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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Representation of B and C [2022] JRC 214 (11 August 2022) URL: http://www.bailii.org/je/cases/UR/2022/2022_214.html Cite as: [2022] JRC 214 |
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Trust - re: Deed of Gift - Deed of Trust - reasons.
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Before : |
J. A. Clyde-Smith OBE., Commissioner, and Jurats Crill and Austin-Vautier |
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Between |
B and C |
Representors |
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And |
E |
First Respondent |
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And |
CitiTrust (Jersey) Limited |
Second Respondent |
IN THE MATTER OF THE REPRESENTATION OF B AND C
AND
IN THE MATTER OF ARTICLES 11, 47E AND 471 OF THE TRUSTS (JERSEY) LAW 1984 (AS AMENDED)
Advocate J. M. Dann for the Representors
Advocate J. Harvey-Hills for the Second Respondent
judgment
the commissioner:
1. On 26th April 2022, the Court set aside a Deed of Gift and associated Deed of Trust on the grounds of mistake, and we now set out our reasons.
2. The Representors, who are both from civil law jurisdictions, had considered various options for the management of their family wealth (held in an investment portfolio) with Citigroup. They were not comfortable with the concept of a discretionary trust and opted for a bare trust structure, under which a trustee would hold the one share in and loan due by a BVI incorporated company ("the BVI Company") on bare trust for them and which in turn would hold their investment portfolio. As part of this process, they entered into a Company Services Agreement ("CSA") effective 1st January 2007, with the Second Respondent, CitiTrust (Jersey) Limited. The CSA was erroneously referred to subsequently as a Trustee Services Agreement. Pursuant to the terms of the CSA, the one share in and loan due by the BVI Company was held by Secundus Nominees (Jersey) Limited, part of the Citigroup group of companies ("Secundus"), in favour of the Representors as "joint tenants with the right of survivorship", pursuant to a Declaration of Trust dated 5th February 2008.
3. The Representors were uncomfortable with the idea of a discretionary trust, not only because of their unfamiliarity with the trust concept, but also because they wished to continue to have control over the assets and did not want to burden their three children with additional responsibilities at that stage of their lives. A further potential complication stemmed from the fact that all of their children were Country 1 citizens at that time. Ultimately, what the Representors wanted to achieve was to ensure that the investment portfolio would pass upon the death of the survivor of them to their three children equally. They were also concerned about the potential need for probate in the BVI on the death of the survivor of them, which to them was another alien, costly and time-consuming process. If possible, they wished their interest in the investment portfolio to pass by way of a right of survivorship.
4. In 2018, the First Respondent ("E"), one of their three children, decided that she wished to renounce her Country 1 citizenship, which she did in October 2019. This triggered a process of re-visiting the succession planning to see if a workable structure could now be put in place, and as the Representors understood it, the proposal from Citigroup was that E would inherit their interest in the BVI Company upon the death of the Representors by way of a right of survivorship and that she would then be able to divide the investment portfolio equally between herself and her two siblings. The Representors did not want E, or any of their children, to have an interest in the investment portfolio whilst the Representors were still alive. There was no tax planning element to the proposed transaction and the Representors did not see the need to take independent tax or legal advice. So far as they were concerned, they were taking some straightforward steps in relation to what would happen to their assets upon their deaths.
5. Mr Gareth Carter of Citigroup produced a Deed of Gift ("the Deed of Gift"), described by him as "pretty straightforward", which the Representors and E signed at a short meeting in the home of the Representors in Country 2 on 26th February, 2020.
6. Under the Deed of Gift, which is governed by Jersey law, the Representors gifted their beneficial interest in the one share in and loan account due by the BVI Company to themselves and E "as joint tenants in equity with right of survivorship". Secundus was directed to execute a second Declaration of Trust ("the Second Declaration of Trust") in their favour on that basis.
7. In 2021 E was in the process of becoming tax resident in Country 3 and the family was advised by Citigroup to obtain Country 3 tax advice. The Representors engaged F, a Country 3 barrister and solicitor. The initial email exchanges between F and Mr Carter show that it was Mr Carter's understanding that E had been added as an owner for limited estate planning purposes because the family did not want to settle a trust at the time. It was not the intention for E to receive any dividends or distributions from the BVI Company during the Representors' lifetimes. F's understanding, therefore, was that E had no current economic interest in the BVI Company.
8. However, it then became clear that the effect of the Deed of Gift was, in fact, that E was a joint shareholder with her parents, with each party holding beneficially their proportion of the share and loan with rights of survivorship. E had therefore been given a beneficial interest in the BVI Company, which was contrary to the intention of the Representors and would result in her being required to file tax returns in Country 3 in respect of her interest and paying tax on the income and gains made by the portfolio held by the BVI Company. The deadline for the filing of a tax return in Country 3 was 30th April 2022.
9. We have set out the facts above as we find them to be taken from the evidence before the Court in the form of affidavits from the Representors, an affidavit from F, an affidavit from Mr Mark Brennan, a Fiduciary Team leader at CitiTrust (Jersey) Limited, and a letter from E.
10. We were satisfied from the evidence before the Court that the Representors, for whom English was not their first language, were concerned only with estate planning on the death of the survivor of them and did not intend to give to E an interest in their investment portfolio during their lifetimes. Equally, it was E's understanding that she was only receiving an interest in the investment portfolio on the death of the survivor of the Representors. F confirmed in his affidavit that such estate planning was fairly common in Country 3 but needed bespoke documentation to achieve the desired effect of a future or advanced will trust. In effect, the purpose behind such a structure was to name the person, in this case E, solely for the purpose of estate planning.
11. By their representation, the Representors sought orders declaring the Deed of Gift void ab initio on the grounds of mistake and rectification of the Second Declaration of Trust by removing the reference to E.
12. At the hearing on 25th March 2022, Advocate Dann sought an order under Article 47E of the Trusts (Jersey) Law 1984 (as amended) which gives the Court jurisdiction to set aside transfers of property to a trust on the basis that this was a gift by the Representors to Secundus as bare trustee, but in discussion he accepted that this was in fact a gift by the Representors to E, not to a trust. The Second Declaration of Trust was executed consequentially upon it.
13. Ultimately, Advocate Dann proceeded under the wider equitable jurisdiction of the Court to set aside a voluntary disposition where the donor was under a mistake, the jurisdiction of which derives from the English authority of Ogilvie v Littleboy (1897) 13 TLR 399 (affirmed by the House of Lords in (1899) 15 TLR 294).
14. In the case of In the matter of the A Trust [2009] JRC 245, the Court held that this wider jurisdiction formed part of Jersey law:
15. The test was refined in Re the Lochmore Trust [2010] JRC 068 as follows:
(i) Was there a mistake on the part of the donor?
(ii) Would the donor not have entered into the transaction "but for" the mistake?
(iii) Was the mistake of so serious a character as to render it unjust on the part of the donee to retain the property?
16. This test was affirmed by the Royal Court in the case of In the matter of the S Trust [2011] JRC 117 after a detailed review following the English Court of Appeal decision in Pitt v Holt & Futter v Futter [2011] EWCA Civ 197.
17. Applying that test to the facts as we found them to be, the Court was satisfied that there was a mistake on the part of the Representors in entering into the Deed of Gift. Their intention was to give E an interest in survivorship only and not an interest during their lifetimes. Under the terms of the Deed of Gift, they had in fact advanced to E a one third beneficial interest in the investment portfolio (a substantial proportion of their wealth) during their lifetimes. Equally, it was not E's understanding that she would receive such an advance during their lifetimes. It follows that we find the Representors would not have entered into the Deed of Gift "but for" the mistake.
18. As to the third part of the test, the mistake was serious, having regard to the value of the interest mistakenly gifted, one third of the investment portfolio, when the Representors had no intention of making such a gift during their lifetimes. On any analysis, giving away one third of one's wealth mistakenly can only be characterised as serious. Allowing E to retain such an unintended advance would be unjust and in any event she has no wish to retain it, in particular because of the tax implications to her having taken up residence in Country 3.
19. Out of an abundance of caution Advocate Dann also addressed the issue through the prism of a contractual analysis, submitting that the Deed of Gift would fail for erreur sur la substance, or what would be understood in English law as fundamental mistake. Whilst the transaction did not fail for lack of capacity, objet or cause, there was a "fundamental" mistake as to what the parties sought to achieve by entering into the Deed of Gift, and therefore there was no consent. Applying the Court of Appeal decision in Marett v O'Brien [2008] JLR 384, the appropriate analysis under Jersey law would be that the parties were operating under the defect of consent or erreur vice du consentement, more particularly an erreur sur la substance, meaning that the consent was impeachable despite a meeting of minds.
20. There is a dearth of local authority on gratuitous contracts and Advocate Harvey-Hills submitted and we agree that there was no need to analyse this transaction on contractual terms as the equitable jurisdiction of the Court in respect of voluntary dispositions is well established. There is no suggestion that the principles enunciated in the case of the A Trust are limited in some way to voluntary dispositions in favour of trustees as opposed to individual donees such as E.
21. We bear in mind what Sir Michael Birt, then Deputy Bailiff, said in JP v Atlas [2008] JRC 159 at paragraph 22:
22. For all these reasons, the Court set aside the Deed of Gift on the grounds of mistake such that it was void ab initio and was of no effect. It followed that the Second Declaration of Trust established pursuant to the Deed of Gift would automatically fall away without any need for rectification and it was also declared void ab initio and of no effect.
