Re New Huerto Trust [Eastern Caribbean Supreme Court]

• Jurisdiction: British Virgin Islands
• Judge: Bannister J
• Judgment Date: 08 November 2013
• Docket Number: CLAIM NO. BVIHC (COM) 112 OF 2013
• Court: High Court (British Virgin Islands)
• Date: 08 November 2013

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

COMMERCIAL DIVISION

CLAIM NO. BVIHC (COM) 112 OF 2013

In the Matter of the New Huerto Trust

And in the Matter of the Trustees' Relief Act and Part 67 of the Civil Procedures

Rules

Royal Fiduciary Group Limited

Claimant

(Trusts — discretionary trust — no express power in trustee to vary identity of beneficiaries or terms of settlement — whether power of appointment available to exclude beneficiary and vary terms of settlement —Blausten v IRC1 not followed)

1 Bannister J[Ag]: This is an application by the Trustee of a discretionary settlement (‘the Trustee,’‘the Trust’) seeking a declaration that it has power under the original deed of settlement to exclude the Settlor permanently and irrevocably2 from any benefit under the Trust; and for an order that the Claimant Trustee be at liberty to execute a draft deed of appointment, exhibited to an affidavit sworn for the purposes of this application by the Trustee's Executive Director (‘the draft’), intended to bring that about. Mr Abbott, who appeared on this application, which was unilateral, for the Trustee, described the

exercise as one of obtaining the sanction of the Court for the proposed exercise of the power in question. In addition to purporting to exclude the Settlor from benefit under the Trust, the draft also contains provisions which, if effective, would release the Trustee's supposed power of revocation and give it an unlimited power in the future to vary the terms of the Trust.

Bannister J

2 The Trust is governed by BVI law It was set up in 2002 and is a simple discretionary trust. There are two classes of discretionary beneficiary: the Settlor (who alone comprises Class A); and the Settlor's children and remoter issue (Class B). There is no power to add to the classes of beneficiary and no express power to remove any beneficiary from either class. There is no express power to vary or revoke any provision of the settlement. Clause 2 of the Trust is in the following terms:

THE Trustees STAND POSSESSED OF THE Trust Fund and the income thereof upon DISCRETIONARY TRUSTS for the benefit of the Beneficiaries or any one or more of them exclusive of the others in such shares and proportions and subject to such terms and limitations and with and subject to such provisions for maintenance, education or advancement or for accumulation of income during minority or for forfeiture in the event of bankruptcy or otherwise and such other conditions as the Trustees may from time appoint by Deed revocable or irrevocable executed before the Vesting Day.

3 The Settlor married for the second time in 2006. For reasons already given, the Settlor's second wife (‘the Wife’) is not now and cannot become a beneficiary of the Trust. There are three children of the Settlor's second marriage, aged between three and eight. They are the only existing members of Class B, although by a so-called deed of Appointment made in September 2010, expressed to be revocable with the consent of the Protector, they were purportedly declared ineligible to receive benefits from the Trust for a period of seven years thereafter.

4 In about 2009 the Settlor and his family moved to reside in France. For reasons principally, or, perhaps more accurately, solely to do with French tax law,3 the Trustee executed a Deed of Appointment on 31 August 2010. Having recited, among other provisions of the Trust, clause 2, its operative part was in the following terms:

In exercise of the powers aforesaid, the Trustees HEREBY DECLARE and APPOINT that with effect from the date hereof the Class A Beneficiary shall cease to be eligible to receive benefits from the Trust for the period of seven (7) years from the date hereof, but subject always to Clause 2 hereof

5 In 2011 the relationship between the Settlor and the Wife broke down. Some time later she commenced divorce proceedings in the Family Division of the High Court of Justice in England, in which, on 1 May 2013, a Judge of that Court made a world wide freezing order against the Settlor (‘the English proceedings,’‘the Order’). The threshold above which the Settlor is free to dispose of his assets was set at GDP35 million. It is thought that this figure is the result of a belief held by the Wife, and/or by those by whom she is being advised, that the Settlor's assets include the assets of the Trust and, together with his other property, are worth some GDP70 million. This appears to be confirmed by the inclusion in the Order of a list of specific assets expressed to be covered by the injunction which includes substantial real property belonging to the Trust, together with valuable motor vehicles described in terms in the order as belonging to the Trust.4 Further support for the view that this is the belief of the Wife and her advisers, as well as being that of the English Court, may perhaps be found in the definition of ‘Assets’ in the Order:

‘Assets means any kind of property including but not limited to:

13.1 any interest under any trust under which the First Respondent is a beneficiary (in each case whether actual or contingent or otherwise howsoever) or under which the trustees otherwise have the power to advance to him any assets of the said trust;

13.2 any interest under any trust in relation to which the First Respondent is or has been a settlor, trustee or protector or in respect of which the trustees habitually follow the First Respondent's wishes;

6 There is therefore no doubt that the English Court considers that at least some property which it knows5 belongs to the Trust6 is caught by the injunction. It is uncertain whether the English Court considers that arrangements which affected a mere right to be considered as an object of bounty by the Trustees would amount, for the purposes of the order, to interference with an asset of the Settlor, or whether an arrangement which affected any right of any person (other than the Settlor) under a trust created by the Settlor would be so viewed, but the wording of paragraphs 13. 1 and 13.2 of the order is sufficiently opaque to make it impossible to be sure that it does not.

7 Finally, while no relief has been granted against either of them in the English proceedings, both Trustee and Protector are named as Respondents to them and, while it has not been served with the divorce proceedings themselves, the Trustee has been served with the Order.

8 It is against this background that I have to consider the relief sought by the Trustee on this application, which is designed to ensure that the assets of the Trust are not available to the Court in the English proceedings.

The Trustee's concerns

9 The present wishes of the Settlor are that the Trust assets be applied for the benefit of his children and grandchildren. At the same time, the Trustee is concerned that there is a real risk that the English Court may make an order which will have the effect that it is put under pressure to appoint Trust assets in favour of the Settlor, thus reducing the fund available for the children and grandchildren. It appears to the Trustee that the most efficient way of reducing this risk is to make clear that the Settlor does not now have and will not at any time in the future acquire any interest under the Trust. The potential detriment to the Settlor were the Trustee to take such a course is minimal, since his intention at present is that he will continue to reside in France and will thus benefit (or at any rate not suffer) fiscally from being excluded. The Trustee is therefore minded, if it can, to exclude the Settlor irrevocably from all benefit under the Trust.

The Trustee's powers

10 As I have already mentioned, the Trustee has no express power to exclude the Settlor from benefit by deleting his name from the Classes of discretionary beneficiary. It could, of course, achieve the same result by making an irrevocable appointment of the whole fund in favour of any one or more of the Class B beneficiaries, but it seems that it has no present wish to do that. Instead, the Trustee proposes, in reliance on clause 2 of the Trust deed, to execute the draft, which incorporates the following, among other, provisions:

The Appointor, in exercise of the power in clause 2 of the Trust and every other power it enabling, hereby declares that the Appointor shall continue to hold the Trust Fund and the income thereof upon, with and subject to ail of the trusts, powers and provisions of the Trust and of the September 2010 Deed, but as if the trust, powers and provisions of the trust had been varied as follows:

• (1) In the place of the wording of clause 1 a) of the Trust there was substituted the following:

  “a) “the Beneficiaries” means the children and remoter issue of the Settlor bom after 6 December 2002 and who presently comprise the Settlor's three sons:[whose names are then set out];

  And provided also that the trustees may not receive any benefit from this Trust other than in respect of the fees and remuneration payable under clause 10 hereof.”

• (2) in clause 4.1, in place of the words “the Class A Beneficiary or such other of there were substituted the words “all or any one or more of the”;

• (3) in clause 4.2 and in clause 11, in place of the words: Class A Beneficiary” wherever they appear in those classes, there was substituted the word “Settlor”;

• (4) immediately after clause 4.2 of the trust there was added following new clause 4.3:

  “4.3 Notwithstanding the trust, powers and provisions hereof, the Trustees, with the prior or simultaneous written consent of the Protector, may for the benefit of all or any one or more of the Beneficiaries, at any time or times until the Vesting Day, by Deed amend, vary, add to or delete all or any of the trust, powers and provisions of this Trust (other than clause 19) to any extent whatsoever (to the intent that the trusts, powers and provisions...