Alan Adams & Ors v FS Capital Limited & Ors

On 28^th May 2019 Mr Emblin emailed Mr O’Shea reporting on a telephone conference which had been held that morning with David Gill. There is a note of this telephone conference, which discloses that the conference was a lengthy one. The note is dated 20^th May 2019, but this is clearly an error for 28^th May 2019. The conference was attended by Mr Reid, Mr Emblin, Stuart Drury of Reid & Co., David Gill and Gordon Berry, also of Peak Performance. In the course of the conference the overall position was reviewed in some detail. The note of the conference is too lengthy to quote in full, but the following extract from the file note discloses how Mr Emblin was viewing the position:

The solution (to the Second Defendant’s regulatory concerns) proposed in the email of 23^rd May 2019 was implemented. I have already dealt with the taking over of the Trusts by Pinotage PTC. For ease of reference, I repeat the key events. On 21^st June 2019 Pinotage PTC was incorporated in the BVI. On 25^th June 2019 the Loan Assets in the 2011 Trust and the 2012 Trust were assigned by IFM to the Second Defendant. This assignment substantially postdated the appointment of the Second Defendant as trustee of these two Trusts. What appears to have happened is that a separate assignment of the assets of these Trusts was overlooked when the Second Defendant was appointed as trustee. In the case of the 2014 Trust there was no equivalent assignment of the Loan Assets to the Second Defendant on 25^th June 2019. On 30^th June 2019 Pinotage PTC was appointed as trustee of the 2011 Trust and the 2012 Trust in place of the Second Defendant. It is common ground that the equivalent appointment of Pinotage PTC as trustee of the 2014 Trust, in place of the Second Defendant, was ineffective. On the same day, 30^th June 2019, the Loan Assets in respect of the 2011 Trust and the 2012 Trust were assigned by the Second Defendant to Pinotage PTC. Again, there was no equivalent assignment of the Loan Assets to Pinotage PTC in relation to the 2014 Trust.

On 17^th July 2019 Shakespeare Martineau, the English firm of solicitors instructed for this purpose, emailed to Mr Shenkin and Mr O’Shea (copied to Mr Reid, Ms Stone and Mr Emblin) a first draft of the SPAs and accompanying deeds of assignment which were to be used to implement the Disposal. It was therefore at this point that drafts of the documents which would be used in the Disposal were first circulated.

The consideration payable for the Loan Assets was identified in the first draft of the SPAs as £100,000 cash paid up front, with a deferred consideration payable which would be based on a share of the profits of the First Defendant, capped at £1 million.

On 21^st July 2019 Mr O’Shea emailed Mr Reid, copied to Mr Emblin and Mr Reid, on the subject of the value of the Loan Assets. Mr O’Shea said this:

On 25^th July 2019 Mr Reid emailed Mr O’Shea, in response to Mr O’Shea’s email of 21^st July 2019. In his email in response Mr Reid set out reasons for the trustees being entitled to sell the Loan Assets and for regarding the Loan Assets as having a notional value at best. The email was in the following terms:

Stepping outside the chronology again, the sentiments expressed by Mr Reid as to the value of the Loan Assets, in this email of 25^th July 2019, are seriously undermined by a later exchange of emails on 30^th September 2019. On that date Mr Shenkin emailed to Mr Wrigley (copied to Mr O’Shea, Mr Reid, Ms Stone and Mr Emblin) deeds of assignment for the 2011 Trust and the 2012 Trust, with accompanying schedules of debt, and a deed of retirement and appointment in relation to the 2014 Trust with an attached list of debts. Mr Shenkin went on to comment that some 800 contractors (Beneficiaries) had indicated that they planned to settle with the Revenue. Mr Shenkin said that they were currently updating the schedules to identify these people “as it is not intended for these debts to be transferred at the present time”. Mr Shenkin said that there needed to be provision in the SPA for these rights to be carved out of the sale. This drew an immediate response from Mr Reid, who said this in an email sent to Mr O’Shea (copied to Mr Emblin):

On 31^st July 2019 Mr O’Shea emailed to Mr Reid the draft SPA with tracked changes. Clause 3 of the SPA, which specified the purchase price, continued to show the initial advance payment, in clause 3.1, as £100,000. At clause 3.2, which showed the deferred consideration, capped at £1 million, Mr O’Shea added a note stating that “This figure may have to increase – I am checking what are the current fees”. On 25^th August 2019 Mr O’Shea emailed a further revised draft of the SPA which showed the cap for the deferred consideration, in clause 3.2, as being £1,176,033.92.

In re-examination by Mr Flavin, Mr O’Shea explained the provenance of the figure of £1,176,033.92. Mr O’Shea explained that he contacted Hatstone Jersey accounts and asked what was the outstanding amount due on Project Z, in relation to the Trusts only. That generated a figure of around £900,000. Mr O’Shea then spoke to Hannes Botha and Mariana Botha Schoeman in relation to the Second Defendant. As Mr O’Shea recalled, his words of enquiry were “Right, on the Pinotage side, I need to get the figures together as to what we think Pinotage is entitled to”. This enquiry resulted in a figure which Mr O’Shea then added to the figure he had obtained from Hatstone Jersey accounts. The resulting figure (£1,176,033.92) then went into the SPAs.

The work in progress reports, from which was derived the figure said to be due to Hatstone Jersey for its work in relation to the Trusts, were available in the trial bundle. Mr Miall took Mr O’Shea through a few of these records and the accompanying invoices in cross examination. What was immediately apparent was that the work done by Hatstone Jersey, the charges for which formed the bulk of the sum of £1,176,033.92, included a good deal of work on Project Z which did not relate to the Trusts. Given the quantity of material Mr Miall necessarily had to conduct this part of his cross examination by reference to examples. It was however quite clear that the figure provided by Hatstone Jersey accounts for work said to have been done in relation to the Trusts included a good deal of work which should not have been charged to the Trusts. It was put to Mr O’Shea in cross examination that there were very, very frequent entries in the WIP reports which demonstrated that there were times included which should not have been charged to the Trusts. Mr O’Shea accepted that he could not disagree with this. Mr O’Shea suggested that if there had been funds available to pay the invoices of Hatstone Jersey at the times when they were produced, the WIP would have been reviewed and (I assume) the invoices corrected. I am not able to accept this evidence, which struck me as speculation on the part of Mr O’Shea. If an invoice is issued by a firm of lawyers I would expect it to be accurate. It strikes me as implausible that Hatstone Jersey would have issued its invoices on a provisional basis, lumping all the work together on the basis that specific categories would be sorted out later. What strikes me as more likely, and what I find happened, was either that Mr O’Shea’s request to Hatstone Jersey for details of outstanding fees was insufficiently precise or that the request was sufficiently precise but was not answered precisely, or that there was a combination of insufficient request and insufficient answer.

The inaccuracy in the figure provided by Hatstone Jersey was compounded by the fact that, if one went back to the original letter of engagement between Hatstone and the Second Defendant, dated 3^rd February 2017, the specified hourly rates for Hatstone staff were specified as being between $150 and $500 (US dollars). Mr O’Shea’s time, which was charged for his services as director of the Second Defendant, was at the top rate of $500. The letter of engagement stated however that Hatstone proposed to charge 50% of the standard hourly rates specified in the letter of engagement. The WIP reports show Mr O’Shea’s time charged at £500 per hour. By reference to the letter of engagement, this figure was in the wrong currency (to the advantage of Hatstone) and had not been discounted by 50%. Mr O’Shea accepted in cross examination that there should have been an adjustment in the WIP reports for these factors. It was put to Mr O’Shea that to the extent that there was an indebtedness of the Second Defendant to Hatstone in relation to the Trusts, it was for quite a lot less than Mr O’Shea had suggested in his evidence. Mr O’Shea was only willing to accept that if one carried out “a big analysis of the work on the invoices, you would see that there could have been a reduction”. This seems to me to have been a substantial under-statement of the position. By reference to the material put to Mr O’Shea in cross examination it is quite clear, and I so find, that the true sum due to Hatstone/Hatstone Jersey from the Second Defendant, for work done in relation to the Trusts, was substantially less than the figure provided to Mr O’Shea by Hatstone Jersey accounts.

Mr Miall sought to carry out a similar exercise with Mr O’Shea in relation to the sum provided by Mr Botha and Ms Botha Schoeman as the sum due to the Second Defendant in respect of its services as professional trustee of the Trusts. In this respect however I was not convinced, on the basis of the evidence which I heard, that the relevant sum was either excessive or wrong. Mr O’Shea defended the relevant sum as a reasonable figure, in terms of charges made by professional trustees. I have already commented on Mr O’Shea’s experience in this field and, in this respect, it seems to me that his evidence in defence of the sum charged by the Second Defendant was not undermined.

Resuming the narrative, and following the email from Mr O’Shea of 25^th August 2019, work on the documents to implement the Disposal continued. There are only a couple of communications which require specific mention. On 9^th October 2019 Mr O’Shea emailed Mr Reid with comments on “the Prime draft”, which I take to be a reference to draft of the principal SPA for the 2011 Trust. There are two points of particular note. First, Mr O’Shea suggested that the consideration be divided into three. Second, Mr O’Shea gave the following explanation, in relation to the consideration for the Loan Assets:

This email confirms that the consideration for the Disposal was to be confined to sums due to the creditors of the Trusts, who were identified as “the trustee and Hatstone”. The position was further confirmed by an email sent by Mr O’Shea on 11^th October 2019, in which he responded to an email sent by Mr Reid on 11^th October 2019. Mr O’Shea interpolated his comments into Mr Reid’s email, in bold print. The relevant comment of Mr O’Shea, in bold print, was as follows:

On 30^th October 2019 the Disposal was completed. I have already set out, in my description of the Trusts in a previous section of this Judgment, the instruments by which the Disposal was implemented, whether effectively or otherwise.

So far as the consideration for the Loan Assets was concerned, the SPAs provided as follows:

In terms of what actually constituted the payment of the sum of £100,000, as referred to in clause 3.1 of the relevant SPAs, it seems to me, and I so find, that the only available candidate for this payment is the sum of £100,000 paid by Slap 8 to Hatstone Jersey on 17^th May 2019, which was paid in response to the request for payment of £100,000 which was re-issued to the First Defendant on 16^th May 2019. I have already found that although this sum started life as the bulk of the commission due to the Second Defendant in respect of the introduction of parties to the Pyrrhus Scheme, the commission was actually settled by the payment of £100,000 in response to the invoice from the Second Defendant to Pyrrhus dated 17^th June 2019.

So far as the Deferred Consideration was concerned it will be seen, if one goes back to the earlier email exchanges between Mr O’Shea, Mr Reid and Mr Emblin, that the capped figure for the Deferred Consideration (“the Cap”) had been calculated by reference to sums due, or said to be due to the creditors of the Trusts. The Cap was not based on the value of the Loan Assets.

The total book value of the Loan Assets which were the subject of the SPAs was £410,822,090.81. It will be recalled that the deed of confirmation executed by Pinotage PTC, the Second Defendant and the First Defendant made corrections to the debt schedules attached to the SPAs. The revised figure for the book value of the Loan Assets was £279,729,180. In terms of the number of Beneficiaries who were still indebted to the Trusts, the Disposal involved 1,392 Beneficiaries, out of a previous total of 2,145 Beneficiaries. The remaining Beneficiaries had either settled with the Revenue and arranged for their debts to the Trusts to be waived or, in 14 cases, had participated in the Pyrrhus Scheme.

As part of their disclosure in this action the First and Second Defendants both disclosed a document signed by Mr O’Shea and entitled “Written Resolution of the Trustee of the Trusts”. This resolution (“the Disposal Resolution”) was in the name of Pinotage PTC, and was headed with the names of the Trusts. After noting a series of matters, the Disposal Resolution stated the following resolution:

The Disposal Resolution is dated 30^th October 2019, but the metadata for this document, disclosed by each of the First and Second Defendants, state that the document was created on 16^th April 2020.

Following completion of the Disposal on 30^th October 2019, there are only a few further events which require specific mention. On 6^th December 2019 the Second Defendant purported, by a resolution of that date signed by Mr O’Shea, to ratify the actions of Pinotage PTC in relation to the 2014 Trust, as from 30^th June 2019. The resolution noted that this ratification was required because there had been an error in the intended appointment of PTC as trustee of the 2014 Trust, on 30^th June 2019, so that Pinotage PTC had been acting as trustee de son tort since that date. On 11^th December 2019 the assignments of the remaining assets of the Trusts to Hatstone LLC was made by Pinotage PTC. On 30^th January 2020 the Deed of Confirmation was executed by Pinotage PTC, the Second Defendant and the First Defendant, revising the debt schedules which had been attached to the SPAs. Pinotage PTC itself went into voluntary liquidation on 29^th December 2019, and was dissolved on 18^th March 2020.

In May 2020 the First Defendant began to serve statutory demands on the Beneficiaries, in respect of their outstanding loans. It is not necessary to go into the pre-action correspondence, but this action was commenced by the Claimants on 1^st October 2020.

I understand that no Deferred Consideration has yet been paid pursuant to the SPAs. As I understand the position, there have been no recoveries, or at least no net recoveries (after deduction of costs) in respect of the Loan Assets since the Disposal. The Defendants’ case is that the right to receive the Deferred Consideration comprised part of the remaining assets of the Trusts which were assigned to Hatstone LLC by the sale and purchase agreements of 11^th December 2019. In this context I should mention that the First Defendant gave an undertaking to the court, as part of an order made by Michael Green J on 10^th November 2020, not to dispose of or otherwise deal with any assets assigned or otherwise transferred to it by Pinotage PTC relating to the debts and/or liabilities of the Claimants, until judgment or further order of the court. The Loan Assets have therefore been subject to this restriction since the date of this order.

The trial documents included a bundle of correspondence between Claimants and the trustee of the Trusts. I refer to “the trustee” in open terms because the correspondence spans 2018 and 2019. I understand that this bundle of correspondence was produced by the Claimants’ solicitors. Its purpose, as described in the Claimants’ skeleton argument for trial, was to rebut the Defendants’ contention that the Claimants had failed to communicate with the trustee. The Claimants’ case was that the bundle of correspondence demonstrated substantial communication with the trustee by the Claimants. This purpose was not however wholly achieved. The First Defendant produced a colour coded spreadsheet which recorded, by reference to the Claimants’ bundle of correspondence, the degree of communication between each Claimant and the trustee. The colour coding was as follows:

It is apparent from a perusal of the First Defendant’s colour coded spreadsheet that there are substantial quantities of red and white in the spreadsheet, which indicate substantial non-engagement or only limited engagement by a substantial number of Claimants. I accept that the colour coded spreadsheet is consistent with and supports the evidence of Mr O’Shea that there was substantial non-engagement by Claimants. My finding in relation to the bundle of correspondence between the Claimants and the trustee is that it evidences substantial non-engagement or minimal engagement with the trustee by a substantial proportion of the Claimants.

I have already mentioned that the Disposal Resolution is dated 30^th October 2019, while the metadata for this document, disclosed by each of the First and Second Defendants, state that the document was created on 16^th April 2020. The same was true of the original letter of engagement between Hatstone and the Second Defendant, dated 3^rd February 2017. The metadata for this document disclosed that it was created on 8^th April 2020. The same was true of invoices expressed to be rendered by Hatstone to the Second Defendant and also of work in progress reports prepared by Hatstone. The metadata for a number of these documents stated that they had been created at a later date to the respective dates shown on the documents themselves. Mr O’Shea was asked, in cross examination, about this discrepancy between the dates shown on documents and the dates shown by the relevant metadata. As I understood Mr O’Shea’s explanation, it was that the document management system at Hatstone allowed documents to be lifted out of the system, to be worked on, and then to go back into the system when the work on the document was complete. Mr O’Shea speculated that this would have changed the metadata for a document from the date of its original creation.

I am bound to say that this explanation did not make a lot of sense to me, probably because, as was clear from the cross examination, Mr O’Shea did not himself have the necessary knowledge, either of Hatstone’s document management system or of the relevant IT processes, to explain the discrepancy between the documents and their metadata. I was left in a situation where I received, from the evidence at trial, no adequate explanation of the discrepancy between the metadata and the documents. In particular, it was striking that the Second Defendant, whose internal documents these were, had not thought it necessary to provide an explanation of this discrepancy or, assuming that the same existed, to disclose the metadata which demonstrated that the relevant documents had been produced on the dates shown on their face. I was driven to the conclusion that the Second Defendant had not properly complied with its disclosure obligations in this respect.

As with the preparation of the witness statements of Mr Emblin and Mr Reid, the Second Defendant (in this instance) may be said to have been fortunate that this was not a case in which the central issue was when particular documents were created. If the present case had been such a case, the consequences of what I am calling the metadata problem might have been serious for the Second Defendant. As it is, I confine myself to what I have said in this section of my judgment. I have not thought it right to allow the metadata problem to affect my consideration of the issues I have to decide in this judgment.

The Claimants’ case is pleaded in what are now Re-Amended Particulars of Claim. The Claimants’ central case is that the Disposal constituted a fraud on a power or, putting the case in modern trust law terms, the Disposal was made for an improper purpose. The Disposal is also said to have been effected in breach of trust, but in the course of closing submissions it became apparent that the Claimants were not alleging that the Disposal was challenged on the basis of breaches of trust going beyond the alleged improper purpose. It is therefore sufficient to refer to the Claimant’s central case as a claim that the Disposal was made for an improper purpose.

In paragraph 35 of the Re-Amended Particulars of Claim the fraud on the power/improper purpose is pleaded in the following terms (I have not troubled with showing the amendments in this quotation, only the unmarked text, as re-amended, is shown):

Hatstone Jersey in this quotation is the same firm of Jersey lawyers to which I am referring as Hatstone Jersey.

Pursuant to this claim the Claimants seek a variety of declaratory relief to the effect that the Disposal was made for an improper purpose and, as such, was void in equity, with the consequences that the First Defendant holds the Loan Assets as constructive trustee for the Beneficiaries. Further to such declaratory relief orders are sought for the setting aside of the Disposal, for the appointment of some fit and proper person as trustee of the Trusts, for the appointment of some fit and proper person to replace the Third Defendant as Protector of the 2011 Trust and the 2012 Trust, and for the reconstitution of the Trusts.

There is also a claim for damages and/or equitable compensation against each of the First and Second Defendants, if and insofar as reconstitution of the Trusts is no longer possible. In discussing these particular claims, in this section of this judgment, it is convenient to refer to equitable compensation as including both damages and equitable compensation, unless it is necessary to distinguish between damages and equitable compensation in the context of these claims.

So far as the Second Defendant is concerned, the claim for equitable compensation is made on the basis that the Second Defendant, when it retired as trustee of the 2011 Trust and the 2012 Trust was aware that it was intended that Pinotage PTC would make the Disposal. As such, so it is contended, the Second Defendant retired as trustee of these Trusts in order to facilitate the disposal of the Loan Assets for an improper purpose and is thereby liable to pay damages and/or equitable compensation. It is also contended that, in retiring in such circumstances, the Second Defendant breached the duties which it owed to these Trusts as their trustee, and is thereby liable to pay damages and/or equitable compensation. As I understand the Claimants’ case at trial, the claim for equitable compensation in relation to the 2014 Trust is made on the basis that the Second Defendant acted for an improper purpose, and was in breach of its duties as trustee of the 2014 Trust in purporting to ratify the vesting of the Loan Assets, in relation to the 2014 Trust, in the First Defendant.

In relation to the First Defendant, the claim for equitable compensation is made on the basis that the First Defendant has a personal liability for knowing receipt of the property of the Trusts, namely the Loan Assets, if and in so far as that property cannot be recovered from the First Defendant as constructive trustee of the same.

In the case of the 2014 Trust the above claims are made subject to the logically prior claims relating to the effectiveness of the dealings with the 2014 Trust. As I have noted, these prior claims included a claim that the appointment of the Second Defendant as trustee of the 2014 Trust was ineffective, but this claim was abandoned at the trial. What are left are the claims, in respect of which declaratory relief is sought, that the Loan Assets were never the subject of a valid chain of assignments, from HRL Trustees to the First Defendant.

All of these claims are denied by the Defendants, for the reasons set out in their respective Re-Amended Defences. In the case of the First Defendant there is a counterclaim (“the Counterclaim”), by which the First Defendant seeks repayment of the amounts due under the loan agreements entered into by the Claimants. The amounts said to be due, together with contractual interest thereon, are set out in Schedule 2 attached to the Re-Amended Defence and Counterclaim of the First Defendant. By their Defence to the Counterclaim the Claimants accept their liability to pay the sums counterclaimed, subject to (i) some limited challenges to the figures shown in Schedule 2 to the Counterclaim, and (ii) the questions of whether the Loan Assets were validly assigned to the First Defendant and are enforceable by the First Defendant, in which respect the Claimants repeat their case, as pleaded in what were their Amended Particulars of Claim and (I take this to be a legitimate reading of the Defence to the Counterclaim) as pleaded in what are now their Re-Amended Particulars of Claim.

Leaving aside the question of relief, the issues to be determined in this trial divide broadly into three parts. First, there are the issues common to all three of the Trusts. Second there are the issues which relate only to the 2014 Trust. Third, there are the issues raised by the claims for equitable compensation.

So far as the common issues are concerned, they can be summarised as follow:

The issue of whether the defence of bona fide purchaser for value without notice is available to the First Defendant requires some further elaboration. This particular issue breaks down into the following sub-issues, or potential sub-issues:

Turning to the issues specific to the 2014 Trust, they can be summarised as follows:

Turning to the claims for equitable compensation, the issues which arise are as follows:

So far as the question of relief is concerned, the position can be summarised as follows:

Finally, there is the Counterclaim. There is no specific issue to resolve in this respect. If the First Defendant acquired the Loan Assets free of the rights of the Beneficiaries, it is accepted that the First Defendant is entitled to judgment for repayment of the loans made to the Claimants, subject to some agreed adjustment of the figures for the amount of the debts set out in Schedule 2 to the Re-Amended Defence and Counterclaim of the First Defendant.

The Trusts are governed by Jersey law. Accordingly, it is Jersey law which I have to apply in resolving the substantive (as opposed to procedural) issues between the parties. For this reason, it is convenient to set out some general points concerning Jersey law, which I derive from the expert evidence and which I did not understand to be controversial.

Jersey is a separate jurisdiction to England and Wales, with its own legislature and court system. Jersey forms part of the British Isles, but it is not part of the United Kingdom. English statutes do not automatically apply to Jersey, unless specifically extended to Jersey by Order in Council.

The following, very useful summary of the Jersey legal system can be found in the judgment of Judge Keyser KC, sitting as a judge of the High Court, in Re: Level One Residential (Jersey) Ltd [2017] EWHC 1105 (Ch), at [17]:

In terms of the court system, and precedent, Judge Keyser provided the following explanation, at [18] and [19]:

So far as statutory interpretation is concerned, it was common ground between the parties that the approach under Jersey law is the same as in this jurisdiction.

Moving specifically to trust law, the principal source of Jersey trust law is the Trusts (Jersey) Law 1984 which, it will be recalled, I am referring to as the 1984 Law. There is however a close relationship between Jersey trust law and English trust law. Lord Hodge explained the position in the following terms, in Investec Trust (Guernsey) Limited v Glenalla [2018] UKPC 7 [2019] AC 271, at [57]-[58]:

In Re The Esteem Settlement and the No. 52 Trust 2002 JLR 53, Deputy Bailiff Birt (as he then was), sitting in the Royal Court of Jersey, explained the relationship between English trust law and the 1984 Law in the following terms, at [84]:

Where I make reference to English case law in this judgment and where I make reference to decisions of the Privy Council (in non-Jersey cases) in this judgment I do so on the basis that it is common ground between the parties that I am entitled to take the relevant authority into account (subject to any dispute over the nature and extent of such taking into account), for the purposes of applying Jersey law to the substantive issues in this case.

It is convenient to start with the issues specific to the 2014 Trust. If, in relation to the 2014 Trust, the Loan Assets failed to find their way to the First Defendant under the terms of the instruments relied upon for this purpose, questions of improper purpose do not arise. The Loan Assets remain either (i) vested in HRL Trustees, or more accurately wherever they will have vested following the dissolution of HRL Trustees on 7^th June 2019, or (ii) vested in the Second Defendant, if the Loan Assets at least vested in the Second Defendant on the occasion of its appointment as trustee of the 2014 Trust.

The starting point is to note a couple of points of Jersey law, which were common ground between the Advocates.

I start with the question of whether the Loan Assets made their way from HRL Trustees to the Second Defendant. The primary case of the Defendants was that this was achieved by the terms of the instrument of retirement, appointment and indemnity, entered into on 22^nd January 2018, by which the Second Defendant was appointed as trustee of the 2014 Trust. It is convenient to use the expression “the 2018 DORA” to refer to this instrument. In closing submissions Mr Morgan directed me first to Recital (I), which is in the following terms:

Mr Morgan also referred me to clauses 5 and 10 of the 2018 DORA, which provide as follows:

Mr Morgan’s primary argument was that, putting these provisions together the DORA was clearly effective to vest the Loan Assets in the Second Defendant. He referred me to the Crociani decision as an example of a case where words in materially the same form had been considered sufficient to amount to an assignment of a chose in action. In this case the Jersey Court of Appeal had to consider the question of whether a chose in action, comprising the right to recover a debt evidenced by a promissory note, had been the subject of a valid assignment. This required consideration of the terms of a deed of retirement and appointment in 2012 by which a new trustee had been appointed of the relevant trust. It was claimed that the terms of that deed had been sufficient to assign the benefit of the chose in action to a new trustee. The relevant provisions were identified by the JCA in their decision at [145], and were in the following terms:

Recital (B):

So far as the construction of these provisions was concerned, the JCA were in no doubt that they had been effective to make an immediate assignment of all trust property capable of assignment. As the JCA explained, at [146] (underlining also added):

If one compares what was recital (G) in the deed of appointment in Crociani to the 2018 Dora, it is in almost identical form to Recital (I) in the 2018 DORA. Moving on to clause 4 of the deed of appointment in Crociani it is notable that the relevant property was declared to vest “upon execution” of the deed of appointment. This was part of the reasoning of the JCA in the underlined passage in [146]. Given this wording, it is hard to see how the JCA could have reached any other decision as to the effect of clause 4. It was plainly intended to effect an immediate vesting.

Mr Miall contended that the relevant wording in the 2018 DORA is critically different to the wording of the deed of appointment in Crociani, and was not effective to work an immediate assignment. It is true that the wording of clause 5 of the DORA is not quite the same as clause 4 of the deed of appointment in Crociani. Clause 5 provides that the New Trustee “shall stand possessed of the Trust Fund”, but does not have a provision stating in terms that vesting will take place on the execution of the 2018 DORA. Is this distinction material? I do not think that it is. I say this for three reasons. First, Recital (I) in the 2018 Dora is in the same terms as Recital (G) in Crociani. Applying the reasoning of the JCA, this means that Recital (I) can be taken as demonstrating an intention that the assets referred to in the 2018 DORA should forthwith be transferred to the Second Defendant. The intention was not that there should be a later transfer. Second, clause 10 of the 2018 DORA seems to me to perform the equivalent function to the latter part of clause 4 in Crociani. The latter part of clause 4 of the deed of appointment was held to apply only to assets where some further action was required before title was transferred. Clause 10 of the 2018 DORA seems to me to be performing the same function in relation to the assets of the 2014 Trust, from which it can be implied that the person drafting the 2018 DORA was proceeding on the assumption that the 2018 DORA itself had the effect of vesting the assets of the 2014 Trust in the new trustee, save insofar as such vesting required some further action to transfer a particular class of assets. Third, the wording of clause 5 of the 2018 DORA, with its reference to “shall stand possessed” seems to me to be apt to mean that, as from the date of the execution of the 2018 DORA, the new trustee is the owner of the assets of the 2014 Trust. The wording is not such as contemplates that a separate vesting of the assets will take place unless, as I have said, some further action is required from the outgoing trustee pursuant to clause 10. Nor do I think that there is any significance in the fact that clause 5 of the 2018 DORA uses the words “stand possessed”, as opposed to “vest”. This seems to me to be a distinction without a difference. Both expressions seem to me to be apt to refer to a transfer of title.

For these reasons I conclude that the 2018 DORA was effective to vest the Loan Assets in the Second Defendant.

This conclusion renders it unnecessary to consider the Defendants’ alternative argument, in relation to the question of whether the Loan Assets were assigned by HRL Trustees to the Second Defendant. I will however deal with the alternative argument as briefly as I can. The alternative argument relies on the proposition of Jersey law that before there has been a formal vesting of assets in a new trustee, the question of whether the new trustee can effectively act in relation to an asset without the involvement of the old trustee will depend upon the circumstances; see In the Matter of the Antares Trust, WTHK Ltd v UBS Trustees (Jersey) Ltd [2016] (1) JLR 409, at [72], where Birt, Commissioner stated as follows:

On the basis that the loans to the Beneficiaries are governed by English law the alternative argument relies upon the decision of Patten J (as he then was) in Coulter v Chief Constable of Dorset Police [2003] EWHC 3391 (Ch). This decision (upheld by the Court of Appeal) was relied upon by Mr Morgan to argue either that the wording of the 2018 DORA was sufficient to effect an assignment of the Loan Assets or that, because HRL Trustees held the Loan Assets on trust for the Second Defendant, the retirement of HRL Trustees as trustee, and the appointment of the Second Defendant as the new trustee was itself sufficient to effect an assignment in equity.

Although the submissions on this alternative argument were confined to the written submissions, and were not developed in the oral submissions, I do not think that the alternative argument works. I have my doubts that it is permissible to resort to English law in relation to this alternative argument, given that the 2014 Trust was governed by Jersey law. Assuming however that resort to English law is permissible for the reasons contended for by Mr Morgan, I do not think that Coulter is authority for the propositions advanced in the alternative argument. Coulter involved a challenge to a statutory demand, which had been served by the Chief Constable of Dorset Police (Mrs Stitchbury) on the judgment debtor. The problem which arose was that the judgment had been obtained by her predecessor as Chief Constable, Mr Aldous. The argument of the judgment debtor was that the chose in action which existed by virtue of the judgment remained vested in Mr Aldous and had never been assigned to Mrs Stitchbury.

The critical finding of Patten J, at [14] in his judgment, was that Mr Aldous, by virtue of his office, had held the benefit of the judgment not just for himself, but for his successors as Chief Constable. This in turn justified the following findings by Patten J, at [15] and [16]:

In the present case it seems to me that the facts are different. Prior to the appointment of the Second Defendant in place of HRL Trustees there was no pre-existing relationship between HRL Trustees and the Second Defendant of the kind which existed between Mr Aldous and his successors in title as Chief Constable. HRL Trustees did not hold anything on trust for the Second Defendant, prior to the Second Defendant’s appointment as the new trustee of the 2014 Trust. As such I find it difficult to see how the 2018 DORA can be treated as having triggered or constituted any assignment of the Loan Assets to the Second Defendant. Equally, I find it difficult to see how the fact of the retirement of HRL Trustees as trustee and the appointment of the Second Defendant as the new trustee can be treated as having triggered or constituted any assignment of the Loan Assets to the Second Defendant. The facts of the present case are not on all fours with those in Coulter. In these circumstances it seems to me that the alternative argument fails.

I have however already decided that the 2018 DORA was effective, on its own terms, to assign the Loan Assets to the Second Defendant, notwithstanding the failure of the alternative argument relied upon. This therefore leaves the question of whether the Loan Assets, following their vesting in the Second Defendant, were subject to any onward assignment to the First Defendant.

In this context the principal argument of the Defendants relies upon the resolution of 6^th December 2019, by which the Second Defendant ratified the actions of Pinotage PTC, in its capacity as purported trustee of the 2014 Trust. The principal argument of the Defendants is that this resolution was sufficient to give effect to what is said to have been the assignment of the Loan Assets by Pinotage PTC to the First Defendant. The relevant resolution was expressed in the following terms:

The starting point is that it is now conceded that the Second Defendant was validly appointed as trustee of the 2014 Trust. The Second Defendant was also, as I have just decided, the owner of the Loan Assets (strictly the equitable title to the Loan Assets) as from the date of the 2018 DORA, in its capacity as trustee of the 2014 Trust. Clause III-4 of the 2014 Trust Deed gave the trustee very wide powers of delegation. I accept the submission of Mr Morgan that the Second Defendant had the power to ratify the actions of Pinotage PTC as purported trustee of the 2014 Trust, and exercised that power by the resolution of 6^th December 2019. Provided therefore that Pinotage PTC entered into an instrument which would have been effective to assign the Loan Assets to the First Defendant, but for the fact that Pinotage PTC was not the trustee of the 2014 Trust, it seems to me that the resolution would have been sufficient to give effect to the relevant instrument.

This therefore brings the question down to the effect of the instruments which were entered into between Pinotage PTC and the First Defendant, in relation to the assignment of the Loan Assets. These instruments comprised the two SPAs which related to the 2014 Trust. It will be recalled that there were no separate deeds of assignment executed in relation to the 2014 Trust, as there were in relation to the 2011 Trust and the 2012 Trust. This leaves the SPAs. Mr Morgan contended that the SPAs contained ample language sufficient to effect an actual assignment of the Loan Assets. I do not agree. It is quite clear from the language of the two SPAs that each was intended to function, and did function as an agreement for the sale of the Loan Assets, which was to be completed by a separate assignment. In order to illustrate this, it is necessary only to make reference to the sale and purchase clauses in the two SPAs relating to the 2014 Trust. Clause 2 of the first of the SPAs provided as follows:

Moving on to the second SPA clause 2 provided as follows:

It seems to me that language of each of these clauses was the language of contract. By this I mean that clause 2 in each of these SPAs contained a contract for the assignment of the Loan Assets, not the actual assignment of the Loan Assets. Each clause contemplated a separate assignment of the Loan Assets.

This seems to me to be confirmed by the reference to “Completion” in each clause. In the case of the first SPA the Completion Date was defined to mean the date of the SPA, but Completion itself was defined as “completion of the sale and purchase of the Loan Agreements and the Debt in accordance with this agreement”. It seems to me that this very clearly contemplated a separate completion of the first SPA, at which the Loan Assets would be assigned, and the first SPA completed. In the case of the second SPA the Completion Date was defined to mean 15^th December 2019 (or such other date as might be agreed in writing by the Seller and the Buyer), while Completion itself was again defined to mean “completion of the sale and purchase of the Loan Agreements and the Debt in accordance with this agreement”. In the case of the second SPA it is therefore even clearer that there was to be a separate completion of the Second SPA, at which the Loan Assets (so far as the subject of the second SPA) would be assigned and the second SPA completed. There are a number of other clauses in each of these SPAs which are consistent with my analysis of the SPAs as contracts for the assignment of the Loan Assets, as opposed to actual assignments of the Loan Assets. As I have said however, it seems to me that it is only necessary to make express reference to clause 2 of each of the SPAs in order to illustrate my reasoning.

If my reasoning thus far is correct, it follows that the SPAs were, in and of themselves, insufficient to function as instruments of actual assignment of the Loan Assets to the First Defendant. This however is not necessarily the end of the argument. Mr Morgan also deployed two alternative arguments, in the event that he was wrong in contending that the SPAs were themselves sufficient to operate as the actual assignments of the Loan Assets.

The first of these alternative arguments relied upon clause 4.2 of the Deed of Confirmation. By way of reminder, that is the deed of confirmation entered into between Pinotage PTC, the Second Defendant, and the First Defendant on 30^th January 2020. Clause 4.2 of the Deed of Confirmation provided as follows:

Mr Morgan and Mr Flavin both submitted that clause 4.2 was sufficient to effect an assignment of the Loan Assets to the First Defendant, assuming that there had either been no previous effective assignment to the First Defendant or an assignment to the First Defendant which had been only partially effective. This was so, they submitted, whether the Loan Assets were held by the Second Defendant or Pinotage PTC.

The second of these alternative arguments was that the SPAs entered into between Pinotage PTC and the First Defendant in relation to the 2014 Trust, if they were only contracts to assign the Loan Assets as opposed to actual assignments of the Loan Assets, were sufficient to vest at least an equitable interest in the Loan Assets (strictly an equitable sub-interest in the equitable interest in the Loan Assets settled into the 2014 Trust) in the First Defendant; see Guest at [25], where it is said that “An intention to assign an existing chose in the future may be evidence of an agreement to assign, which may vest an equitable interest in the assignee”.

The first of these alternative arguments seems to me to have merit. I do not say this by way of criticism, but in his closing oral submissions in reply Mr Miall did not appear to me to have a reply this argument. In fact, Mr Miall fairly conceded that that there might be rather more force in this point than the other arguments advanced by Mr Morgan in relation to the 2014 Trust. It seems to me that if one assumes, consistent with my reasoning thus far, that the Loan Assets were assigned to the Second Defendant by the 2018 DORA, but were not assigned to the First Defendant by the SPAs, so that they remained with the Second Defendant, it is difficult to see how clause 4.2 of the Deed of Confirmation was not effective to effect an assignment of the Loan Assets in respect of the 2014 Trust from the Second Defendant, or indeed from Pinotage PTC if they were with Pinotage PTC, to the First Defendant. The language of clause 4.2 was clearly apt to achieve this result. I therefore conclude that the Deed of Confirmation was effective to assign the Loan Assets, in relation to the 2014 Trust, to the First Defendant.

The need for the Deed of Confirmation would of course have been limited if the Defendants are right in the second of their arguments, namely that the SPAs in relation to the 2014 were at least effective to assign an equitable sub-interest in the Loan Assets to the First Defendant. In this context Mr Miall contended that while it was correct to say that an equity arose in favour of the First Defendant when the SPAs were entered into, it was not an equitable interest in the Loan Assets, but only the equity which arises when a party exchanges contracts for the purchase of a property. In such a case, so Mr Miall submitted, a party can call for specific performance of the contract, but not the beneficial interest in the property itself.

The nature of the trust which arises, as between vendor and purchaser, in relation to an uncompleted contract for sale is not straightforward, and depends upon the availability of the remedy of specific performance. I can see various issues which might arise in the context of what, if any interest in the Loan Assets the First Defendant could claim pursuant to the SPAs, given my conclusion that the SPAs were uncompleted contracts for the sale of the Loan Assets. As none of these issues were properly argued out before me, I do not propose to go further into them. Instead, I rest my decision that the Loan Assets did pass the First Defendant on my conclusion that the Deed of Confirmation was effective to assign the Loan Assets, in relation to the 2014 Trust, to the First Defendant.

For the reasons which I have set out in the previous section of this judgment I conclude, in relation to the issues specific to the 2014 Trust, that the Loan Assets were the subject of an effective chain of assignments into the hands of the First Defendant, albeit by a different route, in relation to the assignment of the Loan Assets to the First Defendant itself, to that taken by the Loan Assets in relation to the 2011 Trust and the 2012 Trust. In the remainder of this judgment my references to the Disposal refer, in the case of the 2014 Trust, to the way in which I have decided that the assignment of the Loan Assets into the hands of the First Defendant was actually effected.

My reference to an effective chain of assignments is of course subject to the question of whether the Claimants can challenge the Disposal on the basis of improper purpose. My decision on the issues specific to the 2014 Trust means that the Claimants’ challenge arises in relation to all three Trusts. I now turn to consider the question of whether the Disposal can be challenged on the basis of improper purpose.

The law relating to improper purpose has been the subject of recent explanation by Lord Richards in the Privy Council decision in Grand View Private Trust Co Ltd v Wong [2022] UKPC 47. At [51] and [52], Lord Richards identified the following duties which apply to the exercise of fiduciary powers (underlining also added):

In the present case, and for the purposes of the issue which I am currently considering, the first and second duties identified by Lord Richards at [51] are not directly in point. What is directly in point is the proper purpose rule (underlined in the above quotation), which Lord Richards distinguished from the scope of the power rule, at [54]:

Lord Richards then identified what he referred to as the proper purpose rule in the following terms, at [55]:

In Eclairs Group v JKX Oil & Gas plc [2015] UKSC 71 [2016] 3 All ER 641 Lord Sumption explained the proper purpose rule in the following terms, at [15]:

So far as the application of the proper purpose rule is concerned, there are two questions to be answered; see Lord Richards in Grand View at [61] and [72]. The first question concerns the proper purpose or purposes of the relevant power. This is an objective question. The proper purpose or purposes of the power fall to be determined on an objective basis. The second question concerns the purpose or purposes for which the relevant power has in fact been exercised. Was this purpose outside the purpose or range of purposes for which the relevant power was conferred? This is a factual and subjective question, to be answered by determining the subjective purposes of the relevant decision maker in the exercise of the relevant power.

Where the decision maker has mixed motives for the exercise of the relevant power, equity will usually only intervene if the primary or dominant purpose was improper; see Lord Sumption in Eclairs at [17].

As a general rule, fiduciary powers must be exercised to further the purposes of the beneficiaries. In Grand View Lord Richards explained the position in the following terms, at [120]:

In the present case the bulk of the argument over whether the Disposal was effected for an improper purpose was concerned with the financial position of the Trusts, and the implications, in terms of what constituted improper purpose, of such financial position. It is convenient to discuss the issues which arose in relation to the financial position of the Trust in the next section of this judgment, before coming directly to the question of whether the Disposal was effected for an improper purpose.

The experts were agreed that there is no such thing as an insolvent trust, because a trust has no legal personality. The experts were however also agreed that this term could be used as a shorthand label for a situation in which a trustee was unable to pay the liabilities reasonably incurred in the course of its trusteeship as such liabilities fell due from the assets held in the trust. In terms of types of insolvency, the experts were also agreed that such a situation was correctly characterised as cash-flow insolvency. This was in contrast to balance sheet insolvency, which required a comparison between (i) the assets held in the relevant trust, and (ii) the liabilities of the trustee incurred in the course of trusteeship. The experts were also agreed that the question of whether a trust which was continuing in existence was insolvent was to be determined by the cash-flow test, which was also referred to as the commercial test of insolvency. Put simply, the cash-flow test requires a determination of whether the relevant trust is able to pay its debts as they fall due.

It is clearly correct that reference to an insolvent trust is an acceptable form of shorthand. Sitting in the Royal Court of Jersey, Commissioner Clyde-Smith said as much in Representation of the Z Trusts [2015] JRC 196C, at [5]:

At [28] and [29] in the same judgment the Commissioner stated that although the point had not been canvassed at the hearing, the test for insolvency, in the case of a trust, should be the cash-flow test. The Commissioner cited in this context Del Amo v Viberts, Collas Crill and others [2012] (1) JLR 180. I understood it to be common ground between the experts that the same test fell to be applied in the present case, so far as the financial position of the Trusts at the relevant time is concerned.

The Commissioner then continued, in the following terms, at [30] and [32]:

If one takes what was said by the Commissioner at [30] and [32] at face value, it would seem that, where a trust is insolvent (which the experts agree is to be determined by reference to cash-flow insolvency test), the trustee can only exercise fiduciary powers in the interests of the creditors. The beneficiaries are no longer to be treated as the persons with the economic interest in the trust.

The experts were however agreed, as a matter of Jersey law, that some tempering of this statement was required. The reason for this was the recent decision of the Supreme Court in BTI 2014 LLC v Sequana SA [2022] UKSC 25 [2022] 3 WLR 709. In this case the Supreme Court was considering the question of whether the duty owed by the directors of a company to promote its success, pursuant to Section 172(3) of the Companies Act 2006, was breached by the payment of a dividend to the directors in a situation where, by reason of uncertain long-term contingent liabilities of the company, there was a real risk of insolvency in the future. This in turn engaged the question of the extent to which the directors should take into account the interests of the creditors, over the interests of the shareholders, in such a situation. In his judgment, at [81-82] Lord Reed PSC explained the exercise which was required in the following terms:

Lord Briggs JSC explained the position in the following terms, at [176]:

Sequana was concerned with duties owed in company law, and is an English case. The experts were however agreed that a Jersey court would take account of the decision in Sequana, and would regard the guidance given by the Supreme Court, so far as duties to creditors and shareholder were concerned, as relevant to the question of how a trustee of a trust should prioritise the interests of creditors and beneficiaries in a situation of insolvency or potential insolvency.

Although the difference between the experts was not a substantial one in this context, the experts were not quite as one in their views on how a trustee should balance the interests of creditors and beneficiaries in a situation of insolvency or potential insolvency. Addressing the hypothesis of a cash-flow insolvent trust, and trust assets having a potential value in excess of the value of the liabilities owed to creditors of the trust, Advocate Gleeson was of the view that the trustee should primarily exercise their fiduciary powers and duties in the interests of the creditors, but that the trustee should also consider the residuary interests of the beneficiaries. Advocate Passmore was also of the view that the trustee should primarily exercise their fiduciary powers and duties in the interests of creditors, but considered that the extent to which the trustee could properly ignore altogether the residuary interests of the beneficiaries when exercising their fiduciary powers would be a fact specific question.

It will be noted that the difference between the two experts is a small one. So far as there is a difference, I prefer the view of Advocate Passmore, but this is essentially because the view of Advocate Passmore seems to me acknowledge that this is an area where there is no hard and fast rule. The answer to the question of whose interests should be given priority in an insolvency situation is an acutely fact sensitive one. I summarise my findings as to Jersey law, in the context of the duties of a trustee in an insolvency situation, as follows:

The question of the extent to which trustees should prioritise the interests of creditors over beneficiaries also engages a separate point, which is the right of a trustee to look to the assets of the relevant trust to meet liabilities properly incurred by the trustee in the execution of the trust. This right of indemnity was the subject of extensive consideration by the Privy Council in Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36. In fact, the Z Trusts case was one of the cases which came before the Privy Council in Equity Trust. In their joint judgment Lord Richards JSC and Sir Nicholas Patten examined the nature of the right of indemnity at some length. They explained the basic nature of the right in the following terms, at [56]:

Lord Richards and Sir Nicholas Patten then explained why the right of indemnity is required, while also confirming that, while it is convenient to speak of an insolvent trust, the liability of a trustee is personal. There is no entity liable as the trust. As they explained, at [61]:

One other paragraph from the joint judgment in Equity Trust requires specific mention. At [102] Lord Richards and Sir Nicholas Patten explained the basis of the trustee’s power of sale, in the following terms:

There are two relevant points here. The first point is that in a case such as the present case, the trustee has a right of resort to the assets of the trust, in order to meet the liabilities properly incurred by the trustee in the execution of the relevant trust. These liabilities may include the trustee’s own fees for their services as trustee in a case, such as the present case, where the trustee is a professional trustee and the trust deed includes a right of remuneration in relation to the trustee’s services. The second point is that where, as in the case of the Trusts, a trustee has a power of sale, that power of sale can be exercised in relation to the assets of the trust “in exoneration or reimbursement” of liabilities properly incurred by the trustee in the execution of the relevant trust.

In the context of my discussion of the issues concerning the financial position of the Trusts, and specifically the trustee’s right of indemnity, it is convenient to make reference to one further case which featured substantially in the submissions of the parties. The case in question is the decision of the Royal Court of Jersey in Re Hawksford Trust [2018] JRC 171. The case concerned a conventional discretionary trust governed by the law of Jersey. The trust had only one material asset, which was a property in London. There were no funds in the trust to pay for the maintenance and upkeep of the property, and various members of the family claimed to be owed money by the trust for amounts contributed to the upkeep of the property. The case of the corporate trustee of the trust was that the trust was cashflow insolvent. The trustee proposed a sale of the property, but this proposal gave rise to a substantial dispute among the beneficiaries. The trustee sought the approval of the court to a sale of the property.

The position of the trustee was summarised in the following terms in the judgment of Sir Michael Birt, Commissioner, at [21]:

The court declined to approve the sale of the property, for four separate reasons. The second of these reasons concerned the tax consequences of a decision to sell. At [52] the Commissioner said this:

Although this case featured substantially in the submissions of the parties, I regard its relevance as strictly limited. The case was relied upon by the Claimants in support of the proposition that, where a trust is cash-flow insolvent, but balance sheet solvent, the trustee may be required to dip into its own pocket in order to meet the continuing expenses of the trust. This seems to me to put matters rather too high, or at the least to be a proposition which falls to be treated with considerable care. What the court actually decided in Hawksford, in this context, was that one reason for not approving the sale of the property was the failure of the trustee to obtain tax advice. The court was not impressed with the trustee’s excuse that it had no money to fund tax advice, because “there is no question but that the Trustee will at some stage be able to obtain reimbursement for its reasonable fees and expenses out of the trust property.”. The case was not one of a trustee which was being required to use its own resources to obtain advice in a situation where there were no assets from which the outlay could eventually be recovered, or in a situation where the possibility of recovering such outlay out of the assets of the trust was uncertain.

As can be seen, the court in Hawksford was concerned with one item of professional expenditure, which was required in order to achieve the trustee’s object of a sale and in respect of which the trustee could be certain that its expenditure could be reimbursed out of the eventual sale of the property. Given the nature of the expenditure, and given the certainty of eventual reimbursement, it seems to me that Hawksford is not authority for any wider statement of the duty of a trustee of a cash-flow insolvent trust to meet expenditure out of its own pocket. It seems to me that the question of whether a trustee should meet the expenses of a trust out of its own pocket is an acutely fact sensitive question, and requires facts such as those in Hawksford before it can be said to be reasonable that a trustee should take such action.

My discussion of the financial position of the Trusts has so far concentrated upon the law. I now turn to the facts of the present case, and the financial position of the Trusts at the times material to the claims in this action.

It seems quite clear to me, and I so find, that the Trusts were each cash-flow insolvent at the time of the Disposal. It seems to me, and I so find, that each of the Trusts was in this position at least from January 2018, when the Second Defendant was appointed as trustee of the Trusts. The reasons for this are straightforward. The assets in the Trusts were not income producing. The only fees which the Beneficiaries had been required to pay were upfront fees, as was recorded in the file note of the telephone conference which was held on 28^th May 2019. The Trusts however required professional administration and were administered by professional trustees who were entitled, under the terms of the Trusts, to charge for their services and for the services of other professionals whose advice was required. As the experience of the Second Defendant demonstrated, the only way to realise funds out of the Trusts, without calling in the loans or selling the entirety of the Loan Assets, was to levy a charge on the Beneficiaries for releasing their loans or to persuade Beneficiaries to sign up to a new scheme to deal with their loans in respect of which fees and commission could be charged.

So far as the first of these devices was concerned, a charge of £950 was raised for the release of a loan. It was suggested that this figure of £950 might be a guide as to the value of each loan but, on the evidence, it is clear to me, and I so find, that this was a charge levied as a fee in respect of the administration costs of releasing a loan. The charge was not related to the value of the loan, in respect of which the right of recovery was held upon trust for the relevant Beneficiary. In any event it is also clear that the levying of this charge did not raise sufficient to meet the expenses of the Trusts. So far as the second of these devices was concerned, the Pyrrhus Scheme proved to be a damp squib, attracting a total take up of only 58 persons, of whom 14 were Beneficiaries. So far as the expenses of the Trusts were concerned, the respective outstanding liabilities to the Second Defendant and Hatstone Jersey amounted to a figure of over £1 million. Even allowing for the fact that the figure for Hatstone Jersey’s fees was clearly overstated, there was still a substantial sum due from the Trusts, with no obvious means of paying this sum, without either calling in the loans or selling the Loan Assets. In addition to this it is clear from the evidence, both in the documents and from the witnesses, that a substantial number of the Beneficiaries were not prepared to engage with the trustee of the Trusts. In this context I refer to my findings on the bundle of correspondence between the Claimants and the trustee of the Trusts, which shows substantial non-engagement or minimal engagement by a substantial proportion of the Claimants.

This leaves the question of whether the Trusts were balance sheet insolvent, either at the time of the Disposal or prior to that time. Determination of the balance sheet solvency of the Trusts requires a comparison between (i) the liabilities of the Trusts at the relevant time, and (ii) the capital value of the assets in the Trusts at the relevant time. In this context the parties, by their counsel, sought gallantly and assiduously to persuade me that the Loan Assets had substantial value (the Claimants) or little or no value (the Defendants). These efforts were in vain for the simple reason that no one, so far as I am aware, has ever commissioned a valuation of the Loan Assets, either prior to the commencement of this action or in this action. No valuation of the Loan Assets was obtained by the Second Defendant, or by Pinotage PTC, or by the First Defendant, or by any other party of whom I am aware, either in connection with the Disposal or at any other time relevant to this action. Equally there is no valuation evidence in this action speaking to the value of the Loan Assets.

I can of course join with counsel in speculating on what the Loan Assets might have been worth, or might now be worth. This would however be speculation on my part. I have no specialist expertise in the valuation of a loan book, and any value I sought to put on the Loan Assets would be no more than a partially educated guess. I assume that the exercise of valuing the Loan Assets would require, and would have required the services of an accountant with expertise in this type of valuation. I can see that the valuation of the Loan Assets might not have been an easy task, given the uncertainties over the recoverability of the loans from the Beneficiaries; none of whom were likely to be co-operative, and many of whom may have lacked the resources to repay the loans. I can see that the figure which a professional valuer might produce for the value of the Loan Assets might be a figure lying within a fairly wide range of possible valuations. I doubt that valuation of the Loan Assets would be a precise science. These are however all reasons why the valuation of the Loan Assets would require, and would have required the services of an expert in this form of valuation.

In cross examination Advocate Gleeson referred to the concept of a dry trust, by which I understood him to mean a cash-flow insolvent trust with a substantial asset, of the kind which existed in Hawksford. Whether the Trusts fell into the same category is unknown. The only point which can be made in this context is that there seems to me to be a difference between an asset in the form of a London property, which one assumes would be relatively easy to value and to sell, and a loan book, which may be more difficult to value, and more difficult to sell.

At the conclusion of his cross examination Mr Emblin accepted that he knew that the Loan Assets had potential value and that the acquisition of the Loan Assets by the First Defendant represented a commercial opportunity. It was put to Mr Emblin that he had known all along that there could be substantial value in the Loan Assets and that this (the acquisition of the Loan Assets by the First Defendant) was a very big commercial opportunity for him. Mr Emblin’s response was that there was a range of possibilities in relation to the value of the Loan Assets; “from zero to a lot and I didn’t know where in the spectrum it would be”. Mr Emblin accepted that “a lot” could have meant well into the millions. I found this evidence entirely credible. It seems to me, and I so find, that the reality was, at the time of and prior to the Disposal, that none of Mr Emblin, Mr Reid and Mr O’Shea knew the true value of the Loan Assets, and that all three appreciated that the Loan Assets could have had substantial value.

Mr Reid’s evidence in cross examination was to a similar effect. It was put to Mr Reid that the purchase of the Loan Assets by the First Defendant represented a huge commercial opportunity. Mr Reid’s response was that it was a commercial opportunity, which he could not exactly delineate. Exact delineation may not have been possible, but Mr Reid plainly regarded the commercial opportunity as a valuable one. This is demonstrated by the email exchange of 30^th September 2019 which I have recorded in the narrative section of this judgment, in which Mr Reid pointed out that “a huge commercial opportunity” would be lost if 800 individuals, who were said to be in settlement negotiations with the Revenue, were excluded from the sale of the Loan Assets. As I have already commented, it seems to me, and I so find, that this email represents the view which Mr Reid actually took as to the potential value of the Loan Assets, rather than the earlier email of 25^th July 2019, in which Mr Reid set out to Mr O’Shea reasons for the trustees regarding the value of the Loan Assets as notional at best. At the end of his cross examination the point was put again to Mr Reid that he knew all along that there was likely to be substantial value in the Loan Assets and that the sale of the Loan Assets presented a huge commercial opportunity. Mr Reid responded that “We”, which expression I took to include Mr Reid, Mr Emblin and Mr O’Shea, “did not know that there was substantial value in these assets at all”. I accept that Mr Reid did not know that there was substantial value in the Loan Assets. I find that he did know that there was, potentially, substantial value in the Loan Assets.

So far as Mr O’Shea was concerned, it is quite clear from the documents, and from Mr O’Shea’s cross examination, that he calculated the consideration payable on the Disposal by reference to what he calculated as due to the creditors of the Trusts, being Hatstone Jersey and the Second Defendant; see in particular Mr O’Shea’s email of 9^th October 2019 (referenced in the narrative section of this judgment), which confirmed this approach. Mr O’Shea accepted in cross examination that there had been no attempt to explore what market there might be for the Loan Assets, or to market the Loan Assets, and that the consideration which was to be paid on the Disposal had not been calculated by reference to any valuation of the Loan Assets. Mr O’Shea also accepted in cross examination that, when the loans came to be called in, following the Disposal, he did not know how much the First Defendant was going to recover. He accepted that the true recoverable value could have been quite limited or could have been quite high. Mr O’Shea also accepted that it was always possible that the First Defendant would recover more than was set by the Cap as the limit on the Deferred Consideration.

Also important in this context is the email which Mr O’Shea sent on 21^st July 2019 (also referenced in the narrative section of this judgment), in which he inquired of Mr Reid whether a rough valuation of the Loan Assets had been obtained. Mr Reid responded in the email of 25^th July 2019, wherein he sought to justify the thesis that the Loan Assets had a notional value only. The obtaining of a valuation does not appear to have been pursued any further. I am satisfied that Mr O’Shea, who struck me, as I have said, as an extremely astute person in both commercial and legal terms, raised the topic of obtaining a valuation because he understood that the Loan Assets might have substantial value and that this, in turn, could cause problems down the road, in terms of justifying a sale of the Loan Assets for a price based solely upon what was calculated to be due to the creditors of the Trusts.

In cross examination Mr O’Shea claimed that he had carried out his own mental valuation process of the Loan Assets and valued the Loan Assets “at probably next to zero”. Mr O’Shea said that he did not conceive that the Loan Assets had any value. I cannot accept this evidence. I do not consider that Mr O’Shea was being dishonest in this part of his evidence. Rather it seems to me that Mr O’Shea had persuaded himself that this was his thinking at the relevant time. In my judgment Mr O’Shea was seeking to defend, on a retrospective basis, his orchestration of the consideration payable on the Disposal to a figure equalling the sums calculated as due to the Second Defendant and Hatstone Jersey, as creditors of the Trusts. The fact that Mr O’Shea appreciated that this might be problematic is demonstrated by his email of 21^st July 2019, which I regard as a more reliable guide to what was in Mr O’Shea’s mind at the relevant time. The same point is also demonstrated by the inclusion of the Cap in the SPAs (the limitation on the amount of the Deferred Consideration payable out of the profits realised by the First Defendant from the Loan Assets). As was pointed out to Mr O’Shea in cross examination, the Cap only made sense if there was a possibility of the Loan Assets turning out to have a value in excess of the Cap. Mr O’Shea described the Cap as something which might have been “extra unnecessary terminology”. I cannot accept this suggestion. It seems clear to me, and I so find, that the Cap was intended to limit the Deferred Consideration to what had been calculated as due to the Second Defendant and Hatstone Jersey, and was intended to guard against the possibility of the Loan Assets turning out to have a higher value. I am satisfied that Mr O’Shea understood all this when the Cap was devised and put into the SPAs.

I have so far been considering the question of value by reference to the Loan Assets. There were, as I understand the position, some other miscellaneous assets in the Trusts, which were mopped up by the assignments to Hatstone LLC on 11^th December 2019. I have no evidence on the basis of which I can form a view as to what these residual assets were worth. In particular there were, in the 2014 Trust, what I am referring to as the Covenant Assets. I have seen no valuation evidence in respect of the Covenant Assets. It was not suggested by the Claimants that the Covenant Assets had any material value, and the Claimants’ case is concentrated on the Loan Assets.

In this context I should also mention a further point made by the Defendants, concerning the financial position of the Trusts and the Beneficiaries. In a helpful annex to their skeleton argument, the First Defendant’s counsel provided an overview of the Inheritance Tax (IHT) position of the Trusts. Summarising the position very crudely, the essential point made in this annex is that the Trusts had incurred and would incur substantial charges to IHT, for which the settlors, trustees and Beneficiaries could all be made liable. I accept that the IHT position would have constituted an adverse financial factor, probably a substantial adverse financial factor in any valuation of the assets in the Trusts at the time of the Disposal. As it happened, the IHT position does not appear to have been a factor which was at the forefront of the minds of those involved in the Disposal, at the time of the Disposal. The overall impact of the IHT position on the value of the Loan Assets must however remain a matter of speculation. There was no valuation of the assets in the Trusts at the time of the Disposal and, so far as I am aware, there is still no valuation of the assets in the Trusts (and, in particular, of the Loan Assets) which is available, or at least there is no valuation available which I have seen.

In summary, and so far as the balance sheet solvency or insolvency of the Trusts was concerned, either at the time of the Disposal or prior to that time, I make no finding. The short answer to the question of whether the Trusts were balance sheet solvent or insolvent, at any particular time, is that I do not know. My conclusion, on the evidence before me in this trial, that there is no evidence which allows me to arrive at any reliable valuation of the assets in the Trusts, and in particular the Loan Assets, at any particular time.

I have spent some time in discussing the state of Jersey law, in relation to the duties of a trustee in an insolvency situation, and in discussing the financial position of the Trusts at and prior to the time of the Disposal because these matters seem to me to be central to the question of whether the Disposal was effected for an improper purpose.

It is not in dispute that Pinotage PTC had the power to sell the Loan Assets under the terms of the Trusts. The Disposal was therefore within the scope of the power of sale, which was a fiduciary power. The question is whether this power was exercised for a proper purpose. As explained in Grand View, there are two questions to be answered. The first question concerns the proper purpose or purposes of the power of sale. The second question concerns the purpose or purposes for which the power of sale was exercised. The second question may be said to divide into two questions. For what purpose or purposes was the power of sale in fact exercised? Was that purpose or were those purposes outside the purpose or range of purposes for which the relevant power was conferred?

In the present case it is convenient to take the first part of the second question in Grand View first. For what purpose or purposes was the power of sale, by the Disposal, in fact exercised? I take this question first because it does not seem to me, in reality, that there is any material dispute in this respect.

In cross examination Mr Emblin accepted the following proposition:

Mr Reid accepted the same proposition on cross examination:

The same proposition was put to Mr O’Shea in cross examination. The relevant passage of cross examination is a lengthier one, and does not need to be set out in full. The first key passage was in the following terms:

It will be noted that, in this passage of cross examination, Mr O’Shea did not accept the purpose which was put to him, but confined himself to conceding that the exclusion of the Beneficiaries was the result of the way the Disposal was structured, as opposed to a purpose. Mr Miall pursued the point further however, and the ultimate answer of Mr O’Shea on the question of purpose was as follows:

In closing submissions the Claimants submitted that the purpose of exercising the power of sale was to terminate the Trusts without leaving any surplus assets to be held for the Beneficiaries, whilst at the same time benefiting the First and Second Defendants and Hatstone Jersey. This seems to me to be correct. Indeed, in the light of all the evidence at the trial and, in particular, in the light of what was conceded by Mr Emblin, Mr Reid and Mr O’Shea in cross examination the Claimants’ identification of the purpose of the Disposal would appear to be correct.

I state this conclusion in provisional terms because it seems to me that the above analysis is not necessarily the end of the matter, so far as the answer to the first part of the second question in Grand View is concerned. It seems to me that there are two further points to consider in this context.

First, there is the question of whether it can be said that Mr O’Shea, as the effective decision maker for Pinotage PTC as the party making the Disposal, genuinely believed that the situation was one where it was legitimate to confine the consideration payable on the Disposal to what was owed to the creditors, and that there was nothing to be realised, or worth realising for the Beneficiaries. I should mention that, in referring to Mr O’Shea as the effective decision maker on behalf of Pinotage PTC, I include reference to Mr O’Shea’s role as effective decision maker on behalf of the Second Defendant. I include reference to the Second Defendant because, in the case of the 2014 Trust and on the basis of my earlier decisions on the issues specific to the 2014 Trust, it was the Second Defendant which, by the Deed of Confirmation, actually effected the assignment of the Loan Assets to the First Defendant. If Mr O’Shea had this genuine belief, it might be said to affect both parts of the second question in Grand View, on the basis that the purpose of the Disposal was not in fact to exclude the beneficiaries, because it was believed that there could be nothing for the Beneficiaries.

Second, there is the question of whether it can be said that the exclusion of the Beneficiaries from deriving any benefit from the Disposal was not the primary or dominant purpose for which the Disposal was made, but was a subsidiary purpose, insufficient to justify the intervention of equity to invalidate the Disposal. If this was the position, this may, again, be said to affect both parts of the second question in Grand View, because the primary or dominant purpose of the Disposal was not the exclusion of the Beneficiaries.

On the first of these points the argument was put by Mr Morgan, supported by Mr Flavin, that Mr O’Shea made a legitimate and reasonable decision that Pinotage PTC had ample grounds to sell the Loan Assets at a level which ensured that the creditors would be paid off. On the second of these points the argument was put by Mr Morgan, again supported by Mr Flavin, that the primary purpose of the Disposal was to pay off the creditors of the Trusts. This, so counsel argued, was a perfectly legitimate use of the power of sale. To this, Mr Flavin added the point that, so far as the purpose of Disposal was to liquidate the assets of the Trusts and bring the Trusts to an end, that also was a perfectly legitimate use of the power of sale.

On the second of these points, Mr Morgan also advanced the argument that, in considering what was the primary or dominant purpose of the Disposal, the question was more concerned with identifying the causative event, rather than simply looking for the dominant purpose.

So far as the decision making process was concerned, I am unable to accept that the thought process of Mr O’Shea was as characterised by counsel for the Defendants. In this context I refer to what Mr O’Shea said in the relevant part of his cross examination, which I have quoted above, as to his understanding of the purpose of the Disposal. I also refer to my earlier findings as to what Mr O’Shea knew at the relevant time. As Mr O’Shea admitted in cross examination, he knew that the intentional structure of the Disposal was to leave nothing for the Beneficiaries. As I have also found, Mr O’Shea knew that the value of the Loan Assets might be substantial. All this is confirmed by, amongst all the other evidence, the presence of the Cap in the SPAs. The Cap only made sense if there was the possibility of the share of what could be realised from the Loan Assets (the Deferred Consideration) going above the sums calculated to be due to the creditors.

In closing submissions, I was referred to the Disposal Resolution which, so it was submitted, demonstrated, by its references to the Beneficiaries, that the interests of the Beneficiaries were considered in relation to the Disposal. It was submitted that this document, together with the contemporaneous email communications, showed that a reasonable decision was made to proceed with the Disposal, in respect of which the interests of the Beneficiaries were the subject of adequate consideration. As I understood the relevant submission of Mr Morgan, Mr O’Shea was not required to reach some objective right answer, in terms of how the interests of the Beneficiaries should be dealt with in the Disposal. Rather, all that was required of Mr O’Shea, at most, was that he considered the interests of the Beneficiaries and made a decision as to what part they should play in the Disposal, bearing in mind the overriding priority to pay off the creditors.

In principle, I can see the force of this argument. The problem with the argument seems to me to be that it founders on the facts of this case. I do not see that the Disposal Resolution or any of the contemporaneous documents upon which Mr Morgan sought to rely can alter the fact that it is quite clear that the Disposal was intentionally designed to leave nothing for the Beneficiaries so that, in turn, the creditors could be paid off, the Trusts could be terminated, and the First Defendant could acquire the Loan Assets free of the Trusts. I do not accept that there was any balancing or weighing up process, either as asserted or at all, so far as the interests of the Beneficiaries was concerned. This was simply not the way in which the Disposal was designed.

This point seemed to me to be brought out by a passage in Mr O’Shea’s evidence in cross examination where he postulated a situation in which the Loan Assets had been sold for a consideration which generated a surplus of £100,000 for the Beneficiaries. Mr O’Shea’s point was that this would have been more trouble than it was worth. The sum of £100,000 would not have been sufficient to fund the administration of the Trusts going forward. Nor would it have been possible, in terms of the administration costs, to appoint out this sum to around 2,000 Beneficiaries. The position would have been unworkable. The only viable course would have been to wind up the Trusts. I entirely follow the logic of this point. I can see that if the Loan Assets were only going to generate a small surplus for the Beneficiaries it would, or at least might have been reasonable for Pinotage PTC to take the view that the Disposal should go ahead as planned, because the anticipated surplus was likely to be insufficient to render any other course viable.

What however I cannot accept is that this was Mr O’Shea’s thinking at the relevant time. I do not accept that Mr O’Shea went through any such thought process at the time when the Disposal was planned and effected. I have already explained why I cannot accept the evidence of Mr O’Shea that he did, at the time of the Disposal, either carry out his own mental valuation process in relation to the Loan Assets or value the Loan Assets “at probably next to zero”. In my judgment, and I so find, the reality was that Mr O’Shea made the decision to confine the consideration payable on the Disposal to what he calculated as being due to the Second Defendant and Hatstone Jersey, regardless of what the Loan Assets were worth, and with the intention that there should be no surplus for the Beneficiaries, whatever the Loan Assets were worth.

Turning to the question of primary or dominant purpose, I do not think that it is possible, on the evidence in this case, to separate out paying the creditors, or terminating the Trusts as the primary or dominant purpose, with the leaving of no possible surplus for the Beneficiaries as a secondary or subsidiary purpose. On the evidence it seems to me, and I so find, that it is impossible to divide up the Disposal in this way. The reality was that the Disposal comprised one enterprise or purpose, with various moving parts, all of which were essential for the Disposal to work. The limitation of the consideration, to what was calculated to be due to the creditors, and the consequential exclusion of the interests of the Beneficiaries, were an essential part of the Disposal. Without these elements the Disposal, as designed and intended by Mr O’Shea, Mr. Emblin and Mr Reid, would not have worked. To put the matter another way, the exclusion of any benefit to the Beneficiaries was part and parcel of the payment of the creditors, and part and parcel of the termination of the Trusts, and vice versa.

I should also add that this seems to me to be so whether one considers the question of primary or dominant purpose simply as a question of purpose, or whether one considers the question by reference to a causative test of the kind identified by Mr Morgan. On both analyses it seems to me, on the evidence, that it is not possible to relegate the exclusion of the interests of the Beneficiaries to a subordinate purpose or to a lesser causative role or a non-causative role.

Drawing together all of the above discussion, and in answer to the first part of the second question in Grand View, I conclude, and find that the purpose or purposes for which the power of sale was, by the Disposal, exercised, was or were (i) to terminate the Trusts, (ii) to benefit the First Defendant by assignment of the Loan Assets to the First Defendant, free of the obligations of the Trusts, for a consideration limited by the Cap, (iii) to benefit the Second Defendant and Hatstone Jersey by paying off the sums calculated as being due to them, and (iv) to ensure that the consideration payable on the Disposal would leave no surplus for the benefit of the Beneficiaries. I will refer to this purpose or these purposes in the singular, for convenience, but it will be apparent that the purpose may more correctly be characterised as a set of purposes. I find that the situation was not one where Mr O’Shea considered that it was legitimate to exclude the interests of the Beneficiaries. I find that Mr O’Shea made the decision to confine the consideration payable on the Disposal to what he calculated as being due to the Second Defendant and Hatstone Jersey, regardless of what the Loan Assets were worth, and with the intention that there should be no surplus for the Beneficiaries, whatever the Loan Assets were worth. I find that the intention thus to exclude the Beneficiaries was a primary or dominant purpose and a primary or dominant cause of the Disposal. The intention to exclude the Beneficiaries was not a subordinate purpose or subordinate cause of the Disposal.

I turn therefore to the second part of the second question identified in Grand View, which also engages the first question identified in Grand View. Was the purpose for which the power of sale was exercised by the Disposal, as I have found that purpose to be, within the proper purpose or purposes of the power of sale contained in the Trusts? The answer to this question seems to me to come down to the question of whether Pinotage PTC was entitled to effect the Disposal on terms which concentrated on the interests of the creditors of the Trusts, and effectively excluded the interests of the Beneficiaries. This in turn seems to me to come down to whether the situation of the Trusts, as cash-flow insolvent trusts in all the circumstances as they existed at the time of the Disposal, justified such exclusion of the Beneficiaries or, putting the matter another way, justified departure from the general rule (see Lord Richards in Grand View at [120]), that fiduciary powers conferred on a trustee of a trust with identified beneficiaries must be exercised to further the interests of the beneficiaries.

In his closing submissions Mr Miall advanced the following four scenarios, for the purposes of considering the circumstances in which trustees could disregard the interests of beneficiaries.

Mr Miall summarised the position in the following terms. The interests of the beneficiaries in a trust can only be said to have dropped away entirely when it is inevitable that they no longer have an economic interest in the trust. In the third scenario, so it was submitted, such inevitability existed, and the interests of the beneficiaries could be disregarded. In the second and fourth scenarios, so it was submitted, such inevitability did not exist, and the interests of the beneficiaries could not simply be disregarded.

It seems to me that Mr Miall’s four scenarios provide a useful method for identifying, at least in general terms, the circumstances in which the interests of beneficiaries can be disregarded. The methodology also seems to me to be consistent with my own analysis of the law in this respect. Applying the Sequana approach, and subject to the point that the analysis is operating at a general level, it is only in the third scenario that the interests of the beneficiaries can be disregarded entirely.

The situation in the present case seems to me to have equated to Mr Miall’s fourth scenario. The Trusts were cash-flow insolvent, but the Trusts held assets, namely the Loan Assets, which (i) were illiquid, but (ii) might have substantial value.

In these circumstances, and in answer to the first question identified in Grand View, I cannot see how it can be said that a proper purpose of the power of sale contained in the Trusts was a purpose which effectively involved the exclusion of the Beneficiaries. I refer to my analysis of the relevant law in the relevant previous section of this judgment. Applying the relevant law, the situation was not one where the interests of the Beneficiaries could simply be disregarded in favour of the creditors. This however was what occurred. The value of the Loan Assets was unknown. The principal actors in relation to the Disposal, namely Mr Emblin, Mr Reid and Mr O’Shea did not know the value of the Loan Assets, but did know that the value of the Loan Assets might be substantial. They also knew that the purpose of the Disposal was to pay the creditors without leaving any surplus for the Beneficiaries, so that the Trusts could be terminated. All this follows from the findings which I have already made. The interests of the Beneficiaries were disregarded in the Disposal or, putting the matter another way, the interests of the Beneficiaries were effectively excluded from the Disposal. This would have been justifiable, if there had been no light at the end of the tunnel, and it was clear that the value of the Loan Assets was not going to be adequate to do more than meet the sums owed to creditors. This was not however the position. No one knew what the Loan Assets were worth. What was known by the principal actors (Mr Emblin, Mr Reid and Mr O’Shea) was that the value of the Loan Assets might be substantial.

Pausing at this point in my analysis, I have reached the following conclusions. I have concluded, in my previous paragraph and in answer to the first question identified in Grand View, that a purpose which effectively involved the exclusion of the Beneficiaries was not a proper purpose of the power of sale contained in the Trusts. I have also concluded, in answer to the first part of the second question identified in Grand View, that the purpose or set of purposes for which the power of sale was, by the Disposal, exercised comprised or included the effective exclusion of the Beneficiaries as a primary or dominant purpose. This leaves the second part of the second question in Grand View, which is whether the purpose of the Disposal, as I have identified this purpose, fell outside the purpose or purposes for which the power of sale was conferred. Applying the conclusions which I have already reached, the answer to the second part of the second question in Grand View seems to me to follow inexorably from my answers to (i) the first question in Grand View and (ii) the first part of the second question in Grand View. The purpose of the Disposal, as I have identified the same, did fall outside the purposes for which the power of sale was conferred.

In summary therefore, and in answer to the first question identified in Grand View, and in answer to the second part of the second question identified in Grand View I conclude (i) that a disposal for a purpose which involved the exclusion of the interests of the Beneficiaries was not, in the circumstances as they existed at the time of the Disposal, a proper purpose of the power of sale contained in the Trusts, and (ii) that the Disposal, which was a disposal for a purpose which involved the exclusion of the interests of the Beneficiaries, was effected for a purpose which fell outside the permitted purposes of the power of sale contained in the Trusts.

In summary, and for the reasons which I have set out in the relevant previous sections of this judgment, I reach the following conclusions, in relation to the question of whether the Disposal was effected for an improper purpose:

I therefore conclude that the Disposal was effected for an improper purpose.

I have concluded that the Disposal was effected for an improper purpose. This means that the issues consequential upon this conclusion arise for decision. The first of these issues is whether the First Defendant can say that it was a bona fide purchaser for value of the Loan Assets without notice of the relevant breach of trust; namely that the Disposal was effected for an improper purpose.

I note at the outset that the burden is upon the First Defendant to establish that it was a bona fide purchaser for value of the Loan Assets without notice of the relevant breach of trust; namely that the Disposal was effected for an improper purpose; see Foxton J in The Serious Fraud Office v Litigation Capital Limited [2021] EWHC 1272 (Comm), at [149]-[150].

As I have already explained, there are three broad sub-issues to resolve in this context. The sub-issue which I will take first is the question of whether the First Defendant is able to say that it was a bona fide purchaser, within the concept of a bona fide purchaser for value without notice. The argument is that the First Defendant could not have been a purchaser (the argument does not appear to go to the question of whether the First Defendant was bona fide) because there remained, at the commencement of this action, a contingent liability to pay the Deferred Consideration under the relevant SPAs. It will be recalled that the First Defendant objected to this argument being raised because, so it was submitted, it had not been pleaded. I will refer to this argument as “the Purchaser Argument”.

The first question to deal with in this context is therefore whether the Purchaser Argument is actually pleaded. The relevant statement of case in this context is the Claimants’ Reply to the Amended Defence of the First Defendant. The relevant paragraph of this Reply is paragraph 36. It is sufficient, for present purposes, to concentrate upon the opening part of paragraph 36 and paragraph 36.1, which state as follows:

Mr Miall contended that this was sufficient to raise the issue that the First Defendant was not a purchaser. Paragraph 36.1 pleaded in terms that the First Defendant was not a bona fide purchaser, and the facts in support of this pleading were set out in the Reply. Without prejudice to this position, the proposed amendment to paragraph 36.1 (in case it was required), which Mr Miall produced in the course of his closing submissions, read as follows:

In my view the bald pleading, in paragraph 36.1 of the Reply, that the First Defendant was not a bona fide purchaser was insufficient properly to plead the argument (the Purchaser Argument) that the First Defendant was not a purchaser by reason of the fact that there remained a contingent liability to pay deferred consideration pursuant to the SPAs. What is currently pleaded in paragraph 36.1 gives no inkling that this is the specific argument relied upon by the Claimants in this context. Indeed, a natural reaction to this part of paragraph 36.1 is that it is taking the point that the First Defendant was not acting bona fide. The Purchaser Argument is not an obvious one, and raises some difficult issues. In my judgment the Purchaser Argument required, both as a matter of fairness to the First Defendant and as a matter of what is required in terms of the pleading of a statement of case, clear articulation in the Reply. There was no such clear articulation of the Purchaser Argument in the Reply. Indeed, it seems to me that the Purchaser Argument was not identified at all in the Reply.

This was illustrated by the fact that it was quite apparent that the First Defendant was unaware that the Purchaser Argument was being deployed until the trial itself. The First Defendant’s skeleton argument for the trial did not deal with the Purchaser Argument. On the Claimants’ side, and so far as I am aware, the Purchaser Argument first surfaced in the Claimants’ skeleton argument for trial. So far as I could see, the First Defendant was taken by surprise by the Purchaser Argument. If that was the position of the First Defendant, and it appeared to me that it was, it was an understandable position. I have not seen anything, either in the Reply or elsewhere, which would have alerted the First Defendant to the fact that the Purchaser Argument was on the way. It is also instructive to consider the terms of the proposed amendment of paragraph 36.1. The amendment is short, but articulates the argument. Paragraph 36.1 does not. In closing submissions Mr Miall argued that the facts on which the argument was based were pleaded in the Reply and that these facts, combined with the contention that the First Defendant was not a bona fide purchaser, were sufficient by way of pleading. In the context of this particular argument, I cannot accept that what was pleaded was sufficient. As Mr Morgan fairly submitted, pleadings are not supposed to be a guessing game. In my view paragraph 36.1 needed to plead the reason why the First Defendant was said not to have been a bona fide purchaser.

I therefore conclude that the Purchaser Argument required to be pleaded in the Reply, but was not pleaded in the Reply. As such, I also conclude that the Claimants can only pursue this argument if they can obtain permission to amend paragraph 36.1 of the Reply. I have already set out above the terms of the amendment to paragraph 36.1 for which permission is sought.

I have concluded that permission should not be granted for this amendment. I have come to this conclusion for what are, essentially, three reasons.

First, the application to amend is made very late. The application was made by Mr Miall at the conclusion of his closing submissions, at the end of the penultimate day of the trial. The application was made informally. I did not require a formal application notice to be issued, and I do not attach any importance, in the circumstances of this case, to the absence of a formal application notice, notwithstanding that I would normally have insisted upon the issue of such an application notice. The important point is that the application was made very late.

Second, the lateness of the application was unexplained. In this context it was particularly significant that the experts (Advocate Passmore and Advocate Gleeson) had not been asked to address the Purchaser Argument in their expert evidence. By contrast the experts were asked to address, and did address at some length the legal issues concerning what would have been required, by way of notice, for the First Defendant to be fixed with notice that the Disposal was being made in breach of trust. These notice issues also figured prominently in the cross examination of the experts. There was no cross examination of the experts on the Purchaser Argument. If the Claimants’ view was that the Purchaser Argument had been adequately pleaded from the outset, and if the Claimants had always intended to run this argument, I find it odd that it was never identified as an argument for the experts to consider. In closing submissions Mr Morgan voiced the suspicion that the argument had only recently been thought of. I am in no position to know whether or not this suspicion is well-founded. The relevant point is that I have no explanation of why the Purchaser Argument does not appear to have been articulated to the Defendants at any time prior to the Claimants’ trial skeleton argument.

Third, I think that there is some prejudice to the First Defendant, and to the court caused by the lateness of the application to amend. In opening submissions at the trial Mr Morgan accepted that the Purchaser Argument, which he had by then seen in the Claimants’ trial skeleton argument, raised a pure point of law. I took this to be a concession that the argument did not raise matters which needed to have been investigated in the evidence. In closing submissions however Mr Morgan made the point that if the First Defendant had known of the Purchaser Argument prior to trial, it would have raised this issue for consideration by the experts. As I have already noted, this did not happen. It seems to me that this was a point on which Mr Morgan was entitled to row back from the position which he had adopted in opening submissions, particularly in circumstances where the application to amend was not made until the closing submissions. What the experts would have had to say in relation to the Purchaser Argument is unknown. The argument was not investigated with them, either prior to or at trial. In his closing submissions in reply, Mr Miall suggested that it was unlikely that the experts would have had anything material to say in relation to this argument, given their general position that Jersey law looks to English law in relation to doctrines of equity such as the bona fide purchaser for value without notice. Mr Miall’s essential point was that Jersey law in relation to the Purchaser Argument was unlikely to be different to English law, with the consequence that the expert evidence of the Advocates was unlikely to add anything.

Mr Miall may very well have been correct on this point, but this is speculation on my part. The relevant point is that I do not know what the experts would have had to say in relation to the Purchaser Argument. They might have agreed that the position in Jersey law was the same as in English law. They, or one of them might have had material evidence to give in relation to Jersey law, which might have been of assistance to me in resolving an argument which, at least so far as English law is concerned, raises a difficult issue. The reason I am forced to speculate on this point is because the Purchaser Argument was only raised at trial, and was only the subject of what I have decided was a required application to amend in the course of closing submissions, at the end of the trial. This position seems to me to be one which causes prejudice to the First Defendant, which has not had the opportunity to raise the Purchaser Argument with the experts, and also the court, given that I have not had the opportunity to receive the assistance of the experts, such as it might have been, in considering the Purchaser Argument.

The fact that an application to amend is made at a late stage of an action is not normally, in itself, sufficient to justify the refusal of permission to amend. In the present case however it seems to me that the lateness of the application, when combined with the other factors which I have identified does justify the refusal of permission to amend. Accordingly, I refuse the Claimants’ application to amend paragraph 36.1 of the Reply to the Amended Defence of the First Defendant. It follows that the Claimants are not entitled to pursue their argument that the First Defendant was prevented from being a bona fide purchaser for value without notice by reason of the fact that there remained, at the commencement of this action, a contingent liability to pay deferred consideration under the SPAs.

The refusal of permission to amend means that it is not necessary to decide the Purchaser Argument. I did however hear argument on the Purchaser Argument, without prejudice to the question of whether permission to amend should be granted, and I was referred to a number of legal authorities. Mr Morgan did also submit that permission to amend should be refused because, so he submitted, the merits of the Purchaser Argument were too poor to justify the grant of permission to amend. I would not have been prepared to refuse permission to amend on this ground. As I have said, the Purchaser Argument does seem to me to raise a difficult, and arguable issue which, if there had not been other reasons for refusing permission to amend, would have justified the grant of permission to amend. Indeed, the difficulty of the Purchaser Argument was the principal reason why it seemed to me material that the experts had not had the opportunity to consider the Purchaser Argument as a matter of Jersey law.

Given that I have heard argument on the Purchaser Argument, and while this is not strictly necessary given my refusal to grant permission to amend, I will, as briefly as possible, state my view on the Purchaser Argument. Given that I have not heard from the experts on the Purchaser Argument, I express my view as a matter of English law. It may be that the answer would be the same as a matter of Jersey law, but I do not have to decide this, given my decision on the application for permission to amend and, in any event, I do not think that it is sensible to decide this in circumstances where the experts have not been given the opportunity to consider the Purchaser Argument.

The proposition that the relevant consideration must be paid in full, if the defence of bona fide purchaser for value without notice is to be relied upon, is one which can be found in the textbooks; see Lewin on Trusts (20^th Edition) at 44-120, Megarry & Wade: The Law of Real Property (9^th Edition) at 5-008, and Snell’s Equity (34^th Edition) at 4-027.

The relevant propositions are stated in each of the textbooks (with the accompanying footnote also included in the quotation) in the following brief terms:

As can be seen, the propositions relied upon in support of the Purchaser Argument in the present case are themselves all based on two 18^th Century cases and, more recently, Taylor Barnard v Tozer [1984] 1 EGLR 21.

Taylor Barnard concerned a claim for specific performance of an agreement alleged to have been created by the exercise of an option to purchase in a lease. The claim was made by the tenant under the relevant lease, which was the plaintiff company in the case, and was the tenant by assignment of the lease. The defendant landlords claimed rectification of the option clause in the lease, on the basis that the option clause should in fact have been a pre-emption clause. One of the issues in the case was whether the assignee tenant of the lease (the plaintiff) was bound by the claim for rectification, as it was not the original tenant under the lease. The claim for rectification failed, which rendered it unnecessary to decide whether the plaintiff, as assignee of the lease, was bound by the rectification claim (the equity to rectify). The judge (Judge Thomas sitting as a Judge of the High Court) did however briefly express his opinion on this question. The judge said this, at 22F-G:

Returning to Tourville v Naish (1734) 3 P. Wms. 307, the report of the decision is only a brief one. According to the report the case concerned the purchase of an estate by A. A, who appears to have been the defendant in the case, paid part of the purchase money, but gave a bond for the remainder of the purchase money. The plaintiff had an equitable lien over the purchased premises, of which the defendant claimed to have had no notice at the time of the purchase. The defendant did become aware of the lien before payment of the money due on the bond. According to the report, Lord Chancellor Talbot decided that if a person, who had a lien in equity over the premises, gave notice before actual payment of the purchase money that was sufficient to fix the purchaser with notice of the lien.

The report of Story v Windsor (1743) 2 Atk 630 is also very brief. It does however appear to have been decided in this case that a purchaser could not deny that he had received notice of an equitable interest before paying the purchase money. The following extract from the report appears to be most relevant:

The point made by Mr Morgan, in answer to the Purchaser Argument, was that the cases to which I have referred can be distinguished. His argument was that there is a distinction to be drawn between (i) a case where a purchaser fails to pay, on completion, the entirety of the price agreed to be paid for the relevant land and (ii) a case where the price to be paid on completion contains an element of that price which is agreed to be deferred, under the terms of the relevant contract for the purchase of the relevant land, and may only be payable (as in the present case) if a particular contingency is realised. In the former case the purchaser cannot claim to be a purchaser without notice unless and until the purchase price has been paid in full. In the latter case the purchaser can, as from completion, claim to be a purchaser without notice, notwithstanding that part of the purchase price is agreed to be deferred. In support of this argument Mr Morgan referred me to two cases which establish that where the agreed consideration for a purchase is a bond securing future payment or an annuity, the consideration is correctly treated as the bond or annuity, and not as the sums payable under the bond or annuity; see Parrott v Sweetland (1835) 3 MY & K 656 and Buckland v Pocknell (1843) 13 Sim 406.

In response to this argument Mr Miall contended that there was no sensible basis, either on the basis of the authorities or in principle, for drawing a distinction between the position of a purchaser who has failed to pay part of what is due by way of the purchase price, and a purchaser who has paid only part of the purchase price by reason of an agreement to defer part of the purchase price. In each case the purchase price has not been paid in full, and the purchaser cannot claim to be a bona fide purchaser for value without notice until the purchase price has been paid in full.

So far as the authorities are concerned, they seem to me to provide only slender support for Mr Miall’s argument. The textbook commentaries which I have quoted above are too brief to address the question of whether the distinction contended for by Mr Morgan exists. Turning to the case law, I start with Taylor v Barnard. It is important to note the facts of that case. The plaintiff company received notice of the rectification claim after it had contracted to take an assignment of the lease, but before completion of the assignment and payment of the purchase price. Given these facts it seems to me that it was clear that the plaintiff could not be a purchaser without notice. At the time when the plaintiff was put on notice of the rectification claim, it had not paid the purchase price at all, because completion of the contract had not taken place. This seems to me to be a very different position to a case where the purchase price has only been paid in part. In my view Taylor v Barnard is not properly treated as authority for the proposition that a person cannot be a purchaser for value in circumstances where only part of a purchase price has been paid.

Turning to Story v Windsor, the report of the case which I have seen renders it difficult to treat the case as authority which supports the Purchaser Argument. This leaves Tourville v Naish. The problem with Tourville v Naish is that the critical facts in the case do not seem to me to be clear from the report. It is not clear whether the bond which secured the unpaid residue of the purchase price was given (i) because the plaintiff was liable to pay the entire purchase price on completion, but could not pay the relevant part of the purchase price and secured an agreement to defer payment on the security of the bond, or (ii) because it had been agreed from the outset that the relevant part of the purchase price would not be payable on completion, but on a later date, secured by the bond.

Looking at the question as a matter of principle, I am bound to say that I find it very odd that a person cannot claim to be a purchaser without notice simply because the relevant purchase may, by agreement, include a term that payment of part of the purchase price is to be deferred beyond completion of the purchase. This is all the more so in circumstances where, again by agreement, some security is put in place, on completion of the purchase, for payment of the deferred part of the purchase price. In this latter situation, it seems to me that Mr Morgan was right to submit that the reality of the position is that the relevant part of the purchase price is constituted by the security, not payment of that which is secured by the security.

Agreements for the sale and purchase of land which involve deferring part of the purchase price beyond the date of completion are common. An obvious example of such an agreement is one which includes an overage clause. What is payable pursuant to the overage clause is usually uncertain, and depends upon future contingencies. The time for payment, if the contingency is satisfied, may lie a long way in the future. Indeed, the present case may be said to be an example of a species of overage clause, given that the Deferred Consideration, subject to the Cap, only fell to be paid out of any profits realised from the Loan Assets. I have difficulty in understanding why a purchaser who pays what is due by way of the purchase price on completion, is prevented from being a purchaser for value without notice, simply because the relevant contract for the purchase of the relevant land includes some provision for deferral of part of the purchase price, whether a simple agreed deferral of part of the purchase price or an overage provision the effect of which depends upon a future contingency.

In my view the propositions stated in Lewin, Snell and Megarry & Wade, which I have cited above, are correctly seen as being confined to situations where the purchaser fails to pay all that is due, at the time of completion, by way of the purchase price. In my view these propositions do not extend to a case, such as the present case, where there is an agreed deferral of part of the purchase price to a time after completion of the relevant purchase price. Provided that the purchaser pays what is due on completion, it seems to me that the purchaser should, as from the date of completion, be entitled to claim the status of a bona fide purchaser for value without notice, assuming that the other conditions for claiming this status are satisfied.

In conclusion, if I had been minded to grant permission to amend to the Claimants, so as to permit the Claimants to advance the Purchaser Argument, I would have rejected the Purchaser Argument. I would have decided that the First Defendant was not prevented from claiming the status of a bona fide purchaser for value of the Loan Assets without notice by reason of the fact that the SPAs provided for part of the consideration payable for the Loan Assets to be deferred on the contingent basis set out in the SPAs.

For the sake of completeness, I should mention that the Claimants’ trial skeleton argument raised a further argument, additional to what I have called the Purchaser Argument. This further argument was that the First Defendant was not a purchaser for value because the consideration which was payable on the Disposal itself comprised the sum of £100,000, which had been paid by Slap 8 long before the time of the Disposal. As such, so the Claimants’ argument ran, this was not material consideration. It was in truth past consideration, which was not paid by the First Defendant and which derived from a different transaction. This particular argument was not however, as I understood the position, pursued either in the expert evidence or in closing submissions. Applying my reasoning in relation to the Purchaser Argument, an amendment of the Reply to the Amended Defence of the First Defendant would have been required, in order to allow this particular argument to be advanced. The draft amendment to paragraph 36.1 which was produced in the course of closing submissions did not however include this particular argument. In these circumstances I say no more about this particular argument, which I take to have been abandoned.

This then brings me on to the main battleground between the parties in this context, which was the question of whether the First Defendant had notice of the breach of trust, namely that the Disposal was being made for an improper purpose, at the date of the Disposal. This generated a substantial dispute over what type of notice was required, in order to have put the First Defendant on notice of the breach of trust. This raised, in turn, two questions. The first was whether such notice needed to be actual notice or could include constructive notice. The second was as to what types of knowledge were included within the concepts of actual notice and constructive notice.

So far as notice is concerned, there are three types of notice by which a purchaser may be affected; see Snell, at 4-027. They are (i) actual notice, where the relevant equity is within the knowledge of the purchaser, (ii) constructive notice, where the equity would have come to the knowledge of the purchaser if proper inquiries had been made, and (iii) imputed notice, where the agent of the purchaser in the course of the relevant transaction, acting as such, had actual or constructive notice of the equity. In the present case imputed notice is not in issue. In relation to the Disposal the First Defendant was represented, principally, by Mr Reid and Mr Emblin. I did not understand it to be in dispute that, for the purposes of considering the question of notice, the persons whose knowledge and state of mind were relevant, depending upon the type of notice required, were Mr Reid and Mr Emblin. If and insofar as I may have misunderstood the position in this respect, I find that the question of whether the First Defendant had notice that the Disposal was made for an improper purpose falls to be answered by reference to the knowledge and state of mind of Mr Reid and Mr Emblin at the time of the Disposal, as the principal persons acting on behalf of the First Defendant in relation to the Disposal.

More specific guidance on what knowledge is required, for the purposes of actual notice and constructive notice can be found in the judgment of Sir Robert Megarry V-C in Re Montagu’s Settlement Trusts [1987] 1 Ch 264, at 277D-F:

Notwithstanding what was said by Sir Robert Megarry in this extract, concerning the knowledge required to show actual notice, counsel were agreed that, as a matter of English law, actual notice comprised the first three of the Baden categories identified in the extract above; namely (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make. As I understood matters, this agreed position had been reached on the basis of the analysis of Stephen Morris QC (sitting as a Deputy High Court Judge, as he then was) in Armstrong DLW GmbH v Winnington Networks Ltd [2012] EWHC 10 (Ch) at [111]-[123]. I also note that the editors of Lewin discuss the requirements of actual notice in these terms, at 44-126:

The parties were however in dispute as to whether this agreed position, as a matter of English law, was the same in relation to Jersey law. The First Defendant argued that, under Jersey law actual notice comprised, and only comprised Baden category (i); that is to say actual knowledge.

The other key issue between the parties, in terms of what was required by way of notice, was whether the case was one where actual notice was required or whether the case was one where either actual notice or constructive notice would be sufficient. On this issue and on the issue of what knowledge, as a matter of Jersey law, was required for actual notice, I read and heard a good deal of evidence from the experts and a good deal of argument from counsel.

I will take first the second of these issues, which occupied the lion’s share of the argument in this part of the case. The issue derives from various provisions of the 1984 Law (the Trusts (Jersey) Law 1984) which deal with notice. The first of these provisions is Article 33, which provides as follows:

There is then Article 54, which provides as follows:

Finally, there is Article 55, which provides as follows:

As can be seen, Article 55(1) provides protection for a bona fide purchaser for value who is without actual notice of a breach of trust. Article 54(3) provides protection in relation to a claim to recover trust property where a bona fide purchaser for value is without notice of the breach of trust, or is a person deriving title through such a purchaser. In the case of Article 54(3) any notice is sufficient. In the case of Article 55(1), the notice must be actual notice. Given the language of each Article, there is no obvious way of drawing a dividing line between claims which are within Article 54(3) and claims which are within Article 55(1). A case in point is the present case. So far as notice is concerned, is the position of the First Defendant governed by Article 54(3) or Article 55(1)? Is it sufficient for the First Defendant to demonstrate that it had no actual notice of the breach of trust, or must the First Defendant demonstrate that it had no notice of the breach of trust of any kind; actual or constructive?

Mr Miall contended that Article 54(3) was concerned with proprietary claims, while Article 55 was concerned with personal liability for breach of trust. He drew my attention to certain provisions of the Turks and Caicos Islands Trusts Ordinance (25 of 1990, as amended as at 1998), which he submitted had the same architecture as Articles 33, 54 and 55 of the 1984 Law and, by reason of what he submitted was their clearer drafting, brought out more clearly the distinction which he sought to draw between Articles 54(3) and 55(1). Mr Miall also referred me to what was said by Sir Robert Megarry in Re Montagu’s Settlement Trust, at 276B-D and 277G, again in support of his distinction between proprietary claims and personal liability for breach of trust.

For his part Mr Morgan disputed that this distinction existed. His argument was that Article 55(1) qualifies the provisions of Article 33 and Article 54(3). In the case of a person dealing with a trustee who is a bona fide purchaser for value, that person is protected unless he has actual notice of a breach of trust.

I prefer the argument of Mr Morgan on this issue. Although, as I have said, I have read and heard a great deal of argument on this issue, and a good deal of expert evidence from the Advocates, I can express my reasons for this decision fairly briefly. In doing so I intend no disrespect to counsel or the Advocates. I have taken all of the arguments and evidence into account, but I do not regard a detailed review of these arguments and evidence to be necessary.

The starting point is that I am concerned with the construction of a statute. There was no authority identified to me which deals with this particular issue. In his addendum report, Advocate Passmore helpfully confirmed that Jersey law would approach the construction of a statute in the same way as English law. There is therefore no special rule of construction, particular to Jersey law, which needs to be applied.

While the reference to similar provisions in the Turks & Caicos legislation was interesting, I think that it is very difficult to draw any reliable conclusions from that legislation as to the meaning of the legislation of another jurisdiction. I am inclined to agree with the following blunt summary of the position provided by Mr Morgan in his closing submissions:

Ultimately therefore, I have to consider the language of Articles 54(3) and 55(1), and to give effect to that language, as best I can. It seems clear to me that the purpose of Article 55(1) was to provide protection to persons dealing with a trustee in relation to trust property. This was achieved in four ways. First, such protection was provided to bona fide purchasers. Second, such protection allowed the relevant person to deal with the trustee in relation to trust property, as if the trustee was the beneficial owner of the trust property. Third, such protection was made available to the bona fide purchaser for value without actual notice. The reference was not to any kind of notice, and clearly did not mean any kind of notice, given the difference in language in this respect between Article 55(1) and Article 54(3). The reference was to actual notice. Fourth, such protection was made available to anyone having dealings with a trustee in relation to trust property. The words “deal with” are very wide and, as it seems to me, are capable of applying to a wide variety of transactions and situations.

One can see good reason why an offshore jurisdiction such as Jersey might think it right to give a relatively high level of protection to persons dealing with trustees in relation to trust property, and might think it right to help in achieving this by requiring actual notice of the breach of trust, as opposed to any notice. Indeed, Article 55 is cited as an example of this kind of approach in various jurisdictions in Panico; International Trust Law (2^nd Edition) at page 407.

By contrast, I cannot see how Article 55(1) can be said to be confined to situations of personal liability only. This is not what Article 55(1) says. It is widely drafted, and contains nothing which, in my view, can be relied upon as confining Article 55 to situations of personal liability for breach of trust only. It seems to me that if the language of Article 55(1) is to be given proper effect, as it must be, it falls to be construed as qualifying the provisions of Article 54(3) and Article 33. I agree with the point made by Advocate Passmore that if Article 55(1) is not read in this way, but is treated as giving way, effectively, to the lesser requirement of notice in Article 54(3), the protection which Article 55(1) was intended to confer on persons dealing with trustees in relation to trust property would seriously be undermined.

I accept that this construction of Article 55(1) does not sit easily with the provisions of Article 33 and Article 54(3). Given the width of the language in Article 55(1) it is not easy to see in what situations Article 33 and Article 54(3) will apply. In particular, in relation to the operation of Article 54(3), it seems inevitable, at least in most cases, that the bona fide purchaser for value referred to therein will be a person who has dealt with the trustee, within the meaning of Article 55(1). If the First Defendant is right in its argument, the requirement of actual notice in Article 55(1) must trump the requirement of notice in Article 54(3). Ultimately however I come back to the point that I cannot see how the language of these Articles allows one to draw the distinction between personal and proprietary claims which Mr Miall seeks to draw, either by reference to the language of these Articles, or by reference to the statutory provisions of another jurisdiction, or by reference to English trust law such as the analysis of Sir Robert Megarry in Re Montagu’s Settlement.

I therefore conclude that the First Defendant is right on this particular issue. Article 55(1) qualifies the provisions of Article 33 and Article 54(3). In the case of a person dealing with a trustee who is a bona fide purchaser for value, that person is protected unless he has actual notice of a breach of trust. This protection is not confined to situations of personal liability for breach of trust.

Applying this conclusion to the present case, it seems to me that the present case is clearly one where Article 55(1) applies. The First Defendant was a party which dealt with the trustee of the Loan Assets and, as I have decided, was a bona fide purchaser for value of the Loan Assets. As such, and applying my construction of Article 55(1), the First Defendant was entitled to deal with the trustee (Pinotage PTC and/or the Second Defendant in the case of the 2014 Trust) on the basis that it was the beneficial owner of the Loan Assets and without being affected by the fact that the Disposal was made in breach of trust, provided that the First Defendant can demonstrate that it had no actual notice of the breach of trust.

This leaves the shorter of the two issues concerning the type of notice required; namely whether actual notice includes Baden categories (ii) and (iii), as a matter of Jersey law. In this context Mr Morgan relied upon a decision of the Jersey Royal Court, Midland Bank Trust Company v Federated Pensions [1994] JLR 276, in which, so he submitted, the Jersey Royal Court had approved what was said by Sir Robert Megarry in Re Montagu Settlements, concerning actual notice being confined to actual knowledge; see the report of the case at pages 296 and 297. The Midland Bank case subsequently went on appeal, but the particular part of the decision to which I have just referred was left unaffected by the decision of the Jersey Court of Appeal. I was also referred, in this context, to the extract from Panico; International Trust Law, at 7.116, which I have already cited in the context of Article 55 of the 1984 Law. Mr Morgan relied upon the Panico extract as explaining the commercial justification behind Jersey law adopting a narrow classification of actual notice.

I was not persuaded that Jersey law differs from what the parties agree to be the position under English law in this respect. So far as the Midland Bank case is concerned, I do not think that the reference to Re Montagu’s Settlement in that case can be taken as establishing any rule or principle of Jersey law that actual notice is confined to actual knowledge. I accept the point made by Mr Miall; namely that the relevant issue which was being considered, in the part of the decision upon which the First Defendant seeks to rely, was the question of whether the trustee could take advantage of a trustee exoneration clause in the trust deed, which stated that the trustee would not be liable for “anything whatever other than a breach of trust knowingly and wilfully committed”. It was in this context that the court, at pages 296 and 297 of the report, cited Sir Robert Megarry’s discussion of the Baden categories in Re Montagu’s Settlement. The court was not concerned with the meaning of actual notice in the context of the defence of bona fide purchaser for value without notice. I agree with Mr Miall that Midland Bank is not authority for the proposition that actual notice is confined to Baden category (i).

Nor do I consider that Panico assists on this particular point. One of the general points established by the expert evidence of the Advocates was that Jersey trust law, as a general rule, follows English trust law, unless Jersey statute or case law points to a different position. In the context of this particular issue, namely the content of actual notice in Jersey law, I cannot see any basis for departing from the agreed position under English law, namely that actual notice comprises the Baden categories (i), (ii) and (iii). By way of reminder, that means (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; and (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make.

I therefore conclude that the knowledge required for actual notice, as a matter of Jersey law comprises Baden categories (i), (ii) and (iii); that is to say (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make.

I turn now to the facts of the present case. Applying the conclusions which I have already reached in this section of my judgment, the First Defendant was, by the Disposal, a bona fide purchaser for value of the Loan Assets. The First Defendant will not have been affected by the fact that the Disposal was (as I have found) made in breach of trust, if the First Defendant can demonstrate that it had no actual notice of this breach of trust. Actual notice means that the First Defendant either had actual knowledge of the breach of trust, or wilfully shut its eyes to this fact, or wilfully and recklessly failed to make such inquiries as an honest and reasonable man would have made. The First Defendant’s knowledge and state of mind at the relevant time can and should, in my judgment, be taken as the knowledge and state of mind of Mr Emblin and Mr Reid at the relevant time.

I have already made a number of findings in relation to Mr Emblin and Mr Reid, in my discussion of whether the Disposal was made for an improper purpose. In particular, I have made the following findings:

Other findings follow from these findings and from what was conceded by Mr Emblin and Mr Reid in cross examination. First, at the time of and prior to the Disposal, Mr Emblin and Mr Reid also knew or must be taken to have known that there was a real possibility that the Beneficiaries still had an economic interest in the assets in the Trusts. Second, at the time of and prior to the Disposal, Mr Emblin and Mr Reid also knew or must be taken to have known that the interests of the Beneficiaries were being disregarded in the Disposal, in the sense that, if the Beneficiaries did have any economic interest in the assets in the Trusts, this would not be reflected in the terms of the Disposal.

Mr Morgan sought to argue that Mr Emblin and Mr Reid had no reason to think, at the time of the Disposal, that the Disposal was being made for an improper purpose. His argument was that Mr Emblin and Mr Reid were entitled to take the view, and were in fact advised that it was legitimate to put the interests of the creditors first. On the facts of this case, I cannot accept this argument. It seems quite clear to me (and I so find), both from the evidence of Mr Emblin and Mr Reid and from the evidence of the contemporaneous documents, that neither Mr Emblin nor Mr Reid was or could have been satisfied that it was legitimate to disregard the interests of the Beneficiaries. The reality was that Mr Emblin and Mr Reid, in concert with Mr O’Shea, designed the Disposal in a way which would achieve what they wanted to achieve; namely payment of the creditors and termination of the Trusts. The history of their dealings together demonstrates that they were looking for ways to justify their design of the Disposal, but I do not accept that any of them, at the time of the Disposal, considered that they had achieved a position where it was clear that the interests of the Beneficiaries could be disregarded in the Disposal.

Mr Morgan also argued that actual knowledge required evidence of knowledge on the part of Mr Emblin and Mr Reid that the Disposal was being made in breach of trust. In this context Mr Morgan argued that the allegation that Mr Emblin and Mr Reid had this knowledge, or any such knowledge falling within the first three Baden categories was a serious matter, which should have been put to Mr Emblin and Mr Reid in cross examination, but had not been. Mr Miall had two answers to this point. He contended, first, that what was required was knowledge of the facts which constituted the legal wrong in question, not knowledge that those facts did constitute the relevant legal wrong. As to the relevant facts, Mr Miall submitted that there had been proper cross examination. Second, he pointed out that the burden of proof in relation to this part of the case rested upon the First Defendant, so that it was for the First Defendant to prove, if it could, that Mr Emblin and Mr Reid had been unaware that the Disposal was being made in breach of trust, assuming that this was the level of knowledge required to constitute notice. Mr Miall contended that evidence of this kind had not been given by Mr Emblin and Mr Reid, with the consequence that there was nothing to challenge in cross examination in this respect.

On the question of whether and, if so, when it is appropriate to impute the legal consequences of facts to a party who is aware of the relevant facts, there is useful guidance to be found in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347 [2012] Ch 453, at [102]-[108]. It is clear that such knowledge is not automatically to be imputed to a party. In the present case, it must also be kept in mind, in relation to the guidance in Sinclair, that I have decided that actual notice of the breach of trust was required. Constructive notice will not have been sufficient.

In the particular circumstances of the present case however I cannot see that the First Defendant can claim to have had no knowledge of the breach of trust, within the terms of the first three Baden categories. I say this for two related reasons.

First, it seems to me that Mr Miall is right to draw attention to the fact that the burden is upon the First Defendant to establish that the First Defendant did not have actual notice of the breach of trust. The evidence of Mr Emblin and Mr Reid was not presented on the basis that, while they may have known of the facts which constituted the breach of trust, they were unaware that those facts constituted a breach of trust. In those circumstances I find it difficult to see how Mr Miall can be criticised for cross examining Mr Emblin and Mr Reid on the basis of their knowledge of the facts which, as I have decided, constituted the breach of trust. Ultimately, I do not consider that it has been established, on the evidence, that this is a case where Mr Emblin and Mr Reid, despite being aware of the facts which constituted the breach of trust, were ignorant of the fact that these facts constituted a breach of trust.

Second, I am not convinced that the facts of the present case justify the separation which Mr Morgan sought to make between the facts which constituted the breach of trust, and the breach of trust itself. This does not seem to me to be a case of wilful shutting of eyes or of wilful and reckless failure to make such inquiries as an honest and reasonable man would have made. The reason for this is that the eyes of Mr Emblin and Mr Reid were not shut, and there was no need to make the inquiries. I refer back to my findings on the question of whether the Disposal was made for an improper purpose, and to the narrative section of this judgment. It is clear from all the evidence that Mr Emblin and Mr Reid, on the one side, and Mr O’Shea, on the other side, did not deal at arm’s length, as would have been the case in a normal sale transaction. Instead, as I find, Mr Emblin, Mr Reid and Mr O’Shea collaborated in the design of the Disposal and, in particular, in the design of the components of the Disposal which resulted, as I have found, in the Disposal being made for an improper purpose. Given this position, I think that Mr Miall was right in his submission that, at least on the facts of the present case, the actual knowledge which the First Defendant, by Mr Emblin and Mr Reid, was required to possess, in order to be fixed with actual notice, was knowledge of the facts which constituted the impropriety of the Disposal, as opposed to knowledge that the impropriety was, as a matter of Jersey law, a breach of trust.

One can test the matter this way. I have found that Mr Emblin and Mr Reid, in concert with Mr O’Shea, designed the Disposal in a way which would achieve what they wanted to achieve; namely payment of the creditors and termination of the Trusts. I have found that Mr Emblin and Mr Reid could not have been satisfied and were not satisfied that it was legitimate to disregard the interests of the Beneficiaries in this way. Given this state of knowledge it strikes me that it would have been perverse, if this had been the evidential position, that the First Defendant could have escaped being affected by the breach of trust which resulted from the design of the Disposal, on the basis of evidence from Mr Emblin and Mr Reid that they did not know that their design of the Disposal would constitute a breach of trust under Jersey law.

I therefore conclude, on the evidence in this case, that the First Defendant has failed to discharge the burden of demonstrating that it had no actual notice that the Disposal was made in breach of trust.

Drawing together all of the discussion in this section of this judgment, I conclude that the defence of bona fide purchaser for value without notice is not available to the First Defendant. I accept that the First Defendant was a bona fide purchaser for value of the Loan Assets. I do not accept that the First Defendant was such a purchaser without notice of the breach of trust. I conclude that the First Defendant is affected by the fact that the Disposal was made in breach of trust.

I have found that the power of disposal which existed under the Trusts was exercised for an improper purpose. I now turn to the question of whether this rendered the Disposal void or voidable.

In contending that the Disposal was thereby rendered void, the Claimants relied upon Cloutte v Storey [1911] 1 Ch 18. The case concerned a marriage settlement. Under this marriage settlement the husband and wife, after successive life interests to themselves, had a joint power of appointment over personal property vested in the trustees of the settlement in favour of the issue of their marriage. The husband and wife appointed a sum out of the settlement to the eldest of their seven children, subject to their own life interest. The son then mortgaged the appointed sum to secure an immediate sum to himself. The parents then appointed to the same son the whole of the residue of the wife’s reversionary interest, subject to the previously appointed sum. The son then sold both of these appointed sums, with the interest in both sums ultimately ending up in the hands of the defendants. Both appointments were made on a secret arrangement between the parents and their son, for the benefit of the parents and were, to use the language of the time, frauds on the power of appointment. The purchasers of the appointed sums had no notice of the fraud on the power, and did not have the legal title to the sums. Two of the children, who would have had an entitlement to the sums which were the subject of the appointments, claimed a declaration that the appointments were void.

Neville J decided that the appointments were void. His decision was upheld in the Court of Appeal. The substantive judgment in the Court of Appeal was given by Farwell LJ, with whom Cozens-Hardy MR and Fletcher Moulton LJ agreed. The core of the reasoning of Farwell LJ on this question can be found on page 31 of the report:

Farwell LJ continued in the following terms, at pages 31 and 32 of the report:

On the authority of Cloutte v Storey Mr Miall submitted that the Disposal was void, so far as it purported to transfer the beneficial interest in the Loan Assets. So far as the legal estate in the Loan Assets was concerned, Mr Miall accepted that the Disposal was effective to vest the legal title to the Loan Assets in the First Defendant, but not the beneficial interest, which remained with the Beneficiaries. In the case of the 2014 Trust the question of what happened to the legal estate on the Disposal did not arise. It will be recalled that the legal estate in the assets in the 2014 Trust was not settled into the 2014 Trust. Mr Miall relied upon Foskett v McKeown [2001] AC 102 for the proposition that, if the Disposal was void, the Beneficiaries had an absolute proprietary right to the beneficial interest in the Loan Assets. There was no discretion for the court to exercise. The Beneficiaries simply retained the beneficial interest and were entitled to call upon the First Defendant to revest the legal estate in the Loan Assets, so far as transferred by the Disposal. As Lord Millett explained, at 127E-F:

I did not understand Mr Miall’s analysis of the position to be in issue, if the transfer of the beneficial interest in the Loan Assets (“the Beneficial Interest”) was void. The issue, which was contested at length, in very great detail, and with an impressive degree of legal scholarship, was whether the transfer of the Beneficial Interest was void. This in turn resolved into a dispute over whether Cloutte v Storey should be followed. The First Defendant contended that it should not, either because it could be distinguished, or because it was wrongly decided. Ordinarily, it would not have been open to me to decide that Cloutte v Storey, a decision of the Court of Appeal, was wrongly decided, but I am deciding whether the transfer of the Beneficial Interest was void as a matter of Jersey law. As such, the case is not directly binding upon me, unless it represents the settled law of Jersey.

Starting with a textbook reference, the editors of Lewin, in their discussion of fraud on a power, say this, at 30-067:

The footnoted reference, under footnote 260, is to 30-090, where the editors say this:

The first of the footnoted cases, under footnote 340, is Pitt v Holt [2013] UKSC 26 [2013] 2 AC 108. In that case Lord Walker, further to previous expressed judicial doubts as to the reasoning of Farwell LJ, said this at [62]:

In this context my attention was also drawn to an article written by Sir Robert Walker, as he then was, in Private Client Business (P.C.B. 2002, 4, 226-240), in which Sir Robert was discussing Re Hastings-Bass (Deceased) [1975] Ch 25. In the course of this article Sir Robert considered Cloutte v Storey. Sir Robert noted the considerable practical importance of whether the exercise of a power was void or voidable, given that if the exercise is merely voidable, “all the restrictions appropriate to the equitable remedy of recission would come into play, including delay and the acquisition of third party rights”. Commenting on the judgment of Farwell LJ in Cloutte v Storey, Sir Robert noted that “It is not easy to find one’s way through this thicket”, but then moved on in his discussion without resolving what he described as “the problem”.

So far as English law is concerned, the decision in Cloutte v Storey remains, so far as I am aware, un-revisited. Turning to Jersey authority, there has been no case in which Cloutte v Storey has been directly considered. In Crociani v Crociani [2018] JCA 136A the Jersey Court of Appeal made reference to Cloutte v Storey at [149], in the following terms:

The Jersey Court of Appeal then went on to quote a lengthy passage from the judgment of Farwell LJ, at pages 30-31 of the report in Cloutte v Storey, which I have also quoted above. Reference to Cloutte v Storey was also made by the Jersey Royal Court in Crociani v Crociani [2017] JRC 146, at [345], where the court said this:

In Re Bird Charitable Trust [2008] JLR 1, the Jersey Royal Court considered the question of what constitutes a fraud on a power. At the outset of its summary of the law, the court quoted a statement from Thomas & Hudson; The Law of Trusts (paragraph 19:01) to the effect that where there is excessive execution in respect of a power, the exercise of the power is not simply excessive, but fraudulent and void. In Representation of Z Trusts [2015] JRC 196C, the Jersey Royal Court, at [26], set out a series of principles governing the exercise of fiduciary powers, which had been submitted by one of the Advocates in the case. The first of these principles was stated in the following terms:

So far as I can see none of the above Jersey cases involved a direct consideration of whether Cloutte v Storey was correctly decided or not. Instead, the courts were prepared, in the absence of contest on the point, to proceed on the basis that the case represented the law. Indeed, in the Crociani litigation there is a decision of the Privy Council (Crociani v Crociani [2014] UKPC 40), in which the Privy Council, at [41] made reference to a number of issues of Jersey trust law which were raised by the proceedings. They included “the correctness of Cloutte v Storey”. The Privy Council did not however have to decide this particular issue.

So far as the experts were concerned, they were agreed that whether the exercise of a power that is vitiated as a fraud on the power is void or voidable is currently not settled under Jersey law, and that the position was currently reflected in the English case law to which a Jersey court might refer in considering this issue; see paragraph 12 of the joint statement of the experts. I do not find it necessary to go further into the expert evidence on this issue. In the light of what is agreed between the experts, it seems to me that the question is primarily one for submissions, rather than expert evidence of Jersey law.

Mr Miall sought to persuade me that there was an evidential presumption to be applied that Jersey law was, in this respect, the same as English law. For this purpose he sought to rely upon Brownlie v FS Cairo (Nile Plaza) LLC [2021] UKSC 45 [2022] AC 995, where Lord Leggatt JSC considered at some length the presumption of similarity in relation to foreign law. The basic presumption was explained by Lord Leggatt in the following terms, at [108]:

Lord Leggatt reviewed the criticisms which had been made of this presumption, and the limitations of its operation. He summarised the position, in terms of the limits of the presumption, in the following terms, at [126]:

The facts of the present case are very different to Brownlie. In the present case there is ample evidence of the state of Jersey law, both from the experts and from the researches of counsel. In addition to this, the experts are agreed that the position is not settled in Jersey law, on the question of whether a fraud on a power is void or voidable. In these circumstances I can see no room for the operation of a presumption that Cloutte v Storey should have the same status under Jersey law as it has under English law; that is to say a binding decision of the Court of Appeal, unless it can be shown to be distinguishable. It may be that this is the position, as a matter of Jersey law, but I do not think that this position can be achieved by the operation of any presumption.

This therefore clears the way to consider the arguments of the First Defendant that the decision in Cloutte v Storey is either distinguishable, or wrong, or at least rests on questionable foundations; sufficient to justify a Jersey court in not following the decision. The arguments of the First Defendant in this context were ably presented by Mr Lewison. Given that Mr Lewison’s submissions, quite reasonably, did not observe a rigid demarcation line between the questions of whether Cloutte v Storey rested on insecure foundations, or was wrong, or was distinguishable, I will take the submissions as a whole, before coming to my answer to these various questions Before doing so I also remind myself, in particular, of what was said by Lloyd LJ, in the Court of Appeal in Pitt v Holt, at [98]:

Consistent with this, Mr Lewison submitted that the reach of Cloutte v Storey was limited. He referred me specifically to the way in which Farwell LJ summarised the law, at pages 30 and 31. His argument was that, in the case of the 2011 Trust and the 2012 Trust, legal title to the Loan Assets had passed. In such circumstances, and applying Farwell LJ’s own statement of the law, the Disposal was voidable, not void, in relation to the 2011 Trust and the 2012 Trust. In the present case the powers of appointment which were exercised were legal powers, by which the legal estate passed, in the cases of the 2011 Trust and the 2012 Trust. As such, and again applying Farwell LJ’s own statement of the law, the Disposal was voidable, not void, in relation to these two Trusts.

Beyond this, Mr Lewison submitted that Cloutte v Storey rested on insecure foundations. He started by referring me to two cases, Campbell v Home (1842) 62 ER 1062 and Wellesley v Mornington (1855) 69 ER 728. His submission was that each of these cases supported the proposition that the exercise of a fiduciary power for an improper purpose was seen as voidable rather than void. Taking the cases in chronological order, Campbell involved the appointment of a fund by a widow and the assignment of her own life interest in the fund to her eldest child, although the actual dispute in the case appears to have concerned the question of whether the trustee, who had refused to transfer the relevant fund pursuant to the appointment and the assignment, could have his costs of litigating that question. The appointment and the assignment were upheld as valid by the Vice-Chancellor (Sir J.L. Knight Bruce), on the basis that there was no evidence of fraud, or mistake, or misconduct in the exercise of the power of appointment. As such, the trustee was refused his costs. The particular extract from the report of the Vice-Chancellor’s judgment upon which Mr Lewison fastened was in the following terms:

In Wellesley the court was again considering the question of whether the exercise of a power of appointment constituted a fraud on a power. The Vice-Chancellor (Sir W. Page Wood) concluded that the relevant appointments could not stand, for the reasons given in his judgment. The Vice-Chancellor concluded his judgment in the following terms:

Mr Lewison concentrated this part of his submissions however on Preston v Preston (1869) 31 LT 346, which was another case where the exercise of powers of appointment and, in that case, a deed of confirmation were subject to challenge. In his judgment Lord Romilly MR said this:

Preston v Preston was relied upon by counsel for the defendants in Cloutte v Storey; see the report of the argument (at first instance) in the case, at page 23. In deciding that the relevant appointments were void as being in fraud of the power, Neville J distinguished what Lord Romilly said on the basis that, in Preston v Preston, the decision of the Master of the Rolls on the question of whether the appointments were void or voidable was not actually necessary to his decision; see page 25 of the report. In the Court of Appeal in Cloutte v Storey counsel for the defendants again relied on Preston v Preston, in support of their argument that the appointments were voidable, and not void. According to the report of the argument, at page 27, Farwell LJ intervened in response to the reference to Preston v Preston to make reference to the form of order which was made in Topham v Duke of Portland (1869) LR 5 Ch 40 as set out in Seton on Judgments (6^th Edition), at page 1742. I was provided with what I understood to be the equivalent extract from the 7^th Edition of Seton, which contains a form of declaration where the exercise of a power of appointment is to be set aside as a fraud on a power. The form of the declaration is that the exercise of the power of appointment is void, not voidable. I assume that, in the relevant part of the argument in Cloutte v Storey, Farwell LJ was drawing attention to a form of declaration in the same terms in the 6^th edition of Seton.

So far as the actual judgment of Farwell LJ was concerned, his Lordship returned, in his judgment, to the subject matter of his intervention in the argument. The relevant part of the judgment is at page 31 of the report, and I have already set it out. I repeat it however, for ease of reference:

Mr Lewison’s argument in this context was that Preston v Preston could not be disposed of in this way. All that Farwell LJ was relying upon was a form of order in a textbook, based on an order made in other cases in the Court of Appeal. The relevant cases were Duke of Portland v Topham (House of Lords reference - (1864) 11 ER 1242 (HL)) and Topham v Duke of Portland (1869-70) LR 5 Ch App 40). The submission was that the reasoning which resulted in the relevant order being made in each case was unknown.

Mr Lewison referred back to the suggestion by Lord Walker, in Pitt v Holt, that an appointment made for an improper purpose might need a separate pigeon-hole, somewhere between the categories of excessive execution and inadequate deliberation. Mr Lewison suggested that the critical distinction between the two categories of excessive execution and inadequate deliberation lay in what an outsider could see. In the case of excessive execution an outsider can look at the terms of the relevant power and the relevant exercise, and see whether the exercise has been in excess of the power, and is thus void. In a case of inadequate deliberation the relevant question is the state of the trustee’s mind, which the outsider cannot see. In cases of inadequate deliberation, and Mr Lewison submitted that Cloutte v Storey was such a case, the relevant appointment should be treated as voidable.

In general support of his arguments Mr Lewison drew an analogy with the company law position. Mr Lewison relied, in particular, upon the judgment of His Honour Judge Russen KC (sitting as a Judge of the High Court) in Stobart Group Ltd v Tinkler [2019] EWHC 258 (Comm), where Judge Russen KC ultimately concluded that the transgression by the directors of a company of what he described as the proper purposes rule resulted in the relevant act of the directors being voidable, not void; see the judgment at [481]. The judge did briefly consider Cloutte v Storey in his judgment but, as it was not directly in point, did not carry out any detailed analysis. The judge’s comments on Cloutte v Storey, at [474]-[475] are however valuable, and should be set out:

It seems to me that there are a number of difficulties with the arguments advanced by Mr Lewison. I start with the question of whether Cloutte v Storey can be distinguished in the present case, on the basis that the Disposal engaged the transfer of the legal title to the Loan Assets in the 2011 Trust and the 2012 Trust and/or on the basis that the Disposal involved the exercise of common law powers of appointment. I must confess that, in common with far more distinguished legal minds than my own, I have had some difficulty in following the reasoning of Farwell LJ in Cloutte v Storey, at pages 30-32 of the report and, in particular, in following the distinction drawn between an appointment under a common law power and an appointment in fraud of an equitable power; “not operating so as to pass the legal estate or interest”.

In this context I have however found useful the discussion of this area of the law by the editors of Snell, in chapter 10. The editors’ discussion seems to me to provide a valuable guide through this particular legal “thicket” (to borrow Sir Robert Walker’s expression). In their discussion of powers in chapter 10, at 10-31, the editors consider the consequence of acting outside the scope of a power:

The editors then consider the position, in relation to directors’ dealings, at 10-032:

The editors then deal with the particular position in relation to an allotment of shares, at 10-33:

The editors conclude their discussion of the consequences of acting outside the scope of a power, at 10-033, in the following terms:

It seems to me that this discussion supports the Claimants’ argument that, in the present case, what matters is the transfer in equity of the Beneficial Interest. The transfer of the legal title to the Loan Assets, so far as it took place pursuant to the Disposal, might be voidable, but the transfer of the Beneficial Interest was void. In other words, and using the language of Snell, the present case is not one where equitable doctrine did not go to define the scope of the power, with the consequence that the present case is not one where equity has to recognise the effect of the power to create new legal property, and then reverse that effect.

While I have not found this an easy matter to decide, I therefore arrive, with some hesitation, at the conclusion that the relevant principle which emerges from Cloutte v Storey is not one which can be distinguished in the present case. As a matter of English law it seems to me that Cloutte v Storey binds me in the present case.

This is not of course the end of the matter, because there is still the question of whether Cloutte v Storey was wrongly decided, or at least rests on shaky foundations, with the consequence that Jersey law should not and would not follow this decision.

So far as Campbell and Wellesley are concerned, I do not think that they can be regarded as undermining the decision in Cloutte v Storey. So far as the reports of these cases disclose, the court was not being called upon to decide the void/voidable issue in either of these cases. The language of setting aside in these two cases might equally well have been used to express the conclusion that the relevant appointments were void, not voidable. The point does not appear to have been in issue, and was not articulated in either of the judgments.

Preston v Preston falls into a rather different category, given that it contains a statement by Lord Romilly MR which appears to be at odds with the relevant part of the judgment of Farwell LJ. The difficulty here however is that Preston v Preston was cited to Farwell LJ in Cloutte v Storey. His reaction to the decision can be seen in the report of the argument in the Court of Appeal, and in his reference to the Topham decisions in his judgment (page 31 of the report). There is therefore no question of Farwell LJ giving his decision in ignorance of Preston v Preston. Beyond this, in referring to the Topham decisions, Farwell LJ was referring to (i) a decision of the House of Lords which had affirmed the decision of the Court of Appeal that a deed of appointment was void, having been made for an improper purpose, and (ii) a decision of the Court of Appeal which had affirmed the decision of the Vice-Chancellor that a further deed of appointment was also void as a fraud on a power. These Topham decisions do not appear to have been cited in Preston v Preston, although an earlier case, Topham v Duke of Portland (1862) 31 Beav 525, is referred to in the judgment of Lord Romilly MR (page 348 of the report). This earlier case was not however concerned with the void/voidable issue.

It also interesting to note that in Vatcher v Paull [1915] AC 372 the Privy Council, after explaining the concept of fraud on a power, as it was then known, recorded the following position, at page 380:

The concept of a fraud on a power being void is not one which appears to have troubled the Privy Council, who were hearing a Jersey appeal, in Vatcher v Paull . While this decision postdated Cloutte v Storey by a few years, it might be thought to suggest that Farwell LJ was not saying anything particularly controversial in Cloutte v Storey, in relation to an appointment being void where there was a fraud on the power.

In all these circumstances I do not think that it can be said that the decision in Preston v Preston undermines the authority of Cloutte v Storey. Preston v Preston was cited to Farwell LJ and, as it seems to me, Farwell LJ had solid grounds for declining to follow what Lord Romilly MR had said concerning the status of an appointment which had been made as a fraud on the power. I therefore reject the argument of the First Defendant that the decision of Cloutte v Storey rests on shaky foundations.

The position might be different now if there was a statement to the effect that Cloutte v Storey was wrongly decided, or if it could be seen that the reasoning of Farwell LJ was clearly flawed. It seems to me however that this has not happened. I confess to finding the reasoning of Farwell LJ somewhat difficult to follow, but it is not easy to see why Farwell LJ’s essential reasoning, to the effect that the appointments in that case were void in equity by reason of the fraud on the power committed by the parents, was wrong. So far as modern case law is concerned, the decision has been subject to some criticism, but no court either in England and Wales or in Jersey, so far as I am aware, has decided that the decision is wrong. Equally, it does not seem to me that Mr Lewison’s company law analogy provides a good reason for treating Cloutte v Storey as wrongly decided. In that context, as I have said, I find the discussion in Snell to be illuminating.

An accurate summary of the position, in my view, is that provided by Lord Walker in Pitt v Holt at [62]; namely that the decision in Cloutte v Storey “may have to be revisited one day”. So far as I am aware, that day has not yet come.

In my view this position applies as much to Jersey law as it does to English law. It seems to me, for the reasons which I have already given, that a Jersey court would not be persuaded that the decision in Cloutte v Storey either rested upon shaky foundations or was clearly wrong. Although a Jersey court would not formally be bound by Cloutte v Storey, it seems to me, and I so find, that a Jersey court would follow Cloutte v Storey. If Cloutte v Storey was to be revisited at the highest level, which is what it seems to me would be required given that the decision is a Court of Appeal decision, then I have no doubt that the Jersey courts would follow the outcome of such revisiting. As matters stand this revisiting has yet to occur.

Drawing together all of the above discussion on the void/voidable issue, I reach the following conclusions.

These conclusions render it strictly unnecessary to consider whether the Disposal should be set aside, on the basis that it was a voidable transaction rather than a void transaction in relation to the Beneficial Interest. In case however I am wrong in my decision on the void/voidable issue I will set out what my decision would have been if I had been persuaded that the transfer of the Beneficial Interest was only voidable. For ease of reference I will refer to the Disposal being voidable in setting out my decision on this question. It will be appreciated that this means the Disposal so far as it transferred the Beneficial Interest.

The exercise which the court is required to go through on the hypothesis that the Disposal was voidable, in order to determine whether the relevant transaction should be set aside, was described in the following terms, in Rice v Rice 61 ER 646. The judgment of the Vice-Chancellor (Sir R.T. Kindersley) repays reading in full. I highlight however the following extract from the Vice-Chancellor’s judgment, at pages 78 and 79 of the report:

The court is therefore entitled to carry out a wide inquiry into the rival merits of the competing claims. Priority in time is, as Mr Lewison put it, the tiebreaker, but not the rule. For a modern statement of the exercise of the court’s discretion in relation to competing equitable interests, I refer to Snell, at 4-047(a):

The First Defendant advanced four reasons, on the hypothesis that the transfer of the Beneficial Interest was voidable, as to why the Disposal should not be set aside. I will take these reasons in my own order. I should make it clear, for the avoidance of confusion, that their order was not the same in the First Defendant’s submissions.

The first reason was what was said to be the inequitable conduct of the Claimants. The First Defendant contended that the Claimants had behaved inequitably by their widespread failure to engage with the trustee of the Trusts (the Second Defendant and then Pinotage PTC) and to provide KYC information. The Claimants could have had their loans written off for a modest fee, but they chose not to engage. As such, they cannot now complain that the Loan Assets have been sold and the Trusts terminated.

I accept that there is justification in the charge of substantial non-engagement by a substantial number of Claimants; see my earlier findings on the Claimants’ bundle of correspondence. I cannot however see that this justifies, or comes anywhere near justifying giving priority to the interest of the First Defendant over the equity to set aside the Disposal. I say this for two reasons. First, I do not think that conduct of this kind can be said to disqualify the Claimants from their entitlement to have the Disposal set aside on the basis that the Disposal was made for an improper purpose. It seems to me that this would be grossly disproportionate, as between the conduct complained of and the right which the Claimants would otherwise have to set aside the Disposal. Second, I accept the point made by Mr Miall that, in theory, any one of the Claimants, as a Beneficiary, could have challenged the validity of the Disposal. The First Defendant’s colour coded spreadsheet demonstrates that there were a number of Claimants who did fully engage, and whose engagement has turned out to be futile by reason of the Disposal. Again, I cannot see that it would be right to deny these Claimants the right to have the Disposal set aside, simply because other Claimants were less conscientious and/or more obstructive in relation to the administration of the Trusts.

The second reason was that the Claimants were said to be participants in artificial tax avoidance schemes. They ran the risk, so it was submitted, that the schemes would not work and that the loans would be called in. That risk has now eventuated, and the court should not lend itself to granting relief which allows the Claimants to escape from the consequences of the artificial tax avoidance in which the Claimants took the risk of participating. In Pitt v Holt, at [135], Lord Walker commented that, in some cases of artificial tax avoidance, where the claimants were seeking to extricate themselves from a tax-avoidance scheme which had gone wrong, the court might think it right to refuse relief, either on the basis that the claimants had accepted the risk of the scheme not working or on the basis of public policy. The same principles have been articulated in other cases where those engaged in tax avoidance schemes which have gone wrong have sought to have them set aside pursuant to the equitable jurisdiction of the court; see, most recently, the judgment of Snowden LJ in Bhaur v Equity First Trustees (Nevis) Limited [2023] EWCA Civ 534, at [73]-[73] and [103]-[106].

It seems to me that there is an obvious answer to this argument, on the facts of the present case. The Claimants are not seeking to extricate themselves from the consequences of artificial tax schemes which have gone wrong. On the assumption that the schemes in the present case are properly described as artificial tax avoidance schemes which have gone wrong, my understanding is that the tax position of the Claimants will be no better, following the setting aside of the Disposal, than it was before the Disposal. I do not recall any argument or evidence in the course of the trial to the effect that the setting aside of the Disposal would improve the tax position of the Claimants. What the Claimants are seeking to do is to set aside a transaction which disregarded their interests entirely, and was thereby rendered unlawful. The unwinding of the Disposal will put the Loan Assets back into the Trusts, where they will be held for the benefit of the Beneficiaries. Whether this will allow value to be realised, which will assist the Beneficiaries in dealing with their tax position, remains to be seen. What however I cannot see is that the setting aside of the Disposal will either extricate any of the Claimants from their current tax position, or breach any principle of public policy.

The third reason was that restitution of the consideration paid and payable pursuant to the Disposal is said now to be impossible. Pinotage PTC, to which the upfront consideration of £100,000 was agreed to be paid under the terms of the SPAs, has been wound up and dissolved in the BVI (British Virgin Islands). So far as the additional consideration is concerned, the right to receive this additional consideration had been assigned to Hatstone LLC, which is not a party to this action.

There was some debate between the parties, and between the experts, as to whether the Claimants could be required to make counter-restitution of the consideration paid on the Disposal. In opening it was accepted by the First Defendant, by virtue of its pleaded case, that this debate existed only on the hypothesis that the Disposal was voidable. On the hypothesis that the Disposal was voidable, it seems to me that there is no obstacle to requiring the Claimants to make counter-restitution, if I consider such counter-restitution to be appropriate in the exercise of my equitable discretion. While I did not hear any substantial argument on this point, I am prepared to proceed on the basis that, as a matter of English law a court could, in the exercise of its equitable jurisdiction to set aside a transaction, order counter-restitution of a sum paid on the transaction, if the court considered this appropriate. I am also prepared to proceed on the basis that Jersey law would follow English law in this respect.

In theory therefore, it seems to me that it is legitimate to consider the practical problems which are said by the First Defendant to exist in the present case, in relation to such counter-restitution. This however assumes that these practical problems arise for consideration. This will only be the position if I consider it appropriate, in principle, to order such counter-restitution.

It seems to me, on the facts of this case, that there is no good reason to order to any counter-restitution or to be concerned about the additional consideration. Starting with the basic consideration of £100,000, it is true that this sum, split into three parts, was agreed to be paid to and received by Pinotage PTC pursuant to clause 3.1 of the first set of SPAs. In terms of its provenance however, I refer to my findings in the narrative section of this judgment. I have found that this payment actually constituted the payment of £100,000 paid by Slap 8 to Hatstone Jersey on 17^th May 2019, which was paid in response to the request for payment of £100,000 which was re-issued to the First Defendant on 16^th May 2019. This was then treated as the basic consideration paid on the Disposal to Pinotage PTC. While I accept that this sum of £100,000 falls to be treated as part of the consideration paid to Pinotage PTC on the Disposal, it seems to me that in the exercise of my equitable discretion, I am entitled to look at the reality behind the appropriation of this sum to the consideration payable on the Disposal. The reality is that the party which had the benefit of this payment of £100,000 was the Second Defendant. In these circumstances, and in the exercise of my equitable discretion, I cannot see a good reason for requiring the repayment of the sum of £100,000. Accordingly, the practical difficulties with making the repayment do not arise.

Turning to the additional consideration payable under the SPAs, it was not entirely clear to me that the right to receive this additional consideration had been assigned to Hatstone LLC. I heard very little in the course of the trial on this topic. Paragraph 24N.2 of the Re-Amended Particulars of Claim pleads that the right to receive the additional consideration was assigned to Hatstone Jersey “on a date presently unknown to the Claimants.”. I was told by Mr Miall that the Claimants pleaded this on the basis of what they had been told. The matter was not within the direct knowledge of the Claimants. This pleaded case is the subject of a non-admission by the First Defendant in paragraph 34c of its Re-Amended Defence and Counterclaim. The Second Defendant pleads a different arrangement concerning the rights to the deferred consideration, in paragraph 39.2 of its Re-Amended Defence. The First Defendant’s trial skeleton argument identified the three sale and purchase agreements between Pinotage PTC and Hatstone LLC, each dated 11^th December 2019, as the instruments which effected the assignment of the right to receive the additional consideration. Notwithstanding the uncertainty which seems to exist in this respect, I will assume that it is correct that the right to receive the deferred consideration was assigned to Hatstone LLC, and was so assigned by the sale and purchase agreements of 11^th December 2019.

It seems to me that the assignment of this right to receive the additional consideration only matters if there is additional consideration still capable of being received. The provisions governing the payment of the Deferred Consideration are to be found in Schedule 1 to each of the first set of SPAs. By paragraph 2.2 of each Schedule 1 no Deferred Consideration was to be payable in respect of any period after the Deferred Period. The Deferred Period was defined to mean the period beginning on Completion (30^th October 2019) and ending on 30^th September 2022, “or such other date as may be agreed in writing by the Buyer and the Seller”. 30^th September 2022 has now gone by and, so far as I am aware, no extension was agreed to the Deferred Period. I also understand that no payment of the Deferred Consideration has been triggered. In these circumstances it seems to me that any right which Hatstone LLC may have had to receive the additional consideration has come to an end. Accordingly I cannot see the assignment of the right to receive the additional consideration poses any obstacle to the Disposal being set aside.

The fourth reason advanced by the First Defendant for not setting aside the Disposal is a practical one. If the Disposal is set aside, the assets transferred to the First Defendant by the Disposal (the Loan Assets) will come back to the Beneficiaries, where they will need to be held by a trustee on the terms of the Trusts. This creates an obvious problem, because there is no such trustee. No arrangements have been made by the Claimants to put a new trustee in place and, so far as I am aware, there is no person ready to step into this role. Mr Miall sought to dismiss this difficulty on the basis that it could, if necessary, be sorted out by the Jersey courts, as a matter going to the administration of the trusts, with a court-appointed trustee taking over as trustee. It was not however clear to me whether this would be feasible and, if it was feasible, how it would be achieved. There was no evidence, at least to which my attention was drawn, of the Claimants having taken any steps in this direction.

In closing submissions Mr Morgan put this part of the First Defendant’s case in an appropriately measured way. As I understood his submissions, his essential point was that if it turned out that a new trustee could not be appointed, then it would be pointless for the Disposal to be set aside. For this purpose Mr Morgan relied upon the principle that equity does not act in vain. His proposal was that the court should not make any order setting aside the Disposal at this stage, but should put in place some kind of regime which would hold the ring, while the Claimants took whatever steps they proposed to take for the purposes of putting a new trustee in place. If those steps produced no result, the court could then consider whether it was in fact appropriate to set aside the Disposal.

It seems to me that there is some merit in this particular objection to the court setting aside the Disposal at this stage. In particular, I am conscious of the fact that the argument at trial only touched upon this particular problem. As I have already noted, it was not clear to me whether the appointment of a new trustee would have been feasible and, if so, how.

I am of course considering the question of whether the Disposal should be set aside on a hypothetical basis. I have already decided that the Disposal was void, with the consequence that the Beneficial Interest will have remained in the Trusts. If however I had decided that the Disposal was voidable, I can summarise the decision which I would have made, on the question of whether the Disposal should be set aside, in the following terms:

Returning however to my principal decision in this section of this judgment, I conclude that the Disposal, by reason of the fact that it was effected for an improper purpose, was void.

I add one final point for the sake of good order. The First Defendant, by virtue of its pleaded case, only took the counter-restitution point on the hypothesis that the Disposal was voidable. Accordingly, I make no decision on whether counter-restitution could, as a matter of law, have been ordered in circumstances where, as I have found to be the case, the Disposal was void, not voidable. In any event, I would not have needed to decide this point, if it had been a live point, because I would not have been prepared to order counter-restitution of the sum of £100,000, assuming that I had the ability to do so. My reasons for saying this are the same as those I have set out above, in my analysis of the position on the hypothesis that the Disposal was voidable, not void.

Paragraphs 48 and 49 of the Re-Amended Particulars of Claim plead a claim for damages and/or equitable compensation against the First Defendant on the basis that the First Defendant “is accountable to the Claimants as constructive trustee”. An order is sought for the payment of damages and/or equitable compensation “to the extent that it is not possible for all and each one of the Loan Assets to be transferred back to the relevant 2011, 2012, and 2014 Trusts”. I assume that the claim is made on the basis that the First Defendant is, by reason of the Disposal, liable for knowing receipt of trust property.

The oral submissions did not deal with this particular claim in any detail, and the claim was only briefly mentioned in the written submissions. It seems to me that Article 55 of the 1984 Law would constitute a defence to this claim, if the First Defendant had been a bona fide purchaser for value of the assets in the Trusts without actual notice of the breach of trust constituted by the Disposal. In this context however I refer to my findings in the section of this judgment where I have dealt with this question. For the reasons set out in the relevant section of this judgment, I have found that the First Defendant did have actual notice of the breach of trust.

Beyond this, I cannot see any defence to the claim for damages and/or equitable compensation which is available to the First Defendant. Accordingly, it seems to me that the First Defendant does, in theory, have a liability to the Claimants for knowing receipt of trust property. On my findings however, all that the First Defendant actually received, by the Disposal, was the legal title to the Loan Assets in the 2011 Trust and the 2012 Trust. I therefore assume that this claim only arises, at least as a material claim, in the event that the Loan Assets cannot be reconstituted as assets of the Trusts. In these circumstances I will hear the parties further, as necessary, on what order, if any, I can and should make in relation to this particular claim. As matters stand I make no further decision on this particular claim, beyond my decision on liability.

The Claimants plead, at paragraphs 45-47 of the Re-Amended Particulars of Claim, that the Second Defendant is personally liable to pay damages and/or equitable compensation. The claim is made “To the extent that it is not possible for all and each one of the Loan Assets to be transferred back to the relevant 2011, 2012, and 2014 Trusts”.

The essential basis of the claim in relation to the 2011 Trust and the 2012 Trust, as it is pleaded in paragraph 46 of the Re-Amended Particulars of Claim, is that the Second Defendant retired as trustee of the Trusts in order to facilitate the breach of trust constituted by the Disposal and, in retiring, breached the duties which it had owed to the Beneficiaries as trustee of the Trusts. Those duties are pleaded in paragraph 18 of the Re-Amended Particulars of Claim. The Second Defendant admits that it owed those duties, subject to the qualifications to this admission (as mentioned earlier in this judgment) set out in paragraph 20 of its Re-Amended Defence.

In relation to the 2014 Trust, paragraph 47 of the Re-Amended Particulars of Claim alleges that each of the Second Defendant’s (i) purported retirement as trustee of the 2014 Trust in favour of Pinotage PTC, (ii) vesting of the 2014 Trust assets in Pinotage PTC, and (iii) purported ratification of Pinotage PTC’s actions as trustee de son constituted fraud on a power and/or wilful misconduct. It is said that the Second Defendant, by Mr O’Shea, knew that the Disposal was contrary to the interests of the Beneficiaries, or was recklessly indifferent as to whether it was contrary to their interests or not.

In relation to the liability of a retiring trustee for a breach of trust committed by his successor my attention was drawn to the decision of Kekewich J in Head v Gould [1898] 2 Ch 250, which provides useful guidance in this context. The case involved breaches of trust which had been committed by the former and present trustees of certain settlements, whereby the bulk of the assets subject to the settlements had been dissipated. For present purposes the relevant part of the judgment of Kekewich J comprises that part where he dealt with the question of whether the former trustees (Houlditch and Clapp) could be held responsible for breaches of trust committed by the present trustees. Kekewich J explained the nature of this question in the following terms, at page 267 of the report:

Kekewich J then went on to explain, at pages 267-268 of the report, how the case was put against the former trustees in this context:

Kekewich J explained the basis of this case in the following terms, at pages 268-269 of the report (underlining added):

On the facts of the case Kekewich J decided that the former trustees could not be responsible for the breaches of trust committed by the present trustees. As the judge explained, at page 273 of the report (underlining again added):

The judge summarised the law in the following terms, at pages 273-274 of the report (underlining again added):

I have set out a good deal of the judgment of Kekewich J in Head v Gould because, as I have said, the decision provides valuable guidance in the present case. It was also the case relied upon by Mr Flavin in his defence of the Second Defendant against the personal claim made against it.

I start with the claim against the Second Defendant in relation to the 2011 Trust and the 2012 Trust. Mr Flavin’s argument was a simple one, and can be summarised in the following terms. It is clear from Head v Gould that it is not sufficient to show that a breach of trust committed by a successor trustee was merely the outcome of the retirement of the previous trustee and the appointment of the successor trustee. It must be shown that the breach of trust was contemplated by the original trustee when the retirement and appointment took place. It must be shown that the Second Defendant retired in order for the breach of trust constituted by the Disposal to be committed by Pinotage PTC. On the facts of the present case however, so it was submitted, the retirement of the Second Defendant had nothing to do with facilitating any breach of trust, but was the result of (i) the Second Defendant’s problems with obtaining KYC information from the Beneficiaries and (ii) the associated concerns for the position of the Second Defendant in relation to the Swiss regulatory authority. As such, and on the evidence in this case, the claim for breach of trust against the Second Defendant personally, in relation to the 2011 Trust and the 2012 Trust, must fail. The Second Defendant did not retire as trustee in order to facilitate the breach of trust.

At first sight, this argument appears to be well-founded. It is perfectly true that the Second Defendant resigned from its position as trustee of the 2011 Trust and the 2012 Trust (and purported to do so in relation to the 2014 Trust) by reason of regulatory concerns. This was clear from the evidence of Mr O’Shea, and is corroborated by the contemporaneous documents; see, by way of example, the email from Mr O’Shea to Mr Emblin, Mr Reid and Ms Stone, sent on 23^rd May 2019, the terms of which I have quoted in the narrative section of this judgment. Indeed, as I understood Mr O’Shea’s (characteristically well-informed) evidence in cross examination, Pinotage PTC was put in place as the new trustee because it was, at least arguably, a non-financial entity which would not be subject to the same regulatory requirements as the Second Defendant.

The difficulty with Mr Flavin’s argument is that what I have said in my previous paragraph is only a part of the story. It assumes that the Second Defendant was effectively in the same position as Messrs Houlditch and Clapp in Head v Gould; that is to say trustees who retired in circumstances where they had no contemplation of the breach of trust which followed; see in particular the underlined section of the extract from the judgment of Kekewich J (the first extract from page 273 of the report) which I have quoted above.

The facts of the present case are however very different to Head v Gould. I refer again to the narrative section of this judgment and, in particular, to the chronology of the Disposal. The Disposal was not something which was conceived and executed after the Second Defendant had retired as trustee and left the scene. To the contrary, the Disposal or, putting the matter more generally, the sale of the Loan Assets, had a lengthy gestation period, which substantially predated 30^th June 2019; being the date when Pinotage PTC took over as trustee of the 2011 Trust and the 2012 Trust, and purported to take over as trustee of the 2014 Trust. It is clear from the evidence that the sale of the Loan Assets was being considered between Mr Emblin, Mr Reid and Mr O’Shea from April 2019, following the failure of the Pyrrhus Scheme and the failure of a large number of Beneficiaries to engage with the Second Defendant. Nor is it the case that the Second Defendant departed the scene after 30^th June 2019. Instead, the Second Defendant retained an administrative role in relation to the Trusts. Indeed, so far as the implementation of the Disposal was concerned, it seems to me that little, if anything changed on 30^th June 2019. Mr Emblin, Mr Reid and Mr O’Shea continued to work together to implement the Disposal.

In his closing submissions Mr Flavin argued that the questions which had been put to Mr O’Shea in cross examination were insufficient to establish liability on the basis that Second Defendant retired as trustee in order to facilitate a breach of trust. I do not accept this. It seemed to me that Mr O’Shea’s evidence in cross examination confirmed what one can also derive from the contemporaneous documents; namely that the Second Defendant’s role in the Disposal did not significantly change after 30^th June 2019. I give two examples of this from Mr O’Shea’s cross examination.

First, in cross examination Mr O’Shea was asked about the service agreement which was entered into between the Second Defendant and Pinotage PTC. In terms of the work to be done by the Second Defendant, Mr O’Shea said this:

Second, and earlier in cross examination of Mr O’Shea, Mr O’Shea was asked about an email which had been sent by Nicola Stone to David Gill on 26^th June 2019. The email was responding to an email from Mr Gill, sent on the same day, in which he queried the change of trustee:

I take Mr Gill’s reference to “our last conference call” to be a reference to the conference call of 28^th May 2019, of which a lengthy note exists. In her email in response, sent on 26^th June 2019, Ms Stone said this:

It was put to Mr O’Shea that this email demonstrated that Ms Stone was sure that the transaction, that is to say the sale of the Loan Assets, was proceeding. The relevant passage of cross examination covers a number of pages of the transcript, but the following extract, itself rather lengthy, should be quoted in full:

This evidence demonstrates, or more accurately confirms what can also be derived from the contemporaneous documents, namely that when the Second Defendant came to resign as trustee, it did so in circumstances where the intentions of the parties, namely the Second Defendant and the First Defendant, as represented by Mr O’Shea, Mr Emblin and Mr Reid, were (i) that the Disposal should proceed, (ii) that the Second Defendant would continue to be involved in an administrative role, and (iii) that Pinotage PTC would be put in place as trustee/vendor of Loan Assets in order to avoid the regulatory difficulties which might result from the Second Defendant continuing as trustee of the Trusts. To use the language of Head v Gould, the evidence demonstrates that the Disposal was very clearly contemplated by the Second Defendant, at the point when it resigned, or purported to resign in favour of Pinotage PTC.

Returning to Mr Flavin’s argument, it is true, as I have said, that the Second Defendant retired as trustee by reason of its regulatory concerns. This is however, as I have said, an incomplete statement of what occurred. The breach of trust which, as I have found, was constituted by the Disposal, was not merely the outcome of the retirement of the Second Defendant as trustee. The whole purpose of putting Pinotage PTC in place as new trustee was to allow the sale of the Loan Assets, on terms which excluded the interests of the Beneficiaries, to proceed to completion, with the Second Defendant still dealing with the administration of the sale, but not having to deal with the regulatory issues which would or might arise if it continued as the actual trustee of the Trusts. Put more simply, Pinotage PTC was put in place as trustee in order to ensure that the Disposal would proceed, and would not be frustrated by the Second Defendant’s regulatory concerns. These facts seem to me to be about as far from the facts of Head v Gould as they could be.

These facts also seem to me to demonstrate, and I so find, that the Second Defendant contemplated the very breach of trust which was in fact committed, namely the Disposal, at the time when the Second Defendant resigned, or purported to resign as trustee of the Trusts in favour of Pinotage PTC. These facts also seem to me to demonstrate, and I so find, that the Second Defendant retired in order to facilitate the breach of trust which was committed, namely the Disposal.

In these circumstances, and in relation to the 2011 Trust and the 2012 Trust, I conclude that the Second Defendant did breach its obligations as trustee of the Trusts in the manner set out in paragraph 46 of the Re-Amended Particulars of Claim.

In theory, it seems to me that the above analysis should also apply to the 2014 Trust, given that the Second Defendant also intended to retire as trustee of the 2014 Trust on 30^th June 2019. Here however the position is different because the Second Defendant did in fact continue as trustee of the 2014 Trust and, applying my analysis from earlier in this judgment, it was by the Deed of Confirmation that the Loan Assets were effectively assigned to the First Defendant. The assignor of the Loan Assets was therefore the Second Defendant. In these circumstances it seems to me that it was the Second Defendant which committed the breach of trust which, as I have found, was constituted by the Disposal.

In closing submissions I asked Mr Flavin how matters stood in this respect in relation to the 2014 Trust. At that point, of course, Mr Flavin did not have the advantage of knowing what my decision would be on the issue of whether, in relation to the 2014 Trust, the Loan Assets did pass to the First Defendant. Mr Flavin focussed on the ratification resolution of 6^th December 2019. Mr Flavin’s analysis was that the sale of the Loan Assets in the 2014 Trust was effectively made by the Second Defendant, as continuing trustee of the 2014 Trust. As such, Mr Flavin fairly accepted that the Second Defendant was liable for any breaches of trust which occurred in relation to the 2014 Trust. It seems to me that Mr Flavin’s analysis equally holds good in relation to my actual decision on the question of the assignment of the Loan Assets in the 2014 Trust. On the basis of my decision the Second Defendant was, by the Deed of Confirmation, the party which made the effective sale of the Loan Assets in the 2014 Trust.

I therefore conclude that the Second Defendant was, in relation to the 2014 Trust, in breach of trust by reason of its making of the Disposal, so far as the Disposal was a disposal of the Loan Assets in the 2014 Trust. The Disposal was, as I have already decided, made for an improper purpose. I do not think that it is necessary to go further than this, and consider the case in wilful misconduct which is pleaded in paragraph 47 of the Re-Amended Particulars of Claim. It seems to me that it is sufficient to conclude that the Second Defendant, by its vesting of the Loan Assets in the 2014 Trust in the First Defendant, committed a breach of trust by reason of the fact that the Disposal was made for an improper purpose.

I therefore conclude that the Second Defendant was in breach of trust, in relation to all three of the Trusts, and is liable to the Claimants for such breaches of trust. As I have however already noted, the Claimants seek an order for the payment of damages and/or equitable compensation to the extent that it is not possible for the Loan Assets to be transferred back into the Trusts. Given my earlier decisions in this judgment, it seems to me, at least in theory, that there are no damages or equitable compensation which need to be paid. In these circumstances I will not make a formal decision on this claim in this judgment, beyond what I have decided above. Instead, I will hear the parties further, as necessary, on what order, if any, I can and should make in relation to this particular claim.

As I understand the position it is common ground that the Counterclaim stands or falls with the Claimants’ claims. As I have decided that the Disposal was made for an improper purpose, and is thereby rendered void (at least in relation to the Beneficial Interest), it follows that the First Defendant is not entitled to enforce the loans made to the Claimants. As such, the Counterclaim falls away, and falls to be dismissed.

In summary, my conclusions are as follows:

The question of whether the Disposal should be set aside, on the assumption that it was voidable rather than void so far as it transferred the Beneficial Interest, does not arise. If this question had arisen, I would have been prepared to exercise my equitable jurisdiction to set aside the Disposal, subject to the qualification that, before making a decision to this effect, I would have wanted to hear further argument on the problem of there being no evidence of a trustee available to take over the trusteeship of the Trusts.

The overall outcome of the trial is as follows:

I will hear the parties further, as necessary, as to the terms of the order which falls to be made, consequential upon the conclusions which I have reached in this judgment, and on all other outstanding matters consequential upon this judgment. In the usual way the parties are encouraged to agree as much as they can in this respect, subject to my approval of such terms.