02 May 2013

Seggins v Apex Trust Company Limited

This is the latest in a series of cases seeking to set aside a purported transfer of assets into a trust on the ground of mistake.

Facts

Mr and Mrs Seggins were domiciled in England and wished to protect their children against a possible inheritance tax burden arising on their death.  They sought advice from the firm of English solicitors Baxendale Walker ("BW") and an associated entity, FSL Global Services Ltd ("FSL"). 

In 2003 and in accordance with the advice received, the Seggins Annuity Investment Trust (the "Trust") was established with Atlas Trust Company (Jersey) Limited as original trustee (the "Trustee"), a BVI entity as initial founder and with Mr and Mrs Seggins as purported subsequent founders.  The Trust envisaged that certain contracts would be entered into under which the trustees of the Trust would grant deferred annuities to Mr and Mrs Seggins. 

A week after the Trust was established, estate annuity purchase deeds (the "Deeds") were executed by the Trustee and Mr and Mrs Seggins under which the Trustee undertook to make payments as calculated under the Deeds to Mr and Mrs Seggins on their respective 75thbirthdays and each anniversary thereafter.  Under the Deeds, Mr and Mrs Seggins undertook to convey to the Trustee the beneficial interest in the family home, Marronwood (the "Property"). 

On the same day, a tenancy agreement (the "Tenancy Agreement") was executed between the Trustee and Mr and Mrs Seggins relating to the Property under which rental was due to be paid by them to the Trustee.  Subsequent to these arrangements and in 2005, Mr and Mrs Seggins purchased three buy-to-let properties which they transferred notionally to a sub-trust of the Trust under six further estate annuity purchase deeds in similar terms.

There were a number of problems with the documents which meant they could never achieve the intention of Mr and Mrs Seggins.  The plan suggested by BW was designed to address other issues identified by BW but not contemplated by Mr and Mrs Seggins.  BW had not carried out their specific instructions which were only to limit their liability to tax.  Whilst the process had cost them over £100,000 in fees with BW, they did not wish to pursue litigation against BW.  They sought orders for the transactions to be declared void.   They said they would never have contemplated entering into the transactions if they had known the scheme could not have worked as they intended. 

Law

The proper law of the Trust was Jersey law.  The Deeds were expressed to be governed by English law and the parties to the Deeds submitted to the non-exclusive jurisdiction of the English courts.  The Tenancy Agreement was impliedly governed by English law.

The Court adopted a similar approach to that taken in CC Limited v Apex Trust Limited [2012] JRC 071 and Tait v Apex Trustees Limited [2012] JRC 148.  It said:

"The first question is whether or not we should take all these documents together as being in effect one transaction"

Under Article 9(1) of the Trusts (Jersey) Law 1984, where there is a trust with a non-Jersey domiciled settlor, any question concerning the validity or interpretation of the trust or the validity or effect of any transfer or other disposition of property to a trust is to be determined in accordance with the law of Jersey and no rule of foreign law shall affect such question. 

The Court found there was a sufficient link between the instrument creating the Trust and the Deeds for the Deeds to be construed together with the Trust as effecting one transaction and therefore to be construed according to Jersey law:

"It seems to us that the clearest link lies in the fact that, although there is nearly a week between the date of execution of the [Trust] and the execution of the [Deeds], the trust instrument itself has as its primary purpose the making of authorised contracts which are generally of the kind which were in fact made by the [Deeds]"

The report of BW and the briefing by FSL was consistent with this conclusion.  It was not necessary to consider the Tenancy Agreement separately as a tenancy granted by a non-owner of a property to the owner could not be a valid document. 

The Court applied the Jersey principles on mistake to the question of whether the transactions could be set aside, namely:

  1. Was there a mistake on the part of the settlor?
  2. Would the settlor not have entered into the transaction but for the mistake?
  3. Was the mistake of so serious a character to render it unjust on the part of the donee to retain the property?

Decision

Applying the test, the Court found there were a number of serious mistakes which each could support a conclusion that the documents were incapable of performance as drafted and the transactions could be set aside:

  • The Trust envisaged that the Trustee would grant deferred annuities.  As neither the Trustee nor successor trustees of the Trust were registered for the purposes of carrying out long term insurance business, the Deeds, to the extent that they imposed on the Trustee the obligation of paying deferred annuities, were illegal. 
  • The annual payment calculated under the provisions of the Trust meant that there would be insufficient income to meet the liability under the Deed.   As the Trustee would be unable to meet its obligations under the Deed, "the Deed simply could not have meant what it says". 
  • Neither the Trustee nor Mr and Mrs Seggins ever contemplated that rental would be paid to the Trustees.  In any event there was no evidence that any rental could reasonably cover the liability under the Deeds.  The Property could never have been sold to meet the payments as it was a property in which Mr and Mrs Seggins lived.  Assuming they were validly appointed as enforcers of the Trust they would have been able to describe the Property as a "restricted asset" under the Trust thereby preventing it from being sold. 
  • The beneficial interest in the Property and subsequent properties were never transferred to the Trustee nor was it ever the intention to do so.  If one of the purposes of the arrangement was to pass the Property tax free to Mr and Mrs Seggins' children, that did not happen. 

Therefore, the Court had no doubt that Mr and Mrs Seggins would not have entered into an arrangement whereby their home might be sold from underneath them or where they would receive an annuity from an entity which was prevented by law from making such payments to them.

Furthermore, there were no proposals under the documents to benefit others.  It would be unjust to allow a situation potentially to arise where Mr and Mrs Seggins could be compelled to perform their obligations under the documents. 

Accordingly the documents were set aside.  The Court did not have to address the question of whether the transactions were void or merely voidable.

Comment

The Royal Court held that Article 9(1) of the Trusts (Jersey) Law 1984 means that Jersey law governs an agreement expressed to be subject to English law if it can be regarded as part of one transaction which forms part of a transfer of property into a Jersey law trust.   The Royal Court further applied the Jersey law of mistake as recently confirmed in Re the S Trust [2011] JRC 117.

Please note that this briefing is only intended to provide a very general overview of the matters to which it relates. It is not intended as legal advice and should not be relied on as such.

© Carey Olsen 2013

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