose her attorney's file."
"All documents … produced by the Z country lawyer instructed in or around June 2007 to produce a record of the agreement reached between our clients as to financial arrangements following separation. This should include the second version of the agreement which my client believes your client removed from the property at [the North London address]."
The evidence of Ms Lucy Loizou
"[EW] told me that he had known [the husband] for many years. He told me that he had suggested the creation of a trust to [him]. He told me that he had a meeting with [the husband] and his sister and brother in law at some point in 2007 which then led to the purported trust being created. He told me that there had been some discussions prior to that about the creation of a trust although there was no evidence of this on the file. He also told me about a conversation he had with [the husband] in which [he] had informed him that [the wife] was mentally unwell. [EW] told me that he had advised [the husband] to protect "his" assets and put them into a trust. At that point in our conversation [EW's] assistant, [CE], who was also present at the meeting, intercepted and told him to be careful as to what he said to me as he was a "defendant" in the proceedings.
[EW] went on to tell me that he did not feel that [the wife] had made any contribution to [the husband's] wealth and that she should not have any entitlement. He further added that anything that [the husband] had made had been with his "own two hands"."
The parties as witnesses
B. The issues and the law
(i) Whether, prior to August 2007, the shares in C Limited were owned
a. 50% by the husband and 50% by the wife; or
b. 100% for the husband,
whether in law and/or in equity.
(ii) Whether, subject to the issue ofsham,
the Deed of Settlement dated 3 August 2007 had the effect of settling into The ABC Trust the husband's beneficial interest in (a) D Limited and/or (b) C Limited (and its subsidiary companies).
(iii) Whether The ABC Trust, in particular the Deed of Settlement dated 3 August 2007, is asham.
(iv) Whether, if The ABC Trust is not asham
and the husband's interest in C Limited was settled into that Trust, he now holds the beneficial interest in the shares of C Limited by virtue of the Deed of Trust dated 21 March 2014.
(v) What was the effect if any (in law and in equity) of the transfer on 20 March 2014 of the entire shareholding in C Limited to Ms PH and the Deed of Trust dated 21 March 2014.
(vi) Whether, prior to 3 August 2007, the respondent had informed the wife that he intended (as he asserts) to divest his interest in C Limited (and its subsidiary companies) to the children.
(vii) Whether, prior to the commencement of these proceedings:
a. The husband had informed the wife that he had (as he asserts) settled his interest in (a) D Limited and/or (b) C Limited (and its subsidiary companies) into trust; or
b. Whether she had otherwise become aware that this had happened.
(viii) Whilst not asserted by any party did the 2006 Deed of Settlement take effect ?
(ix) If the 2006 Deed of Settlement took effect, what is the impact on the Deed of Settlement dated 3 August 2007 ?
(i) Whether the husband and wife agreed that the beneficial interest in the C Limited shares and its underlying entities was held as to 50% for each of them.
(ii) Whether, if C Limited was transferred anywhere away from the husband and wife, it was transferred on the basis it was impressed with that agreement.
(iii) The ABC Trust was (and is) ineffective for three reasons –
(a) there was no transfer of the D Limited shares into the Trust;
(b) the purported trust was asham
transaction which means (i) the husband intended different rights from those which appear on paper, and the truth is that he intended no change and there was no change to the status quo ante; and (ii) the husband intended to give a false impression to third parties;
(c) the Carman point: having executed the 2014 Deed of Trust whereby the Gamma Bank refinancing was secured, and having represented himself for these purposes to be the beneficial owner of C Limited , the husband is now bound by that Deed and the representations recorded on its face. (This latter point is based upon a decision of Charles J – Re Yates (a bankrupt); Carman (trustee of the estate in bankruptcy) v Yates and others [2004] EWHC 3448 (Ch).); and
(iv) Whether, in the event that the 2007 Trust is not held to be asham,
section 37 of the Matrimonial Causes Act 1973 is engaged so as to provide the wife with the relief which she seeks.
"In respect of a trust governed by X country law, a consideration to be analysed is the settlor's reserved powers. A prerequisite for the creation of a trust is the transfer of legal ownership to the trustee. If it can be shown from either the nature or the amount of powers reserved to the settlor that the transfer cannot be said to have occurred because the intention of the parties [i.e. the settlor and the trustee] was for the settlor to remain effective legal owner and control the assets, the trust may be held void ab initio as asham.
The issue is in identifying the point at which the settlor has retained so much control that it can hardly be said that she or he has relinquished any proprietary interest to the trustees at all. In making such an assessment it is necessary to consider not only the number, but also the nature of the powers cumulatively that may infer a
sham
trust and the facts surrounding it. So a settlor's power to replace the trustees may alone trigger a
sham
risk whereas retaining the power to add to the class of beneficiaries and change the governing law may be permissible." (page 21)
"36. The bank contends that the tenancy and the sale agreement are, on proper analysis,shams.
As I have mentioned, it is conceded that the formation and acquisition of the company, the grant of the tenancy, and the sale agreement were artificial, in that they occurred solely because the defendants wished to do their best to protect their farming business, and their home, from being taken from them and sold over their heads by the bank….."
"37. It is equally clear, to my mind, that the mere fact that a tenancy, or any other contractual transaction, is entered into for such an artificial purpose, namely to avoid the contractual or statutory rights which a third party would otherwise enjoy, does not by any means of itself render the transaction asham
….."
"39. Accordingly, while the palpable, and freely admitted, artificiality of the agreements in the present case cannot be doubted, it certainly does not follow that, as a result, the agreements must beshams.
However, in my judgment, the fact that a particular transaction is palpably artificial is a factor which can properly be taken into account when deciding whether it is a
sham.
Indeed, it would seem to me to require very unusual circumstances before the court held that a transaction which was not artificial was in fact a
sham.
I add this. If the court were to conclude that a transaction was artificial, in circumstances where the party relying on it was contending that it was not artificial, then that might be a further reason (although certainly not a conclusive reason) for deciding that the transaction was a
sham,
given that a
sham
transaction involves a degree of dishonesty on the part of the parties involved."
'… it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and perjorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham"
which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. One thing I think, however, is clear, in legal principle, morality and the authorities … that for acts or documents to be a "
sham",
with whatever legal consequences follows from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."
"65. First, in the case of a document, the court is not restricted to examining the four corners of the document. It may examine external evidence. This will include the parties' explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties.
66. Second, as the passage from Snook makes clear, the test of intention is subjective. The parties must have intended to create different rights and obligations from those appearing from (say) the relevant document, and in addition they must have intended to give a false impression of those rights and obligations to third parties.
67. Third, the fact that the act or document is uncommercial, or even artificial, does not mean that it is asham.
A distinction is to be drawn between the situation where the parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship.
68. Fourth, the fact that parties subsequently depart from an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agreed to vary their agreement and that they have become bound by the agreement as varied: see for example Garnac Grain Co Inc v H.M.F. Faure and Fairclough Ltd [1966] 1 QB 650, 683-4 per Diplock LJ….
69. Fifth, the intention must be a common intention: see Snook's case above."
"….. the whole point of asham
provision or agreement is that the parties intend to give the impression that they are agreeing that which is stated in the provision or agreement, while in fact they have no intention of honouring with their respective obligations, or enjoying their respective rights, under the provision or agreement."
"Thus, in the present case, provided the bank or the court accepts that the agreements are genuine, then (subject to any other point) the defendants have achieved their aim: it is not of the essence that the agreements are genuine, merely that they are accepted as genuine. Of course, having made that point, one should not lose sight of the fact that there is obviously a strong presumption, even in the case of an artificial transaction, that the parties to what appear to be perfectly proper agreements on their face intend them to be effective, and that they intend to honour and enjoy their respective obligations and rights. That that is so is supported by the fact that an allegation ofsham
carries with it a degree of dishonesty, and the court should be slow (but not naively or unrealistically slow) to find dishonesty."
"68. In these circumstances, I have reached the conclusion that neither of the agreements was asham.
Each of them was an artificial transaction …. Both principle and the authorities indicate that the court is slow to find that an agreement is a
sham,
and that, before the court can reach such a conclusion, it must be satisfied that the purported agreement is no more than a piece of paper which the parties have signed with no intention of it having any effect, save that of deceiving a third party and/or the court into believing that the purported agreement is genuine. Taking all the evidence together, I think that the bank has plainly fallen short of discharging the onus, which it undoubtedly has, of establishing that either of the agreements was a
sham."
"When a settlor creates a settlement he purports to divest himself of assets in favour of the trustee, and the trustee accepts them on the basis of the trusts of the settlement. The settlor may have an unspoken intention that the assets are in fact to be treated as his own and that the trustee will accede to his every request on demand. But unless that intention is from the outset shared by the trustee (or later becomes so shared), I fail to see how a settlement can be regarded as asham.
Once the assets are vested in the trustee, they will be held on the declared trusts, and he is entitled to regard them as so held and to ignore any demands from the settlor as to how to deal with them. I cannot understand on what basis a third party could claim, merely by reference to the unilateral intentions of the settlor, that the settlement was a
sham
and that the assets in fact remained the settlor's property. One might as well say that an apparently outright gift made by a donor can subsequently be held to be a
sham
on the basis of some unspoken intention by the donor not to part with the property in it. But if the donee accepted the gift on the footing that it was a genuine gift, the donor's undeclared intentions cannot turn an ostensibly valid disposition of his property into no disposition at all. To set that sort of case up the donee must also be shown to be a party to the alleged
sham.
In my judgment, in the case of a settlement executed by a settlor and a trustee, it is insufficient in considering whether or not it is a
sham
to look merely at the intentions of the settlor. It is essential also to look at those of the trustee." [my emphasis]
"[42] … Once a trust has been properly constituted, typically by the vesting of the trust property in the trustee(s) and by the execution of the trust deed setting out the trusts upon which the trust property is to be held by the trustee(s), the property cannot lose its character as trust property save in accordance with the terms of the trust itself, for example, by being paid to or applied for the benefit of a beneficiary in accordance with the terms of the trust deed. Any other application of the trust property is simply and necessarily a breach of trust: nothing less and nothing more.
[43] A trustee who has bona fide accepted office as such cannot divest himself of his fiduciary obligations by his own improper acts. If therefore, a trustee who has entered into his responsibilities, and without having any intention of being party to asham,
subsequently purports, perhaps in agreement with the settlor, to treat the trust as a
sham,
the effect is not to create a
sham
where previously there was a valid trust. The only effect, even if the agreement is actually carried into execution, is to expose the trustee to a claim for breach of trust and, it may well be, to expose the settlor to a claim for knowing assistance in that breach of trust. Nor can it make any difference, where the trust has already been properly constituted, that a trustee may have entered into office – may indeed have been appointed as a trustee in place of an honest trustee – for the very purpose and with the intention of treating the trust for the future as a
sham.
If, having been appointed trustee, he has the trust property under his control, he cannot be heard to dispute either the fact that it is trust property or the existence of his own fiduciary duty."
"[49] … Whatever the settlor or anyone else may have intended, and whatever may have happened since it was first created, a trust will not be asham
- in my judgment cannot as a matter of law be a
sham
- if either:
(i) The original trustee(s), or
(ii) The current trustee(s),
were not, because they lacked the relevant knowledge and intention, party to thesham
at the time of their appointment. In the first case, the trust will never have been a
sham.
In the second case [which is not relevant here – my addition], the trust, even it was previously a
sham,
will have become a genuine – a valid and enforceable – trust as from the date of appointment of the current trustee(s).
[50] There has been some debate in the authorities as to what is required to establish the requisite common intention. In Midland Bank plc v Wyatt [1995] 1 FLR 696, [1996] BPIR 288, the deputy judge, Mr David Young QC, said at 699 that:
'asham
transaction will still remain a
sham
transaction even if one of the parties to it merely went along with the "
shammer"
not either knowing or caring about what he or she was signing. Such a person would still be a party to the
sham
and could not rely on any principle of estoppel; such as was the case in Snook.'
Singer J said much the same thing in Minwalla v Minwalla and DM Investments SA, Midfield Management SA and CI Law Trustees Ltd [2004] EWHC 2823 (Fam), [2005] 1 FLR 71 (Minwalla), adopting at paras [54]-[55] the following statement of principle by a commentator:
'In order for a trust to be found to be asham,
both of the parties to the establishment of the trust (that is to say the settlor and the trustees in the usual case) must intend not to act on the terms of the trust deed. Alternatively in the case where one party intends not to act on the terms of the trust deed, the other party must at least be prepared to go along with the intentions of the
shammer
neither knowing or caring about what they are signing or the transactions they are carrying out.'
[51] Singer J's judgment in Minwalla gave rise to further proceedings in the Royal Court of Jersey, where the relevant trusts were located. In CI Law Trustees Limited and Another v Minwalla and Others [2005] JRC 099, the bailiff pointed out at para [15] that Singer J appears not to have been referred to
Shalson v Russo where, as the bailiff correctly observed, the judgment of the deputy bailiff in Re Esteem had been cited and been regarded, as a matter of English law, as correct in principle. The bailiff continued:
'In Re Esteem Settlement, this Court held that, in order for a trust deed to be asham,
both the settlor and the trustee must subjectively have a common intention that the trust deed is not to create the legal rights and obligations which it gives the appearance of creating: it is not sufficient that the settlor alone has such an intention. Re Esteem Settlement has been followed in MacKinnon v Regent Trust Company Limited 2004 JLR 477, a decision which was upheld by the Jersey Court of Appeal at [2005] JCA 066, [2005] WTLR 1367.'
[52] In Re Esteem the Royal Court had in fact been referred to Midland Bank plc v Wyatt [1995] 1 FLR 696, [1996] BPIR 288. The deputy bailiff in Re Esteem explained matters as follows:
'[58] … In our judgment the court in Wyatt was simply confirming that a party who goes along with asham
neither knowing or caring what he is signing (ie, who is reckless) is to be taken as having the necessary intention.
[59] It follows that in our judgment, in order to succeed, the plaintiffs will need to establish that as well as [the settlor], [the trust company] intended that the assets would be held upon terms otherwise than as set out in the trust deed or, alternatively, went along with [the settlor's] intention to that effect without knowing or caring what it had signed, and that both parties intended to give a false impression of the position to third parties or to the court.'
I agree with that analysis. What is required is a common intention, but reckless indifference will be taken to constitute the necessary intention." [my emphasis]
C. The parties' submissions in relation to the issue of the validity or otherwise of the 2007 Trust
"THIS DEED OF SETTLEMENT is made the … day of …… 2006."
The husband was travelling to X country to meet with EW as part and parcel of the ongoing discussions about the Trust. He took the draft to read on the plane and spent the night of 2 August 2007 staying at his sister's house in X country prior to his meeting the following day with EW in his P City offices. Whilst at his sister's house, or possibly the following day at EW's offices, he completed the date section by writing "02" and "08" at the top of the document. He did not change the year from '2006' to '2007'. He signed each page at the bottom and completed the section which required his passport number. His signature appears on the final page and it has been witnessed by Mrs R, his sister. However, he told Mr Amos in cross-examination that he had a recollection of signing a similar document in 2006, the year when he says he and the wife separated. That document, he contends, was left in EW's offices in X country as a "back-up". He said that he had told EW that if anything should happen to him, he should use it, "all signed". When he received the document by fax on 2 August 2007, it was a clean, unsigned version.
"6. … During the course of the audit I liaise with the London office and mostly with [the husband], providing to me all relevant information and explanations to material queries which arise during the audit process. I also contact the London based accountants and auditors, TTZ, regarding audit matters relating to C Limited 's subsidiaries. On completion of the audit, the financial statements are approved by the shareholders and signed by the Board of Directors. Any dividends are declared in Board of Directors meeting and approved by shareholders of C Limited .
7. Any amounts paid by C Limited directly to the joint account in [the husband's and wife's] names are recorded by C Limited 's Board of Directors in C Limited 's accounts as a debit in the shareholder's current account, on the grounds that those funds relate to the funding of their daughters' [M's and L's] expenses. Those amounts were covered by dividends declared by the Board of Directors."
"The above named patient visited me urgently due to chest discomfort and tachycardia palpitations. The ECG revealed sinus tachycardia. Instructions have been given and the indicated cardiac check-up has been scheduled. Sick leave of two (2) days has been provided."
Formalities
"The first method of creating a trust is for the settlor to declare himself to be a trustee of property belonging to him. If the property is in his own name, he simply makes a declaration. If the intended trust property is held by nominees or other trustees for the settlor he directs the nominees or trustees to hold it on the intended trusts."
"This letter is to confirm that out of my shareholding of current 12,500.00 in the above company I am as from today holding 4,000 shares in the above company for you subject to you being responsible for all tax consequences and liabilities [arising] from this declaration and letter."
"In interpreting a document, the court should not have regard to the subjective intention of its maker but to the intentions of the maker as manifested by the words he has used in the context of all the relevant facts. Here there is no doubt that Mr Dinesh Shah manifested an intention that the letter should take effect forthwith: see the words "as from today". To give effect in law to those words, there has to be a disposition only of a beneficial interest, since, for the reasons given above, legal title [of the shares] did not pass until registration. The parties clearly intended registration to take place in due course because otherwise Mr Dinesh Shah would not have simultaneously have executed and delivered a stock transfer form. Judged objectively, did the words used convey an intention to give a beneficial interest there and then or an intention to hold that interest for Mr Mahendra Shah until registration ? Mr Dinesh Shah used the words "I am … holding" not, for example, the words "I am assigning" or "I am giving" and the concept that he holds the shares for Mr Mahendra Shah until he loses that status on registration can only be given effect in law by the imposition of a trust. Accordingly Mr Dinesh Shah must be taken in law to have intended a trust and not a gift. Added to that, as Norris J points out, he calls the document "a declaration" in his letter, which is more consistent with its being a declaration of trust than a gift."
"Although equity will not assist a volunteer; it will not strive officiously to defeat a gift [my emphasis per Arden LJ]. …. Although the words used by TCP are those normally appropriate to an outright gift – "I give to X" – in the present context there is no breach of the principle in Milroy v Lord if the words of TCP's gift (ie to the foundation) are given their only possible meaning in this context. The foundation has no legal existence apart from the trust declared by the foundation trust deed. Therefore the words "I give to the foundation" can only mean "I give to the trustees of the foundation trust deed to be held by them on the trusts of the foundation trust deed". Although the words are apparently words of outright gift they are essentially words of gift on trust…… But, it is said, TCP vested the properties not in all the trustees of the foundation but only in one … Since equity will not aid a volunteer, how can a court order be obtained vesting the gifted property in the whole body of trustees on the trusts of the foundation ? In their Lordships' view there should be no question. TCP has, in the most solemn circumstances, declared that he is giving (and later that he has given) property to a trust which he himself has established …. All this occurs in one composite transaction taking place on 17 February. There can in principle be no distinction between the case where the donor declares himself to be sole trustee for a donee or a purpose and the case where he declares himself to be one of the trustees for that done or purpose. In both cases his conscience is affected and it would be unconscionable and contrary to the principles of equity to allow such a donor to resile from his gift.' (See [2001] 1 WLR 1 at 11-12.)"
"[61] Accordingly the principle that, where a gift is imperfectly constituted, the court will not hold it to operate as a declaration of trust, does not prevent the court from construing it to be a trust if that interpretation is permissible as a matter of construction, which may be a benevolent construction. The same must apply to words of gift. An equity to perfect a gift would not be invoked by giving a benevolent constructions to words of gift or, it follows, words which the donor used to communicate or give effect to his gift."
"…. It is not difficult to make a gift of shares but it may take time to complete the gift by registration of the shares in the donee's name. One of the ways of making an immediate gift is for the donor to declare a trust. In my judgment that is what happened in this case. … It is therefore unnecessary to consider whether the March letter was an incompletely constituted gift or if it was completed by the act of registration so that it cannot now be challenged on the grounds that the March letter was an incomplete gift."
"… it is not uncommon for documents of private nature (such as a trust deed) to be left unstamped until they are required for court proceedings or for presentation before other governmental authorities."
Mr Amos makes the point that EW did not, in the first instance, submit the correct form to the X country Bar Association when he attempted to register the Trust for the purposes of this litigation after Miss Loizou's visit to his offices in September 2015. The husband was shown on the form as one of the trustees. An amended form was substituted and the registration went ahead. It seems to me that these are essentially administrative acts which do not go to the essential validity of the Trust; they are merely relied on as part and parcel of the wife's case in relation to 'intention'. Similarly, I am not persuaded that there is anything in the point that the children were not formally notified at the time of their status as beneficiaries of the Trust. Mr P has himself confirmed that there is nothing in this point.
D. My conclusions in relation to "sham":
was this a valid Trust ?
"(f) a conclusion that a document, agreement or provision is asham
or pretence does not make it void, or of no effect, for all purposes. Rather if there is a
sham
or pretence:
(i) the parties will not be able to rely on it as representing the true position as to the rights and obligations they have created and the court can ignore it in determining what those rights are; and
(ii) as against an innocent third party it cannot lie in the mouths of the pretenders to assert to the disadvantage of that innocent third party that the transaction is asham,
or pretence, and thus of no effect."
E. What was it that the husband transferred into the 2007 Trust for the benefit of the children ?
"Q. …Does it follow … that the account which [your wife] gave to the learned judge in her evidence describing the car ride with the four of you, your brother-in-law, your sister…, [your wife] and yourself – never mind whether it was Q City or P City for the present purposes – does it follow that that car ride is an invention by her and that she is lying about it ?
A. I believe so.
Q. Right. Okay. An invention by her and it must follow you say she is lying about that.
A. Maybe she remembers something. I'm not saying lying. I mean that I never been ….
Q. It is quite important. I know you do not like the word lying and we can find a different one if you prefer, but it is deliberately saying something that is not true.
A. Yes. I can't remember going with [the wife] to a solicitors, signing, as [she] explaining [in] Q City, any documents. They all been done with I & Co by fax and with envelopes….
Q. Does it follow that you also say that her description of a signing where there was four or you, you and [she] signing as the principal parties and your sister and brother-in-law also signing, she has told the learned judge that very clearly, and do you say that must be deliberately not true, in other words [she is] lying ?
A. Yes." [Transcript: 16.xii.2016, page 103 to 105]
F. My findings in relation to the issues to be determined
1. Whether, prior to August 2007, the shares in C Limited were owned
a. 50% by the husband and 50% by the wife; or
b. 100% for the husband
whether in law and/or in equity.
Prior to August 2007, the shares in C Limited were beneficially owned as to 50% by the husband and 50% by the wife. Until 15 June 1994 the legal interest in the wife's 50% of the shares (numbered 001 to 500) was held by J Nominees Limited. With effect from 15 June 1994 the legal interest in those numbered shares was held on trust for the wife absolutely by Mrs YR.
2. Whether, subject to the issue ofsham,
the Deed of Settlement dated 3 August 2007 had the effect of settling into The ABC Trust the husband's beneficial interest in (a) D Limited and/or (b) C Limited (and its subsidiary companies).
The Deed of Settlement dated 3 August 2007 had the effect of settling into The ABC Trust the husband's beneficial interest in (a) 50% of the shares in D Limited and (b) 50% of the shares in C Limited . Subject to the Trustee exercising the power which it holds (with the consent of the Protector) to add to the class of beneficiaries, the beneficial interest in those shares is now held for the children of the family.
3. Whether The ABC Trust, in particular the Deed of Settlement dated 3 August 2007, is asham.
Neither The ABC Trust nor the Deed of Settlement dated 3 August 2007 is asham
transaction as a matter of law.
4. Whether, if The ABC Trust is not asham
and the husband's interest in C Limited was settled into that Trust, he now holds the beneficial interest in the shares of C Limited by virtue of the Deed of Trust dated 21 March 2014.
The Deed of Trust dated 21 March 2014 is asham
transaction and of no legal effect.
5. What was the effect if any (in law and in equity) of the transfer on 20 March 2014 of the entire shareholding in C Limited to Ms PH and the Deed of Trust dated 21 March 2014.
The transfer of the legal ownership of the shares in C Limited to Miss PH and the registration of her ownership of those shares in the 'Register of Certificates' on 20 March 2014 was effective to transfer the legal title of the C Limited shares into her sole name. In equity, she holds those shares as to 50% for the children of the family in accordance with the terms of The ABC Trust and as to 50% for the wife whose beneficial interest in the shares was unaffected by the terms of the Deed of Settlement dated 3 August 2007.
6. Whether, prior to 3 August 2007, the respondent had informed the wife that he intended (as he asserts) to divest his interest in C Limited (and its subsidiary companies) to the children.
At no stage prior to 3 August 2007 did the Respondent inform the wife that he intended to divest his interest in C Limited (and its subsidiary companies) to the children.
7. Whether, prior to the commencement of these proceedings:
a. The husband had informed the wife that he had (as he asserts) settled his interest in (a) D Limited and/or (b) C Limited (and its subsidiary companies) into trust; or
b. Whether she had otherwise become aware that this had happened.
At no stage prior to the commencement of these proceedings did the husband inform the wife that he had settled his interest in either D Limited or C Limited (and its subsidiary companies) into trust. She did not become aware of the existence of The ABC Trust until it was referred to in a letter sent by T & Co to her solicitors on 20 November 2014. She did not see a copy of the Trust Deed until it was sent with a copy of the husband's Form E on 19 December 2014.
8. Whilst not asserted by any party did the 2006 Deed of Settlement take effect ?
Neither the first nor the second versions of the draft Deeds of Trust dated 2006 took effect.
9. If the 2006 Deed of Settlement took effect, what is the impact on the Deed of Settlement dated 3 August 2007 ?
This question has no relevance in the light of my finding in relation to Issue 8.
G. Section 37(2)(a) of the Matrimonial Causes Act 1973
H. Concluding remarks
Note 1 T & Co are the lawyers who represent the corporate interests and the companies through which the family businesses operate. [Back] Note 2 There are further copies of the (unsigned) 2002 Deeds in the court bundles which emanate from the USB drive which TU produced as part of her obligations under the P City court order. [Back] Note 3 Although the draft Deed refers to “his” name, it has clearly been drafted generically. The Grantor in this case is specifically identified as the wife. [Back] Note 4 Stewarts Law LLP had written on the husband’s instructions to say that the deeds “appear to be of recent manufacture … and they emanate from a completely untrustworthy source”. That allegation appears to have been repeated in the position documents prepared by Mr Pointer QC and Mr Glaser for the June 2016 hearing before Flaux J. [Back]