20 Nov 2018

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Welcome to the first edition of Trusted news, your guide to developments in the world of trusts and how these might affect you. A joint effort by our contentious trust and private wealth teams, we intend to cover all angles and provide practical tips on navigating the tricky job of being a trustee in the increasingly complex world.

In this first edition we look at a recent Privy Council win for the team and the trust law principles which have been clarified.

Team secures Privy Council win: presumptions over gratuitous transfers of property to trustees and the Court's powers to set aside a discretionary appointment of trust assets clarified

Gany Holdings (PTC) SA v Khan and others; Rangoonwala v Khan and others[2018] UKPC 21

Factual background

The case concerns a discretionary family trust, established for the benefit of the British settlor, an extremely wealthy international business man. Following his death in 1998, our clients (the settlor's daughter, son-in-law and granddaughter) made repeated requests for information about the trust from the trustee (Gany), the appointor (our client's brother, Asif Rangoonwala), solicitors and family members (who had all been involved in both the trustee company and the trusts' assets). After 14 years of either being ignored or being given conflicting information, our clients were forced to issue proceedings against Gany in the British Virgin Islands in January 2012, seeking an account and the disclosure of information about the trust and its assets. Asif was joined to the proceedings in July 2013. 

Throughout those proceedings, Gany and Asif maintained that the trust had never held any assets of value. It was subsequently admitted that the trust had held the shares in a Hong Kong company (ECL HK) but it was argued that ECL HK had been a shell company and that its shares had been appointed to Asif in December 1998 following which the trust had come to an end. 

Legal background

The case has been intensely fought by both Gany and Asif. We were forced to make numerous (successful) interim applications. For example, Taylor Wessing were instructed by Gany to restructure the trust, a retainer that lasted six years and produced over 20 lever arch files of documents, however, Gany maintained that Taylor Wessing's files were not disclosable for several reasons, including irrelevance, confidentiality, privilege and joint privilege. We succeeded in obtaining an order for Gany to provide Taylor Wessing with irrevocable instructions to disclose those documents and only documents which were privileged, where the privilege belongs solely to a third party, could be withheld from inspection. Additionally, we obtained letters of request addressed to the English Courts for orders to depose partners at Taylor Wessing who had acted in the restructuring of the trust, as well as Norwich Pharmacal orders against the registered agents of companies which we believed to be trust assets (on the basis of the information obtained from Taylor Wessing's files). 

However, despite the evidence obtained, following a four day trial in the BVI, Banister J dismissed our clients' claim. This was overturned by the Eastern Caribbean Court of Appeal in January 2016. The Court of Appeal found that: (1) as well as the shares in ECL HK, the shares in three additional BVI companies had been transferred into the trust as trust assets, (2) the 1998 appointment of trust assets to Asif should be set aside and (3) Asif should account for the assets received by him pursuant to the 1998 appointment. Asif and Gany both appealed to the Privy Council. 

Privy Council's decision

In its judgment (delivered by Lord Briggs), the Privy Council dismissed Gany and Asif's appeals in their entirety. In doing so, the Privy Council clarified three key principles:

  1. There is no legal presumption that if a settlor gratuitously transfers property to a trustee of a trust previously established by the transferor, that the property is transferred subject to the terms of that trust. Instead, in those circumstances, the existence of the pre-existing settlor/trustee relationship will form a powerful contextual basis for drawing common sense inferences as to mutual intention on the basis of the evidence available. This marks a key precedent for legal practitioners as it is the first time this issue has been considered by the Courts and, more importantly, contradicts the commentary in the leading industry text, Lewin.

  2. The Court found that the failure of Gany's directors to appreciate the extent of the trust's assets when it appointed the trust's assets to Asif in 1998 amounted to a serious breach of fiduciary duty, sufficient to trigger the court's discretionary power to set aside the appointment. Of key significance was the finding that there is no specific separate requirement of showing that a trustee ‘would’ or ‘might’ have acted differently but for the breach of trust – finally settling a debate left open by the Supreme Court in Pitt v Holt.

  3. The Court of Appeal was entitled to order Asif to account for the assets he received as a result of the 1998 appointment, despite the fact that he was not holding those assets on constructive trust. This finding confirmed the wide range of options that the Courts have at their disposal when considering the dissipation of trust assets. 

The team was led by Jenny McKeown since proceedings were issued and she was assisted by associates Kasia Sikora-Sikorski (who has been involved for over five years) and Alice Scott-Gatty.

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KEY CONTACT

Jenny McKeown

Jenny McKeown
Partner

T:  +44 20 7809 2172 M:  Email Jenny | Vcard Office:  London

Emily Osborne

Emily Osborne
Partner

T:  +44 20 7809 2433 M:  +44 7525 896 899 Email Emily | Vcard Office:  London