ALL THAT IS NOT GIVEN IS LOST
- GIFTS TO TRUSTEES AND UNDERLYING COMPANIES
Yvette A.Wallace
[email protected]
ALL THAT IS NOT GIVEN IS LOST
The world of Trust and Estate Practice is always evolving, but many of the core guiding
principles remain steadfast. Nowhere is this truer than in the area of gifts. Yet there are
still many instances where donors or their estates have been left “saddled” with property
which they thought they had previously gifted to another and beneficiaries are left
wondering why they are not able to take title to the property gifted to them. The problem,
in large measure, stems from a failure to ensure that the gift is properly perfected. As such,
in this paper we consider gifts: we will look at their creation and perfection, including ways
and methods to prevent resulting trusts from arising; and conflict of laws and other issues
which may often be overlooked and which could impact the validity of the gift. To elucidate
and refresh the core principles some of the cases we shall examine in the following areas
are:
 Outright gift- Nelson Louison v Margaret Stewart - Kaye and Others v Zeital
and Another
 Gifts to trustees - Kaki and another v Kaki
 Gifts to underlying companies - MA v SK
 Capacity to make a gift - Re Smith (deceased); Kicks and another v Leigh
 Avoiding a resulting trust - Prest v Petrodel Resources Ltd & Others
 Conflict of Laws - Crociani and Others (Appellants) v Crociani and others
(Respondents) & Princess Camilla de Bourbon des Deux Siciles (Intervener) - In
Representation of the Manor House Trust and the Russian Trust (Tanya Marya
Dick Stock vs. Pantrust International SA et al.)
 Non est factum/Unconscionable bargain/Unconscionable procurement -Singla
v Bashir
GIFTS
A person may make a gift of real or personal property in which she or he has a legal or
equitable interest either by inter vivos gift or testamentary disposition. Such gifts can
include money, shares, personal effects or land and could concern a transfer into joint
ownership or the transfer of legal title to certain property to a trust.
An inter vivos gift occurs when the donor, while alive, with intent transfers unconditionally
legal title to property and either transfers possession of the property to the donee (or there
is some other document evidencing an intention to make the gift) and the donee accepts
the gift. On the other hand, a gift by testamentary disposition is made if the testator by will
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or other testamentary disposition evinces a clear intention to transfer unconditionally legal
title to the property on his or her death to a specific donee.
A gift may be outright or unconditional or it may be subject to constraints. Some
constraints include subjecting the gift to a condition, creation of a trust, creation of a
charge or personal obligation in favour of a third person.
CREATION AND PERFECTION OF GIFTS
To create a valid gift there must be:1.
2.
3.
4.
An intention to donate (animus donandi) coupled with the capacity to make the gift;
Certainty of subject matter and objects;
Acceptance of the gift by the donee; and
A sufficient act of delivery or transfer so as to transfer the gift in the correct manner.
The type of transfer which is suitable is dependent upon the type of property being
transferred.
Capacity & Intention
In order to make a gift of any kind the donor of the gift must have the requisite mental
capacity. There are two sources of law to be applied when determining mental capacity, the
common law and the Mental Capacity Act 2005 (“MCA”). Additionally, the test for capacity
differs according to whether that gift is inter vivos or testamentary.
Common Law – Inter Vivos Test– Relativity
This test is set out in the judgment of Martin Nourse QC (as he then was) in Re Beaney(decd)
[1978] 2 All ER 595 and in essence is this: whether the person concerned is capable of
understanding what he does by executing the deed in question when its general purport
has been fully explained to him. The test therefore is one of ability to understand the
transaction proposed (if that transaction was ever explained) and not the actual
understanding of the transaction at hand.
It would seem therefore that under the relativity test, context is key. If a gift of
US$10,000.00 is made by a very wealthy person then a low degree of understanding may
indicate capacity. However, where that same sum is given and it comprises half of the
estate then a higher degree of understanding is going to be required.
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Common Law – Testamentary Disposition Test
This test is established in Banks v Goodfellow (1870) LR 5 QB 549, [1861-73] All ER Rep 47, at
565 in the judgment of Cockburn CJ (1870) LR 5 QB 549 at 565, [1861-73] All ER Rep 47 at
56:
“It is essential to the exercise of such a power that a testator shall
understand the nature of the act and its effects; shall understand the
extent of the property of which he is disposing; shall be able to
comprehend and appreciate the claims to which he ought to give
effect; and, with a view to the latter object, that no disorder of the
mind shall poison his affections, pervert his sense of right, or prevent
the exercise of his natural faculties--that no insane delusion shall
influence his will in disposing of his property and bring about a
disposal of it which, if the mind had been sound, would not have been
made.”
Mental Capacity Act 2005
The MCA 2005 is essentially concerned with the jurisdiction of the Court of Protection to
deal with welfare issues concerning living persons who suffer mental incapacity. Sections 1
to 3 of the MCA 2005 set out the relevant principles for ascertaining mental capacity. In
reviewing s 3(1) it is clear that the s 3(1) test and other provisions only apply directly where
the Court of Protection is considering issues within its statutory jurisdiction and is not a
general test applicable either to all issues where mental capacity arises or in all courts.
However, Courts are required to take into account the provisions of any Code issued, if it is
relevant to an issue arising in the proceedings and in that regard s. 3(1) may have some
bearing in the case.
Therefore, while it is clear that the MCA definition and test for lack of capacity are to be
used in scenarios covered by the Act, the fact that the MCA also amended existing law to
ensure that the definition and test are used in other areas which are not covered by the
MCA means that it cannot be totally disregarded. This fact is, however, that the MCA’s
definition of capacity appears to be in line with common law tests and the MCA does not
replace them. Consequently, it would seem that Judges have a discretion and when cases
come before the courts, they can adopt the MCA definition if it is appropriate.
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Cases Illustrative of Capacity and Intention
The case Re Smith (deceased); Kicks and another v Leigh1summarises the key principles
relating to capacity and intention. The facts are as follows:
Mrs. Joyce Smith (deceased) (“JS”), was based in Oxford, having lived there at the
Oxford Property with her husband until 1999. Her wider family, including her brother
and his wife, her sister-in law and son-in-law, Mr Kicks, were also located there (the
“Oxford Family”).
JS had two children, Norma Kicks & Georgina Leigh. Norma predeceased her mother
JS in 2004, she was survived by two children. Georgina also has two children. JS
made a will in 2003 under which both of her children stood to inherit equally,
however she made a new will in 2008 by which the claimant’s (Norma Kick’s
children) share was reduced from 50% to 25%. On 28 th October 2009 an LPA
appointing Georgina, (the “Defendant”) as sole attorney was prepared, however
upon application for its registration the Claimants objected and after independent
legal advice so did JS. JS later reneged on this rejection and executed documents
(hand written by the defendant) which contradicted the initial position she had
taken.
At Christmas 2009, the Defendant in the proceedings and her husband Mr Leigh
went to Oxford to be with JS. By that time, the Defendant was keen that JS should
move to live with her and her husband in Kent. Emergency medical call outs were
made on 20 December and on Christmas Eve; JS was visited at her home by her GP,
who recorded that, whilst the Defendant was keen that her mother should move to
live with her and her husband in Kent, JS expressed a strong desire to remain in her
own home.
On 27 December 2009 Georgina and her husband commandeered JS and took her to
live with them at their home in Kent, despite JS’s indication that she wished to
remain in her home in Oxford. Mr Leigh changed the locks on the Oxford Property
the same day. Between 27th December 2009 and New Year of 2010 the Oxford
family tried to speak with JS at the Leigh’s property but were unable to do so and
ultimately contacted Oxford Social Services, who in turn contacted Kent Social
Services. Shortly, thereafter in 2010 JS was moved to a care home where she
remained until she died in December 2011.
On or around 22nd January 2010 the Oxford Property was put on the market by the
Leighs who instructed agents and solicitors. The Oxford Property was sold on 23rd
April 2010 and the proceeds were paid into the Leigh’s joint bank account that day.
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The Oxford Property was effectively JS’s entire estate. The Defendant posited that
the funds were a gift from her mother to her. The Claimants' contended that the
Defendant account to the estate for the proceeds of sale of the Oxford Property and
pay to the estate any sums found due on the taking of account. Alternatively, in
their capacity as residuary beneficiaries under JS’s will, by way of derivative claim
against the Defendant personally, an order that the gift or transfer by JS to the
Defendant of the proceeds of sale of the Oxford Property be set aside and that the
Defendant repay to JS’s estate the sum of £292,899.92 with interest thereon since
23rd April 2010.
The issues for determination were:1. Did Mrs Smith have mental capacity to make the gift of the proceeds on 23rdApril
2010?
2. Was that gift procured by the exercise by the Defendant of undue influence over
Mrs Smith?
In considering whether JS had the requisite capacity to make a gift of the proceeds,
the Court considered that there were two issues. Firstly, which legal principles
should apply; the common law principles in Re Beaney or rather those set out in S1-3
MCA 2005 or perhaps some form of combination of the two. Secondly, what is the
correct approach to the burden of proof in relation to mental capacity to make an
inter vivos gift?
The Court considered the relevant case law and concluded that the correct
approach to a post MCA inter vivos gift is to apply Re Beaney (dec) with
expounding from the MCA test if necessary. Therefore, using the test in Re Beaney
(dec), the question to be asked therefore is this: did JS have the ability to understand
the nature of the transfer, whether she actually understood the transaction or not.
Previously, the judge, in looking at the degree of understanding had quoted with
approval the Australian case of Gibbons v Wright (1954) 91 CLR 423 at 438 where in
it was stated:“that the mental capacity required by the law in respect of any
instrument is relative to the particular transaction which is being
effected by means of the instrument, and may be described as the
capacity to understand the nature of that transaction when it is
explained.”
and continued ([1978] 2 All ER 595 at 601, [1978] 1 WLR 770 at 774):
“In the circumstances, it seems to me that the law is this. The degree or
extent of understanding required in respect of any instrument is relative
to the particular transaction which it is to effect. In the case of a will the
degree required is always high. In the case of a contract, a deed made
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for consideration or a gift inter vivos, whether by deed or otherwise, the
degree required varies with the circumstances of the transaction.
Thus, at one extreme, if the subject-matter and value of a gift are
trivial in relation to the donor's other assets a low degree of
understanding will suffice. But, at the other, if its effect is to dispose of
the donor's only asset of value and thus for practical purposes to preempt the devolution of his estate under his will or on his intestacy,
then the degree of understanding required is as high as that required
for a will, and the donor must understand the claims of all potential
donees and the extent of the property to be disposed of.” (Emphasis
added.)
On the question of burden of proof, the Court took the view that the legal burden is
on the party alleging the lack of capacity, but where that party is able to raise a
sufficient doubt, the burden shifts to the person alleging that there was sufficient
capacity.
The Court thereafter concluded that the Oxford Property was JS’s principal asset and
the Defendant had not adduced any evidence to the contrary. Therefore, JS would
have to have had a high understanding (likely in accordance with the testamentary
test) of the effect of the gift. The Court considered medical evidence, witness
evidence and evidence surrounding the disposal of the Oxford House. On the
evidence the Court found that mental incapacity was not established and that JS’s
capacity was not any worse than what one would expect of an 83 year old person
(paragraphs 190-206).
This then brings us to the second question: Was the gift to Defendant procured by
the exercise of undue influence and thus should be set aside? The leading authority
is the decision of the House of Lords in Royal Bank of Scotland v Etridge (No 2),
Barclays Bank plc v Coleman, Bank of Scotland v Bennett, Kenyon-Brown v Desmond
Banks & Co (a firm) [2001] UKHL 44. The Court also considered the recent judgment
of Sir William Blackburne in Hart v Burbidge; Samways v Burbidge [2013] EWHC 1628
(Ch), which summarises the legal principles.
The Court reviewed a plethora of evidence concerning the family, the changes in JS’s
will, control/management of her finances, the move to Kent, evidence of JS’s mental
capacity, her time in the care home, relations between the family over the relevant
period. While ultimately JS appeared to have known her own mind and medically
was not mentally incapacitated the Court concluded that there was a relationship of
trust and confidence, JS was vulnerable and the defendant was ascendant.
Consequently, it was held that this was a transaction which called for an explanation.
The effect of making the gift was to deprive the beneficiaries under her 2008 will of
their inheritance and also left her with little money to fund her future care. Given
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her age, poor sight and memory and even though she was found capable of
understanding the transaction, the size and effect of the gift was such that it was out
of the ordinary and required an explanation. Thus the presumption of undue
influence arose. There was no evidenced adduced to rebut the presumption. There
is no evidence that JS had independent legal advice or that she considered the effect
this gift would have on the operation of her will or the funding of her future care.
The Court held that the gift of the proceeds of sale was obtained by undue influence
and should be set aside.
Delivery or Transfer
If a gift is not transferred in the correct manner then it may fail for want of perfection. If the
gift fails for want of perfection, the property would revert to the donor on a resulting trust.
The method of transfer will differ depending on the nature of the gift given but the bottom
line appear to be that the donor must have done all that he could to cause the gift to be
transferred.
Sufficiency of act of delivery or transfers
In Nelson Louison v Margaret Stewart2 the High Court in Grenada had to consider whether
a gift of a car made to Ms Stewart from Mr. Lousion was an outright gift or whether in the
alternative it was held on resulting trust for Mr. Louison. The facts are set out below:
The parties were involved in an intimate, tumultuous relationship for approximately
10 years and during that relationship Mr. Lousion provided fair to substantial
financial assistance. A few months after the end of the relationship Mr. Louison
commenced his claim with respect to a Nissan X-Trail motor vehicle registered in Ms.
Stewart’s name. He sought declarations that Ms. Stewart held the property on trust
for him and also that he held a beneficial interest in and was the beneficial owner.
The sole issue between the parties was whether the motor vehicle was an outright
gift.
Mr. Louison claimed to have fully funded the purchase price for the vehicle and thus
a resulting trust was created when the vehicle was registered in Ms. Stewart’s name.
Ms. Stewart, on the other hand, posited that the vehicle was an unconditional gift
and that the presumption of advancement applies.
The Court found that there is no provision made in law for an “intimate partner”
when it comes to the presumption of advancement. The assessment of whether a
2
GDAHCV2014/0360
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resulting, implied or constructive trust was created required an examination of the
conduct of the parties.
In Stack v Dowden [2007] UKHL 17, Baroness Hale said:“the starting point where there is sole legal ownership is sole beneficial
ownership…The onus is upon the person seeking to show that the beneficial
ownership is different from the legal ownership. So in sole ownership cases it
is upon the non-owner to show that he has any interest at all.”
Baroness Hale went further to say that constructive trusts were far becoming the
primary trust in the area of implied trusts as compared to resulting trusts, a position
which was affirmed in Jones v Kernott [2012] 1 All ER 1265 . Therefore, as Ms.
Stewart is the sole legal registered owner of the vehicle and there is no declaration
of trust, she is considered the legal and beneficial owner and Mr. Louison must
establish therefore that there was a common intention constructive trust.
Determination of the existence of a common intention constructive trust requires
consideration of the parties’ actual intention, express or inferred, objectively
ascertained in their whole course of conduct (emphasis added). The court may
consider parole evidence, draw inferences as to conduct or apply equitable
presumptions as to intention. Therefore,
Mr. Lousion gave evidence that he bought the vehicle for himself, but caused it to be
temporarily registered in Ms. Stewart’s name as he wanted to avoid a provision in
the law that required him to give notice every time he left Grenada. His evidence as
to how he came to be aware of such provision was inconsistent. Ms. Stewart’s
evidence is that the vehicle was a gift to replace a previous vehicle which Mr.
Louison sold. The car which was previously sold was also registered to Ms. Stewart,
which Mr. Louison indicates was for the same reason regarding provision of notice.
The Court could find no evidence of temporary registration of the vehicle in Ms.
Stewart’s name as alleged by Mr. Louison.
In support of his claim of a constructive trust Mr. Louison also indicated that he paid
for insurance, licensing, repairs and maintenance of the vehicle. The Court found
that this was not indicative of a constructive trust and that these contributions to the
ancillary costs of running the vehicle were not unusual when compared with the
financial support that he typically provided. Furthermore, during the relationship Mr.
Louison also appeared to have provided generous financial support to Ms. Stewart
which included vast contributions to a house she was building.
The Court held that the car was a gift to Ms. Stewart, which Mr Louison sought to recharacterise as being held on trust after the breakdown of the relationship.
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In this case the requirements for the creation of a valid gift were fulfilled: there
was intention to give a gift, the subject matter, which was the car, was clearly
identified, the car had been accepted for use by Ms. Stewart and the car had been
registered in her name, which was a sufficient transfer indicative of ownership.
In Kaye and Others v Zeital and Another3the Court had to consider whether the prerequisites for the perfection of a gift of shares were fulfilled. In this case the gift was an
equitable interest, the beneficial interest in two shares in an asset owning company. The
defendants in the proceedings were the deceased’s wife (“first defendant”) and daughter
(“second defendant”), a woman he formed a relationship with (“S/third defendant”) and
two entities under the direction of S, the fourth and fifth defendants. The facts are set out
below:
The deceased (“R”) died intestate, the first and second defendants together with
another daughter, who was not a defendant in the proceedings were the sole
beneficiaries of his estate. The first defendant and R had separated 20 years before
his death and he started a relationship with S. In 1988 R incorporated a company for
the purpose of investing in property, through formation agents. The two shares in
the company were held by the formation agents, who held legal ownership. The
beneficial ownership belonged to R, the formation agents executed blank share
transfer forms, with the transferee left incomplete and these share transfer forms
were in the possession of R.
Thereafter the company acquired a property. In 1997 R completed one of the blank
transfer forms, naming S as a transferee and dating it. In 1998 the company was
struck off the register, although it still let the property out as investment. In 2003 R
gave to S the completed stock transfer form and also one other stock transfer form,
without adding her name as transferee or dating it and no share certificate was
provided. After R’s death S purported to appoint herself as a director of the
company, restored it to the Register and purported to transfer the two shares to two
entities. In 2004 the flat was sold, the company entered into member’s voluntary
liquidation and there was a dispute as to the proceeds of sale. Determining the
proper distribution of the proceeds would depend upon the beneficial ownership of
the shares. The liquidator brought proceedings to determine the issue.
The first and second defendants contended that R was the beneficial owner of the
shares and that the shares formed part of his estate and thus his estate was entitled
to the proceeds. S contended that the shares were given to her by R and that she
had beneficial ownership at the time of his death and thereafter she completed a
3
[2010] EWCA Civ 159 (paras
27-37 & 43)
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transfer to the entities, the fourth and fifth defendants. The judge at first instance
found that S was the beneficial owner and the formation agents were the legal
owners. The first and second defendants appealed contending that the gift of the
second share failed for want of perfection. Whilst they accepted the court’s decision
with respect to the first share which was completed with S’s name they were of the
view that the court had erred with respect to the second share.
The court found that S’s witness statement had indicated that she caused the share
in the company to be transferred. This choice of words showed that she had initially
disclaimed any interest in the share. But whilst giving evidence she indicated that R
had given her the stock transfer forms and said that his intention was to make her
more responsible and it was her choice as to what she did with the shares. The Court
determined that her attempt to claim that R had given her the second share as a gift
was an afterthought, her claim only being made out in the witness box.
The first and second defendants contend that R’s purported method of transferring
the second share lacked the formalities required for a share transfer and therefore
the gift failed as imperfect and accordingly R was not divested of his equitable
interest. The Court found that:


R was a beneficial owner with an equitable interest and he could only transfer or
assign it;
R could only declare a trust, making himself trustee of the equitable interest,
assign his interest to S in accordance with statute, or make a written assignment
of his interest to a trustee and he did none of these things (emphasis added).
The stock transfer form was to effect a future transfer of the legal ownership.
R had not done all that was within his power to transfer the share, as no share
certificate had been provided to S and this was a requirement for registration,
which was specifically within his control and not hers. He could have procured
the company or the legal owner of the share to restore the company and replace
the certificate. R had not equipped S with the title documentation required to
become a member of the company.
The Court of Appeal held that the first and second defendants as administrators of
R’s estate were entitled to the beneficial interest in the second share and the estate
was thus entitled to the proceeds associated with that share. The Court rejected S’s
claim that a constructive trust was operative and that R held the second share as a
trustee for her.
In this instance the requirements for a valid gift had been fulfilled in relation to the first
share but not the second. The first share had been completed with date and transferee
and this was sufficient.
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Physical transfer may not be required in certain circumstances
Whether the trust is in the form of one settled by the same individual who becomes trustee,
or one in which an individual transfers assets to another who becomes the trustee, the
substance of the requirements to create a valid trust remains the same – namely,
satisfaction of the three certainties and proper constitution.
However, where an individual declares themselves trustee of assets that the same person
owns, constitution would not generally involve a physical transfer of the assets, as they will
remain in the same person’s possession. It will be necessary, though, to confirm that the
trust declaration clearly describes the assets held by that individual in the trust relationship.
Also, as far as possible, any re-registrations of title to assets into the name of the individual
as trustee should be completed.
FAILURE NOTWITHSTANDING SUFFICIENCY OF TRANSFER OR DELIVERY
Even where on its face, the gift has been properly transferred or delivered; there are certain
instances where the gift may still fail or be set side. Two notable examples are gifts to
trustees and gifts to underlying companies.
GIFTS TO TRUSTEES
In Kaki and another v Kaki4the Claimants sought a declaration pursuant to section 14 of the
Trusts of Land and Appointment of Trustees Act 1996 to the effect that the legal and
beneficial ownership of a leasehold interest in Flat 41 Old Court House, 24 Old Court Place,
London W8 (the “Property”) vested in equal shares in four of the nine children of Sheikh
Mohammed Siraj Kaki, deceased, (Sheikh Kaki). These four children were the two Claimants
(Mohammed Siraj and Aisha respectively) and the Defendants (Abdul Aziz) and Mohammed
Said Siraj Kaki (Mohammed Said). The facts, which are somewhat complex, are below:
Sheikh Kaki was a wealthy businessman with property interests in various parts of
the world including the UK. He died in August 2000. In 1975 Sheikh Kaki purchased
and paid for a lease (63 years remaining) over the Property. It was transferred into
the names of the aforesaid four children as transferees and was subject to an
express declaration of trust in favour of all nine of the children. The application to
register the transaction with the Land Registry made express reference to this trust
and its terms and a restriction on the Register was noted to the effect that no
disposition of the Property may be registered without the consent of each of the five
4
[2015] EWHC 3692 (Ch)
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children that were not named as Transferees. The Restriction was operative as a
surrender of the Lease in 1988 required the consent of the 5 siblings.
In early 1988 the opportunity arose for the term of the 1975 lease to be extended
for a consideration of £59,000, and Abdul Aziz gave evidence to the effect that his
father thought this was an opportunity which should not be missed. He told the
court that he was given the role of realising this opportunity and this is what he did.
The transaction took effect by way of surrender of the 1975 lease (which required
the written consent of each of the beneficiaries) and grant of a new lease dated 3
December 1990 with a term of 125 years from 25 March 1988. It is this new lease
which is the subject matter of the proceedings.
Abdul Aziz instructed a solicitor to fulfil his father’s wishes and told them that the
lease extension was to be obtained and also that the nine children were to be the
beneficiaries. The lawyer responded indicating that ownership under the new lease
was going to be the same as under the existing lease and that it would be preferable
if the same names that are on the existing lease are used on the new lease. He
noted that a declaration of trust would have to be made by four of the children as
legal title cannot be vested in more than four people.
Sheihk Kaki wrote to his bank setting out his wishes in relation to the acquisition of
the lease extension for the price, for the benefit of all his 9 children equally and
authorising the deduction of funds from his account to pay for the lease extension.
In May 1988 the solicitor wrote to Abdul Aziz indicating that a declaration of trust
would be done and that it did not matter who the trustees were, but from a practical
point, it made good sense for those that were readily available to sign to be the
trustees. Abdul Aziz indicated to the solicitor that the four siblings that were the
original trustees would act as trustees this time. The solicitor responded with the
Counterpart Lease and indicated that the Declaration of Trust would follow.
The purchase monies were paid in October 1988, however the paperwork took some
time and the Lease was not finalised and registered until February 1991. It was at
this point that Mohammed Siraj took issue with the Declaration of Trust and refused
to execute it. Although he did eventually accept the authenticity of the 1975
Declaration of Trust he declined to accept the new Declaration on grounds that his
father told him that he was going to put the Property in the names of the four CoOwners and that no mention was made of his half-sisters having an interest in the
Property. He said that his father had asked his sister Fawzia if she wanted an
interest and she had said no. He said that he did not discuss his half-sisters having
an interest in the Property because his father never mentioned it and he saw no
reason why that was unusual. He says he knows of other properties in the UK where
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his half-sisters, but not him, have an interest. He did not attend the trial on grounds
of ill health.
The Court found that there were no documents to support Mohammed Siraj’s
written evidence to the effect that Sheikh Kaki's intention was to gift the Property
only to the four children named on the lease. In fact, the Court stated:“In my judgment, [the] letter evidences the clear intention of Sheikh Kaki, as
settlor, that the new lease will be the subject of a trust and that the
beneficiaries will be each of the nine children. The letter is entirely consistent
with the circumstances surrounding the creation of the trust on purchase of
the lease in 1975, the extension of the 1975 lease by the mechanism of
surrender and re-grant without change in identity of owner, and is entirely
consistent with the instructions Abdul Aziz gave to Mr Isaacs when he
instructed him, as solicitor, to arrange the purchase of the lease extension”
Moreover, Abdul Aziz’s evidence was clear and consistent throughout that he was
following his father’s instructions. Abdul Aziz was clear that his father intended the
new lease to be held in trust for all of his children equally and that the co-trustees
only took issue with the trust after the contract had been completed and monies
paid.
The Court made the following findings:


The 1975 lease was held on trust for the nine children equally and that each
of the four trustees signed an express declaration of trust and knew of its
contents; each of them knew that their father intended that the Property be
shared equally by the nine.
In 1988 Sheikh Kaki intended to purchase an extension of term of the 1975
lease without changing the identity of the persons beneficially entitled to
an interest in that lease. He was advised that the procedure for such was by
surrender and re-grant and that he intended the new lease to be held in trust
for each of his nine children in equal shares, i.e. to be held on the same terms
as the 1975 lease.
At the time when the new lease was granted each of the four named trustees
(being Mohammed Siraj, Aisha, Mohammed Said and Abdul Aziz) knew that
their father, Sheikh Kaki, intended the Property to be held on trust for each
of the nine children in equal shares (emphasis added).
Even though no Declaration of Trust was actually signed in 1991 on the same terms as the
1975 Declaration as was clearly intended, on the evidence the Court found that the terms
and effect of the Declaration of Trust were still operative, stating that the trustees cannot
escape their duties and obligations as trustees for each of Sheikh Kaki's nine children by
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the refusal of some of them to sign an express declaration of trust in circumstances when
they knew that this was what Sheikh Kaki intended.
GIFT TO UNDERLYING COMPANIES
The case of MA v SK5is an example of the failure of a gift of the matrimonial home to an
underlying company as part of “tax structure arrangement”. The facts in this case are
somewhat complicated but the pertinent ones are set out below:
The Husband was aged around ninety, a Saudi Arabian citizen and national seemingly
rooted in that country. He lived in Jeddah in a substantial home. The Wife was born
in Beirut, Lebanon and was aged 63, a national of Lebanon and also of Saudi Arabia.
She resided at the London Property and had a three year investor's visa to remain in
England.
The parties married in 1979 and had two sons IK and EK. The London Property
comprised three flats which were acquired over a period of time and then merged
into one property in 1985. By 1988 the three flats were registered in the name of S
Investments. Bearer share certificates were issued for S Investments on 15th April
1981 and are now held by SGG (Curacao) Custodian Foundation.
In 1999 the parties divorced in Saudi Arabia but by 2000 a remarriage was proposed.
The Wife says that the Husband promised to transfer to her five properties for her
security, but the Husband denies any such promise. The remarriage occurred in
2002. The parties subsequently divorced on 1st May, 2014.
On 6th March 2014, the Husband wrote to the Wife asking her to vacate the London
Property. The following day, his solicitors wrote to her demanding that she return
the sale proceeds of certain properties in Paris and transfer to him the property in
Cannes. The same day, a letter was sent by S Investments to the Wife asking her to
vacate the London Property by 21st March, only two weeks later.
In the light of this the Wife made the following claims:
(a) An application dated 17th March 2014 for a declaration pursuant to section
17 of the Married Women's Property Act 1882 relating to the ownership of
various properties. The only relevant property is now the London Property for
which the Wife sought a declaration that she was the sole beneficial owner of
the shares in S Investments and the London Property itself. The application
was stayed in relation to a number of overseas properties/the proceeds of sale
of overseas properties.
5
[2015] EWHC 887 (Fam)
14
(b) An application dated 18th March 2014 for orders pursuant to Part IV of the
Family Law Act 1996 in relation to the London Property and particularly
occupation as the matrimonial home.
(c) An application, dated 17th July 2014, for financial remedies following an
overseas divorce, brought pursuant to Part III of the Matrimonial and Family
Proceedings Act 1984.
The Wife had subsequently made it clear that she intends to make London her
permanent home. The Managers of SGG Management in Curacao (JH and WB)
filed a statement on 5th May 2014 stating that S Investments does not hold the
London Property on trust for anyone. They went on to say that they hold the
bearer shares on behalf of the Husband and no-one else.
In the process of arriving at the decision the Court stated:“Moreover, I am very clear that, in this particular case, a
determination of the facts will obviate any need to consider in depth
the law as to property ownership. There is, however, one aspect that I
must consider carefully and that is the concept of a company owning a
property as nominee for its controller as established by the Supreme
Court decision in the case of Prest v Petrodel Resources Ltd [2013]
UKSC 34.”
The Court then quoted paragraph 52 of the speech of Lord Sumption in Prest (see
below).The Court found that the Husband is cavalier as to the running of S
Investments, on the basis that it does not matter to him and stated:
“He is the beneficial owner and S Investments is just his nominee. There is no
doubt in my mind that the London Property is a matrimonial home. It is not
the main matrimonial home but you can have more than one matrimonial
home and the parties here undoubtedly occupied it as husband and wife. The
observations of Lord Sumption are therefore pertinent. There are, however,
numerous other reasons why it is clear that the Husband is the sole beneficial
owner. For example:(a) The acknowledgment from the Wife and EK that the Husband owns the
French properties (also matrimonial homes and also held by limited liability
companies) in exactly this way.
(b) The fact that the Husband was prepared to transfer the shares in S
Investments to the Wife even though I am absolutely clear that he intended to
keep the ownership of the property. He could transfer the shares in S
15
Investments to her yet keep the ownership because S Investments was a
nominee.
(c) He provided the entire purchase price and the K Group has financed the
property throughout at a very high level.
(d) He was paid the proceeds of all mortgages and re-mortgages. Moreover,
he had to guarantee the loan once the Wife became involved in the structure.
(e) The earlier accounts reflected the true position and were confirmed by his
Saudi auditor.
(f) He operated through bearer shares, a clear indication that he was not really
bothered about the corporate position.
(g) He kept SGG largely in the dark as to what was going on. SGG and S
Investments were used as a convenience not as the legal owners of the
property.”
The Court therefore found in the Wife’s favour in relation to the London Property
and ordered a transfer of the property to her utilising the Prest mechanism and a
transfer of the shareholding in S Investments on a belt and braces approach.
This case demonstrates that the fact that the London Property was “gifted” to S Investment
was not sufficient to defeat the wife’s claim because S Investments was used by the
Husband as a nominee company. The Husband was the beneficial owner of S Investments
and thus the London Property. As such the London Property was available for use in a
financial provision order on divorce because it was considered to be held on resulting trust
to the donor.
HOW TO PREVENT FORMATION OF A RESULTING TRUST
The UKSC decision in Prest v Petrodel Resources Ltd & Others6 illustrates the problems
which can arise when gifts are not properly created and documented. The appeal arose out
of proceedings for ancillary relief following divorce where the court at first instance
determined that the husband should procure the transfer of the matrimonial home to Mrs.
Prest; make a lump sum payment of £17.5 million pounds, periodical payments and a fixed
sum per annum for school fees and costs. The judge, Justice Moylan ordered that the seven
6
[2013] UKSC 34
16
UK properties owned by PRL & Vermont be transferred to Mrs. Prest in partial satisfaction of
the lump sum order.
In the appeal the key issue for determination was whether the Court could satisfy Mrs.
Prest’s divorce settlement by making an order for the transfer of property to her from
companies which were owned and controlled solely by her former husband Mr. Prest. The
appeal focused on companies which were found to be owned and controlled by Mr. Prest,
particularly PRL, Upstream & Vermont who were the Respondents in the proceedings. PRL
was the owner of five residential properties in the United Kingdom and Vermont was the
legal owner of two more.
Under the Matrimonial Causes Act 1973 (“MCA”) there are wide powers given to the Court
to order ancillary relief in matrimonial proceedings. “Under s 24(1)(a), the court may order
that "a party to the marriage shall transfer to the other party . . . such property as may be so
specified, being property to which the first-mentioned party is entitled, either in possession
or reversion". Section 25 provides for a number of matters to which the court must in
particular have regard in making such orders, including, at s 25(2)(a), the "income, earning
capacity, property and other financial resources which each of the parties to the marriage
has or is likely to have in the foreseeable future.”7
Piercing the Corporate Veil
The judge at first instance held that matrimonial home was held in trust but in relation to
the seven properties which were the subject of this appeal, it stated that the assets of the
companies were the husband’s property because he treated them as such and he was also
positioned to procure disposal of the assets. In short, he was prepared to pierce the
corporal veil. The judge justified this position on the purpose and intention of the MCA. The
Court disagreed stating, “The judge was entitled to take account of the husband's ownership
and control of the companies and his unrestricted access to the companies' assets in
assessing what his resources were for the purpose of s 25(2)(a). But he was not entitled to
order the companies' assets to be transferred to the wife in satisfaction of the lump sum
order simply by virtue of s 24(1)(a).” The words of statute are not to be interpreted in a
manner which is contrary to the system of law. Accordingly, it could not be the intention of
the legislature to allow one party to a marriage to transfer assets not belonging to it, to
another part. The company had not only not consented, but vigorously opposed it. There
are other less draconian measures, such as share transfer and also protections within the
statute such as set aside of certain dispositions (section 37 MCA).
17
Beneficial ownership - Resulting Trust
As there was no piercing of the corporate veil, the court determined that, “the only basis on
which the companies can be ordered to convey the seven disputed properties to the wife is
that they belong beneficially to the husband, by virtue of the particular circumstances in
which the properties came to be vested in them. Only then will they constitute property to
which the husband is "entitled, either in possession or reversion (emphasis added).”
Mrs. Prest claimed that Mr. Prest owned the seven properties beneficially. Mr. Prest and
the companies failed to comply with orders for production of evidence, which would have
enabled the Court to determine amongst other things, the source of the funds for the
acquisition of the properties. It was apparent that the companies’ refusal to provide
evidence was deliberate and based on the direction of Mr. Prest. The court drew the
inference that the main reason for this failure to co-operate was to protect the London
properties and that in turn this also suggested that the disclosure of the facts would have
revealed the properties to have been beneficially owned by Mr. Prest.
Upon reviewing the available evidence and given the obstruction of Mr. Prest in this regard
the Court found that he was the beneficial owner of the properties owned by the
companies. The Court outlined the circumstances in which inferences can be drawn from a
party’s failure to give evidence, but also indicated that this stance had to be tempered as
there must be a reasonable basis for some hypothesis on the evidence or the inherent
probabilities before the Court may draw inference from the party’s failure to rebut it. The
Court reasoned that in matrimonial proceedings there is some modification required as by
the very nature of the proceedings there is a public interest in seeing the wife (or financially
dependent spouse, which need not be the wife) properly provided for. The financially
dependent spouse usually does not have control of the finances and as such is reliant upon
the full disclosure and evidence of the spouse in control of the finances to ascertain the
extent of the claim. As such, the Court concluded that:“The concept of the burden of proof, which has always been one of the main factors
inhibiting the drawing of adverse inferences from the absence of evidence or
disclosure, cannot be applied in the same way to proceedings of this kind as it is in
ordinary civil litigation. These considerations are not a licence to engage in pure
speculation. But judges exercising family jurisdiction are entitled to draw on their
experience and to take notice of the inherent probabilities when deciding what an
uncommunicative husband is likely to be concealing”.
Lord Sumption stated:“Whether assets legally vested in a company are beneficially owned by its controller
is a highly fact-specific issue. It is not possible to give general guidance going beyond
the ordinary principles and presumptions of equity, especially those relating to gifts
18
and resulting trusts. But I venture to suggest, however tentatively, that in the case of
the matrimonial home, the facts are quite likely to justify the inference that the
property was held on trust for a spouse who owned and controlled the company. In
many, perhaps most cases, the occupation of the company's property as the
matrimonial home of its controller will not be easily justified in the company's
interest, especially if it is gratuitous. The intention will normally be that the spouse in
control of the company intends to retain a degree of control over the matrimonial
home which is not consistent with the company's beneficial ownership. Of course,
structures can be devised which give a different impression, and some of them will be
entirely genuine. But where, say, the terms of acquisition and occupation of the
matrimonial home are arranged between the husband in his personal capacity and
the husband in his capacity as the sole effective agent of the company (or someone
else acting at his direction), judges exercising family jurisdiction are entitled to be
sceptical about whether the terms of occupation are really what they are said to be,
or are simply a sham to conceal the reality of the husband's beneficial ownership.”
So What is the effect of Prest?
As a result of this decision it was anticipated that there would be an increase in claims on
divorce in relation to properties held by entities but on the facts such properties are held on
trust for the controller of the entity. Therefore in order to avoid where possible, weight
being given to such claims and legal challenges to the chosen form of ownership individuals
who are desirous of transferring assets into corporate or trust structures and their legal
advisors will need to:
(i)
Set up and document a paper trail sufficient to show the ownership of the assets in
question and the intentions of the person who provided the purchase monies.
(ii)
Properly document initial set up and thereafter maintenance and running of the
corporate or trust structures which will hopefully make it very hard or at least more
challenging to suggest and/or argue that assets owned by a corporate/trust
structure are actually held on a resulting trust for the controller of such structure or
the person(s) who provided the acquisition funding.
(iii)
Individuals and companies would do well to take legal advice at an early stage to
ensure that proper documentation is in place and ensure advice is obtained
concerning the dos and don’ts of such arrangements.
(iv)
Make sure that appropriate documentation is prepared and executed to avoid
problems later on. This includes trust deeds or Declaration of Trust - a written trust
instrument and contractual trust agreements, transfer documents, tax and other
advice regarding structures etc. If not, the Court may infer a resulting trust in favour
19
of a spouse who transfers the matrimonial home into a structure which he/she
owned and controls.
In Nassibou v. Butler, the absence of any documentary evidence as to the basis of the
intended operational details of the trust which was declared and the lack of certainty as to
subject matter caused the trust to fail. However, a documented trust arrangement or
instrument stating the amount of the gift and the proportion to be given to each beneficiary
may have ultimately saved the trust.
The same principle applies to Re Lubberts in that a properly drafted document would have
saved the trust from failure for lack of certainty of objects.
CONFLICT OF LAWS
Conflict of laws issues can have a serious effect on the functioning and interpretation of the
provisions of a trust. It is important that the law governing the trust is clear so that parties
know and understand the law that will govern the operation of the trust. Exclusive
jurisdiction clauses have presented particular challenges in trust law as demonstrated by the
following cases.
Forum, Proper Law & Exclusive Jurisdiction Clauses In Trust Deeds
The UKPC considered exclusive jurisdiction clauses in the case of Crociani and Others
(Appellants) v Crociani and others (Respondents) & Princess Camilla de Bourbon des Deux
Siciles (Intervener)8. This is a long running case from the Jersey Court of Appeal, who
upheld the judgment of the court at first instance.
The Grand Trust was established in 1987 for the benefit of certain members of the
Crociani family; namely Madam Crociani and her two daughters Christiana and
Camilla. The Grant Trust underwent multiple changes in trustee; however in or
around 2007, Madame Crociani together with two others were the appointed
trustees; and the proper law of the Grand Trust was commonly considered to be
Jersey Law. Between 2007 and 2011 various distributions were made from the
Grand Trust. By deed of appointment in February 2012 the trustees were changed
and the proper law of the trust was Mauritanian Law; by August of the same year the
trust had become a Jersey trust once again. The Appellant asserted that clause 12
was an exclusive jurisdiction clause, conferring same on the courts of Mauritius and
that the proceedings before the Jersey court should be stayed.
The key provisions for adjudication were:8
[2014] UKPC 40
20
“The principally relevant provisions of the 1987 Deed for present purposes were
clauses 12 and 15. Clause 15 provided that:“Except as herein provided, the validity and construction of this Agreement and each
trust thereby created shall be governed by the law of the Commonwealth of The
Bahamas which shall be the forum for the administration thereof.” Clause 12 was in
these terms (and for convenience it is here divided into numbered sub-clauses,
although it is a monolithic provision in the 1987 Deed):
“(1) Notwithstanding any of the trusts, powers and provisions herein contained the
Trustees shall have power at any time or times . . . at the absolute discretion of the
Trustees . . . .
(2) to resign as Trustees and to appoint a new trustee or new trustees outside the
jurisdiction at that time applicable to the trusts hereunder as Trustees hereof and
(3) to declare that the trusts hereof shall be read and take effect according to the
laws of the country of the residence or incorporation of such new Trustee or
Trustees and
(4) upon such appointment being made the then Trustee or Trustees shall
immediately stand possessed of the Trust Fund upon trust for the new Trustee or
Trustees as soon as possible
(5) so that the Trust Fund shall continue to be held upon the trusts hereof but subject
to and governed by the law of the country of residence or incorporation of such new
Trustee or Trustees and
(6) thereafter the rights of all persons and the construction and effect of each and
every provision hereof shall be subject to the exclusive jurisdiction of and construed
only according to the law of the said country which shall become the forum for the
administration of the trusts hereunder
(7) (but so that nonetheless the then Trustee or Trustees or the new Trustee or
Trustees may by deed declare that the trusts hereof shall continue to be read and
take effect according to the laws of the . . . Bahamas as provided by clause 15 hereof)
(8) and clause [15] hereof shall take effect and be subject to the provisions
hereinbefore declared by this Clause.”
The Court was tasked with determining:1. Whether the effect of cl 12 is to bestow exclusive jurisdiction on the courts of
Mauritius, and;
2. If so, the appropriateness of permitting the Proceedings to continue in Jersey.
21
Exclusive Jurisdiction
The Court found that clause 12 (6) referred to the place where the Grand Trust’s affairs
were to be organised and run and that no part of the clause was concerned with
identifying which country’s courts should have jurisdiction to determine disputes.
Further the Court stated that if they were wrong in that conclusion, then at best the
clause would confer non-exclusive jurisdiction on the courts of the country and this
would also mean that the Jersey courts had jurisdiction in relation to 3 out of 4 of the
claims brought. The Court reasoned that:


One would expect to see a specific reference to the courts of the country, as
opposed to referring to the country only in the exclusive jurisdiction clause.
Whilst the words the “forum of administration” could make reference to the
court which is to enforce the trust that expression had not reached to the level
where it could be accorded such a technical significance from which it would
follow that this was the only possible interpretation. E.g. a forum could be a
court, but it could also be a place for any purpose.
Administration is used to refer to the function of a court but is also used to refer
to the functioning of a trust.
Taking into consideration the terms of clause 12 (7) the interpretation favoured
by the Court produces a more consistent result; as the alternative interpretation
inevitably means that a trustee could reinstate the first proper law of the trust
(Bahamian Law), whilst the court of another jurisdiction would have exclusive
jurisdiction, which seems untenable.
Appropriateness of continuing the proceedings in Jersey
This second issue was rendered moot, but the Court considered it all the same on
account of the important issues raised; particularly, with respect to the difference in the
treatment of exclusive jurisdiction clauses in contracts as compared to trust deeds.
In Donohue v Armco Ltd [2001] UKHL 64 Lord Bingham said:“If contracting parties agree to give a particular court exclusive jurisdiction to rule on
claims between those parties, and a claim falling within the scope of the agreement
is made in proceedings in a forum other than that which the parties have agreed, the
English court will ordinarily exercise its discretion . . . to secure compliance with the
contractual bargain, unless the party suing in the non-contractual forum (the burden
being on him) can show strong reasons for suing in that forum…..But the general rule
is clear: where parties have bound themselves by an exclusive jurisdiction clause
22
effect should ordinarily be given to that obligation in the absence of strong reasons
for departing from it. Whether a party can show strong reasons, sufficient to displace
the other party's prima facie entitlement to enforce the contractual bargain, will
depend on all the facts and circumstances of the particular case.”
The test laid down in Donohue is clearly illustrative of the judicial priority to maintain
the bargain between the parties and post-Crociani the question of whether this test
applies to exclusive jurisdiction clauses in trust deeds is also clear. With respect to
the use of such clauses in trusts the Court concluded that:



It should be easier for a beneficiary to resist the enforcement of an exclusive
jurisdiction clause in a trust deed than for a contracting party to resist the
enforcement of such a clause in a contract.
The weight to be given to an exclusive jurisdiction clause in a trust deed is
less than that to be given to that in a contract; or the strength of the case
that needs to be made to avoid the enforcement of such a clause is less great
where there is a trust deed.
Whilst it is true that a beneficiary who wishes to take advantage of a trust
can anticipate that they must be bound by the terms of the trust; it is not the
same order of commitment as that of a contracting party.
As distinct from contracts the courts have an inherent jurisdiction to
supervise the administration of trusts, primarily to protect the interest of
beneficiaries.
Therefore, while it is right to conclude that a trustee is prima facie entitled to insist on
and enforce an exclusive jurisdiction clause in a trust deed, the weight to be given to the
existence of the clause is less than where one contracting party is seeking to enforce a
contractual exclusive jurisdiction clause against another contracting party. Each case
will turn on its facts and in the instant case there were several factors which made the
Jersey Court the most suitable for hearing the proceedings:



A number of trust law issues were raised and the majority of those issues were
governed by Jersey Law.
It was reasonable to presume that a number of the witnesses and the
documentation relevant to the proceedings would be in Jersey, given that a
Jersey trustee was responsible for the trust administration at the time of the
events giving rise to 3 out of 4 the claims raised.
The exclusive jurisdiction clause is one which provides for a shifting jurisdiction,
so proceedings could be brought in the courts of the country where the trustee
was based and whose laws governed the trust.
The parties anticipated the claims being pursued in Jersey and were content with
same.
23

The reasons for preferring the Mauritius courts were weak i.e. the Appellant
vacationed there.
Recently the Jersey Royal Court had to consider the principles to be applied in trust
proceedings where service out of the jurisdiction is requested and in construing a governing
law/forum for administration clause. This presented an opportunity to directly apply the
principles enunciated in Crociani.
In Representation of the Manor House Trust and the Russian Trust (Tanya Marya Dick
Stock vs. Pantrust International SA et al.)9the first to third respondents applied to set aside
orders of the Court which granted Tanya Dick Stock (“the Representor”) leave to serve
representations out of the jurisdiction, one in relation to the Manor House Trust and one in
relation to the Russian Trust. The issue was whether the Representor had established that
Jersey was clearly the most appropriate forum for the hearing.
The salient terms of the Trusts on the question of exclusive jurisdiction were:“In clause 1 of the trust deeds, the interpretation clause, “The Proper Law of this
Settlement” is defined as:“the law to the [exclusive] jurisdiction of which the rights of all parties and the
construction and effect of each and every provision of this Settlement be subject and
by which such rights construction and effect be construed and regulated.”
40.
The word “exclusive” is included in the Manor House Trust, but is not included
in the Russian Trust. Clause 2 of the trust deeds, headed “Proper Law”, is
worded as follows:“THIS Settlement is established under the laws of the Island of Jersey and
subject and without prejudice to any transfer of the administration of the
trusts hereof to any change in the Proper Law of this Settlement and to any
change in the law of interpretation of this Settlement duly made according to
the powers and provisions hereinafter declared the Proper Law of this
Settlement shall be the law of the Island of Jersey which said Island shall be
the forum for the administration hereof.”
41.
Clause 12(a) of the trust deeds provide as follows:“The Trustees may at any time or times and from time to time during the
Trust Period by deed declare that this Settlement shall from the date of such
declaration take effect in accordance with the law of some other state or
territory in any part of the world (not being any place under the law of which
9
[2015] JRC208
24
(1) any of the trusts powers and provisions herein declared and contained
would not be enforceable or capable of being exercised and so taking effect or
(2) this Settlement would not be irrevocable and that the forum for the
administration thereof shall thenceforth be the Courts of that state or
territory AND as from the date of such declaration the law of the state or
territory named therein shall be the law applicable to this Settlement and the
Courts thereof shall be the forum for the administration thereof but subject to
the power conferred by this Clause and until any further declaration be made
hereunder PROVIDED ALWAYS that so often as any such declaration as
aforesaid shall be made the Trustees shall be at liberty to make such
consequential alterations or additions in or to the trusts powers and
provisions of this Settlement as the Trustees may consider necessary or
desirable to ensure that the trusts powers and provisions of this Settlement
shall (mutatis mutandis) be as valid and effect as they are under the law of
the Island of Jersey.”
42.
Pursuant to this, the 2007 DORAS provided at clause 4:“In exercise of the power conferred upon it by Clause 12(a) of the Settlement
and all other powers in enabling the Retiring Trustee hereby declares that
with effect from the Retirement Date the Trust shall take effect in accordance
with the laws of the Republic of Panama and that the forum for the
administration thereof shall be the courts of the Republic of Panama so that
the law of the Republic of Panama shall be the law applicable to the Trust and
the Courts thereof shall be the forum for the administration of the Trust.”
43.
The 2015 DORAS provided at clause 3:“The new Trustees declare that from the date of this deed the proper law of
the settlement and forum of administration shall change from that of the
Republic of Panama to that of England and Wales.”
The Court held that the reference in clause 2 to the Island of Jersey being the forum of
administration was a reference to a geographical location, where the trusts affairs are
organised and run. The use of the word “shall” in clause 12(a) does not suggest that the
courts will be given exclusive jurisdiction for all disputes. The Court determined that the
proper use of the provision was to make it clear that a change in the proper law means that
there is a new jurisdiction and the domicile of the trust moves from old to new and the
affairs will now be organised and run from that new jurisdiction. The courts of the
jurisdiction shall have non-exclusive jurisdiction.
25
OTHER CONSIDERATIONS OFTEN OVERLOOKED
Some other considerations that are often overlooked and which could impact the perfection
of the gift include:



non est factum;
other equitable remedies such as unconscionable bargain; and
Unconscionable procurement.
The case of Singla v Bashir10considered all these matters. In this case Mr. Bashir was the
tenant of a council property in Central London located between the areas of Holborn &
Covenant Garden. He was a 66 year old man, with limited English speaking ability and he
was in poor health, which meant that he had not worked for the past 20 years. By contrast
the Claimant was a well-educated doctor.
Mr. Bashir had acquired the right to buy his council flat at a discount; however he
was unable to afford the acquisition. It appeared as though a lodger named Mr. Raj
Singla, who was living with Mr. Bashir at the time came to know of his potential right
to buy, throughout the process of reading Mr. Bashir’s post to him. The Court
surmised that it was most likely that Mr. Raj Singla (who is no relation to the
Claimant) informed Dr Singla of the potential investment opportunity and thus was
the link between Dr Singla and Mr. Bashir. It was also thought that Mr. Raj Singla
would have initiated the process of serving the requisite notice on the council in
order to start the right to buy process. The flat was valued at £52,500.00 and was
discounted by 68% on account of Mr. Bashir’s tenancy. Dr Singla agreed to provide
the funds for the purchase, with Mr. Bashir staying in the property for 3 years
thereafter, if he had made any transfer prior to this 3 year period then the discount
would have been repayable.
Dr Singla came to the flat in around November 1993 and his evidence is that he
reached a verbal agreement with Mr Bashir, of which the key elements were as
follows:“i) He would provide the price for Mr Bashir to purchase the flat from
Camden. He would also meet all the other expenses of the purchase. The
flat would be transferred by Camden to Mr Bashir.
ii) He would incur expenditure on the property on security grills, decoration
and refurbishment. He said that these were items which Mr Bashir wanted.
iii) He would pay an additional £6,000, some of it in rupees, to Mr Bashir.
He understood that Mr Bashir wanted to return to live in India, and that the
money would enable him to buy a small property.
10
[2002]EWHC 883 (Ch)
26
iv) Mr Bashir would remain in the flat for three years, but after that he
would transfer the property to Dr Singla and depart - to India, as Dr Singla
understood.”
Before the court Dr. Singla made a model witness and Mr. Bashir’s evidence was “all
over the place”. The court felt that his evidence was probably poor as a result of his
confusion rather than any dishonesty but ultimately could not justify granting him
any concessions because he was uneducated and inarticulate. It simply was not
possible to extract elements of his evidence and allow them to prevail over the
evidence of Dr Singla.
The parties instructed one solicitor to handle the conveyance of the flat and also the
transaction between the parties, Mr. Bashir was treated as the principle client with
Dr Singla paying the fees. Mr. Bashir had made it clear that they did not want or
require separate representation and the parties were of the view that such an
arrangement was a waste of costs. The solicitor’s actions in relation to the matter
withstood scrutiny. He prepared three agreements:


Deed of Trust – supplemental to a transfer of even date of the flat from
Camden council to Mr. Bashir. Dated 21 March 1994 when it became
effective.
Deed of Gift – Mr. Bashir expressed to convey the flat to Dr Singla, it was left
blank and intended to be signed at the time of the transaction with Camden
but left undated until three years after the transfer of the flat, at which time
it would be dated and brought into effect.
A will intended to cover the contingency of Mr. Bashir dying within the three
year period, leaving all the estate to Dr Singla.
Mr. Bashir requested that the Court set aside the agreement on the grounds of
undue influence or unconscionable bargain and alleged that there was no agreement
between the parties. The Court found that there was an agreement, although there
may have been uncertainties or disputes in relation to certain limited matters such
as: the amount which Mr. Bashir was to be paid, the expenditure outlaid by Dr Singla
whilst Mr. Bashir was in occupation and what was to happen after the 3 years had
elapsed.
Mr. Bashir contended that he was to be paid £30,000.00. The Court held that the
amount to be paid was actually £6,000.00 and that Mr. Bashir had perhaps become
confused as it is possible that Dr Singla had indicated that £30,000.00 would be his
total outlay in relation to all matters concerning the conveyance. The works done
must have been requested by Mr. Bashir as it was improbable that Dr Singla would
have spent such sums in 1994, for his own benefit in 1997. Lastly, after the 3 year
27
period Mr. Bashir was obliged to vacate, as it is improbable that he was to stay on
indefinitely when the understanding was that he was to move to India.
The Court held that there was no justification for setting aside the transaction on the
ground of undue influence, as that requires a prior relationship and the parties in
this case did not have one. There can be no undue influence where the relationship
starts with the transaction in question.
The Court found that there was no unconscionable bargain because:“There is a somewhat narrow doctrine of equity under which the
court may set aside a transaction on the ground that it was an
unconscionable bargain. The cases show that it requires a very strong
case before the courts will intervene on this ground. The bargain has
to be more than hard, unreasonable or foolish: it must be proved to be
unconscionable in the sense that one of the parties has imposed the
bargain in a morally reprehensible manner. His behaviour must be
characterised by some moral culpability or impropriety. There needs
to be unconscientious or extortionate abuse of power.”
Mr. Bashir could not afford the flat and was unlikely to have been able to source any
other kind of funding and there was no evidence that he could have obtained better
terms. While the deal agreed was not the most generous bargain there was no
evidence that Mr. Bashir could have improved upon what was agreed and thus there
were no grounds to set aside the transaction on the grounds that it was
unconscionable. Even if there was a possibility of doing so there would still need to
be an accounting of the sums spent by Dr. Singh and he would have to be
reimbursed and thus Mr. Bashir could not have been restored to the position he
would have been without this accounting taking place.
The Court concluded:“If a case cannot be classified as one of undue influence or as one of
an unconscionable bargain either, it is not right for the court to
intervene on 'a vaguer basis of general equity.' I believe that at root
that is what I would be doing in this case if I was prepared to decide it
in favour of Mr Bashir.”
CONCLUSION
Recent decisions have flirted with the idea that persons with some form of control over the
trust or other structure may be treated as if they were beneficially entitled to its assets.
28
However, these seem to be inconsistent with the respect for ordinary legal principles
enjoined by Prest v Petrodel Resources Ltd and so there is still room for clarification.
29