Posts Tagged Trust

Ashley v Jimenez: Jurisdiction upheld despite choice of court ex-EU. No locus damni, locus delicti commissi or trust jurisdiction viz EU defendant.

In [2019] EWHC 17 (Ch) Ashley et anon v Jimenez et anon service out of jurisdiction was granted against a Dubai-based defendant, despite choice of court pro the UEA. That clause was found by Marsh CM not to apply to the agreement at issue. Jurisdiction was found on residual English PIL, which are of less relevance to this post. Forum non conveniens was rejected.

Service out of jurisdiction was however denied against the Cyprus-based (corporate) defendant in the case. Claimants had argued jurisdiction on the basis of Brussels I Recast Articles 7(2) (tort) or (6) (trust). Note Marsh CM  using the acronym BRR: Brussels Recast Regulation. As I noted earlier in the week  Brussels Ia is now more likely to win the day.

Claimants (“Mr Ashley” and “St James”) allege that £3 million has been misappropriated by the defendants (“Mr Jimenez” and “South Horizon”). In summary the claimants say that: (1) Mr Ashley and Mr Jimenez orally agreed in early 2008 that upon payment of the euro equivalent of £3 million, Mr Ashley would acquire, via a shareholding in Les Bordes (Cyprus) Limited, a holding of approximately 5% in the ownership of a golf course in France called Les Bordes and that the shares would be registered in the name of St James. (2) On 13 May 2008, Mr Ashley instructed his bank to transfer the requisite sum to the bank account specified by Mr Jimenez and the transfer was made. In breach of the agreement, the shares were never registered in the name of St James. (3) The agreement and/or the payment were induced by fraudulent misrepresentations made by Mr Jimenez. The claimants say that Mr Jimenez knew South Horizon did not hold the shares and was not in a position to transfer, or procure transfer, upon payment of the agreed sum and that, in representing that South Horizon held the shares, or could procure transfer, Mr Jimenez acted dishonestly. (4) In the alternative, the payment of £3 million gave rise to a Quistclose trust (on that notion, see below) because the payment was made for an agreed purpose that only permitted use of the money for securing transfer of the shares.

(At 82) qualifying strands relevant to the jurisdictional issues, are (1) representations were made by Mr Jimenez to Mr Ashley to induce him to invest in Les Bordes which he relied on; (2) an oral contract was made between Mr Jimenez and Mr Ashley in early 2008 under which Mr Ashley invested £3 million in Les Bordes; and (3) the creation of a Quistclose trust relating to the investment. Note a Quistclose trust goes back to Barclays Bank Ltd v Quistclose Investments Ltd [1968] UKHL 4, and is a trust created where a creditor has lent money to a debtor for a particular purpose. Should the debtor use the money for any other purpose, it is held on trust for the creditor.

On Article 7(2), the High Court held that a breach of trust is properly seen as a tortious claim for the purposes of Brussels Ia. As for locus delicti commissi, the Court notes the question of where the harmful event occurred is less straightforward. Claimants rely on the Cypriot defendant, South Horizon, having paid away the investment money it received in breach of the relevant trust. That event took place in Cyprus where the bank account is based. There might be an obligation to restore the money in England, yet that does not make England the locus delicti commissi: at 128: ‘It seems to me, however, that the claimants in this case are seeking to conflate the remedy they seek with the tortious act which was paying away the investment. The obligation to make good the loss is the result of the wrong, not a separate wrong.

The High Court does not properly consider the locus damni strand of the claim against South Horizon. Given the test following from Universal Music, England’s qualification as locus damni given the location of the bank accounts is not straightforward yet not entirely mad, either. The Court did consider England to be the locus damni in its application of English residual rules for the claim between Ashley and Jimenez (who is domiciled in Dubai): at 101: ‘the dealings between Mr Ashley and Mr Jimenez concerning an investment of £3 million in Les Bordes took place in England in the early part of 2008. Loss was sustained in England because the payment was made by Mr Ashley from an account held in England’ (reference made to VTB capital).

On (a rare application of) Article 7(6): are any of the claims relating to the Quistclose trust claims brought against “… the trustee … of a trust … created orally and evidenced in writing” and which is domiciled in England and Wales?: Marsh CM at 129-130:

Article 7(6) does not assist the claimants. They need to show that there is (a) a dispute brought against a trustee of a trust (b) the trust was created orally and was evidenced in writing and (c) the claim is made in the place where the trust is domiciled. The difficulty for the claimants concerns the manner in which the trust came into being. As I have indicated previously, although the oral agreement between Mr Ashley and Mr Jimenez gives rise to the circumstances in which the Quistclose trust could come into being, there was (i) no express agreement that the investment would be held on trust and (ii) South Horizon was not a party to the agreement. The trust came into being only upon the payment being made by Mr Ashley to South Horizon at which point, and assuming South Horizon was fixed with knowledge of the agreement, the investment was held upon a restricted basis.

I also have real difficulty with the notion of the Quistclose trust having a domicile in England. It seems to me more likely that the domicile is the place of receipt of the money, because that is where the trust came into being, rather than the place from which the funds were despatched.’

Geert.

(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.11.2.

 

 

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Trust and freedom of establishment: some preliminary observations on the CJEU’s ruling in the Panayi Trust case

When I cannot add anyting sensible to others’ analysis, I let theirs speak for itself. Enjoy.

Corporate Finance Lab

On September 14th 2017, the CJEU ruled on the Panayi Trust case (Case C-646/15), to which we have already referred in an earlier blog post. The CJEU’s ruling in the Panayi Trust case will provide ample opportunity for debate and reflection in the near future, especially with Brexit coming into view.

However, in this blog post we will restrict ourselves to a brief presentation of the case and some first observations regarding the question whether trusts can indeed come under the scope of the freedom of establishment.

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Trusts (Stiftung) and estate planning. You cannot have your cake, and eat it.

One cannot have one’s cake and eat it. Meaning once the cake has been eaten, it is gone and you no longer have it. (Apologies but this saying is so often misunderstood I thought I should clarify).

Anyways, the Flemish tax administration had something along these lines in mind when it recently ruled in a case involving a Liechtenstein Stiftung. Many thanks to De Broeck & Van Laere for bringing the ruling to my attention. The Inland Revenue generally employ quite a lot of deference towards trusts and Stiftungs of all kind. In the case at hand however it requalified the transfer of means from the Stiftung to the heirs of the deceased, as being of a contractual nature. That is because the deceased, upon creation of the Stiftung, had issued such precise instructions in the Stiftung’s by-laws, that the hands of the trustees (or equivalent thereof) had been tied.  This essentially takes away a crucial part of the Stiftung’s nature, and no longer shields the assets from the (Flemish) taxman. The cake has been eaten.

Geert.

 

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Who am I? USSC to rule on a trust’s citisenship in AMERICOLD LOGISTICS.

Update May 2016 the USSC held in March 2016. It held ‘ For purposes of diversity jurisdiction, Americold’s citizenship is based on the citizenship of its members, which include its shareholders.’. I confess I do not know what that means – no doubt others do.

One night this week I was teaching a taster class to final year secondary school students (17-18yr olds). I decided I should make it challenging enough. This, I surmised, would help all those present. Either they would now run a mile from Law School, never to look back (thus taking away all doubt). Or their curiosity would be tickled enough for them to want to learn more (thus for them, too, taking away all doubt). I settled on CSR and conflicts: the Shell Nigeria case, with links to Kiobel (and Adam Smith, David Ricardo; special purpose vehicles; and the impending merger between Leuven’s AB Inbev and SAB Miller. All very exciting stuff!, in an allocated tome slot of 30 minutes). I hope readers will agree that conflict of laws does just the trick referred to above: scare off the doubters; pull in the doubters.

Anyways, that class was at the back of my mind as I was reading up on Americold Logistics. I am not a US trained or US qualified lawyer hence this posting may not be howler-proof however I understand that one particular avenue to gain access to US federal courts (as opposed to State courts; and over and above the issue being an issue based on federal law), is so-called ‘diversity jurisdiction’. This means the federal courts can hear a case if the citisenship of the parties involved is diverse: i.e. of at least two different US States or one of them being foreign. I also understand that to determine corporate citisenship, reference is made to the principal place of business (not therefore generally co-inciding with place of incorporation).

But how about trusts? What identity does a trust have with a view to diversity jurisdiction? In Americold Logistics, the Tenth Circuit sua sponte queried whether there was full diversity of citizenship among the parties. In particular, the judges challenged whether the citizenship of Americold Realty Trust, a business trust, should be determined by reference to its trustees’ citizenship, or instead by reference to some broader set of factors. This issue has deeply split courts across the country. Joining the minority of courts, the Tenth Circuit held the jurisdictional inquiry extends, at a minimum, to the citizenship of a trust’s beneficiaries in addition to its trustees’ citizenship. In this case, doing so destroyed diversity of citizenship among the parties. The issue is disputed, following relevant (seemingly inconclusive) precedent, summarised by SCOTUS here.  The USCC has now granted certiorari.

This judgment will be of quite some relevance to US legal (trust) practice. I think readers will agree that it was wise not to pick it, and the wider issue of trust identity, for lawyers in spe.

Geert.

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Akers v Samba (Court of Appeal). Hague Trust Convention’s rocket launcher fails to ignite, for now.

Update 1 February 2017. The stay was reinstated [2017] UKSC 6 (to the degree that is still effective) by the Supreme Court.

The Hague Trust Convention arguably is of limited (not obviously irrelevant) ambition only. It gives trusts a passport, so to speak, which ensures them entry into other jurisdictions. However such entry does not guarantee fuss-free onward travel. Some trusts for that reason often prefer not to travel, keeping assets etc, domestic. For once on a journey, all sorts of mishaps might happen. For others, the prospect of foreign shores is simply too enticing to resist. Evidently, residents of countries which do not traditionally employ trust-like concepts, likewise are often tempted to use common law trusts to surpass limitations in their own national property etc. law.

A common foreign element in the life of a trust is its holding of foreign assets, often real estate or shares in foreign corporations.

The analogy often used in describing the Convention’s approach to applicable law is that of the rocket-launcher v the rocket (the latter, as the Court of Appeal held in [2014] EWCA Civ 1516 Akers v Samba, ‘presumably when the rocket is in orbit’): Its provisions are obviously aimed in part at establishing the law applicable to trusts (see articles 6 and 7 that relate to identifying that law, and article 8 that defines what the law specified shall govern). But article 4 acknowledges that there are some preliminary issues to which the Convention and its applicable law rules will not apply.’

In Akers v Samba, the trusts concerned arose from transactions which took place between 2002 and 2008. In each of the transactions, Mr Maan Al-Sanea (“Mr Al-Sanea”), who is a citizen of and resident in Saudi Arabia, declared himself a trustee of certain Saudi Arabian shares for one of the claimant companies, SICL, a Cayman Islands company which is now in liquidation (and massively insolvent). SICL was Mr Al-Sanea’s family investment vehicle, which was managed in Geneva. SICL’s liquidators seek to challenge the validity of a disposition to Samba of the shares that were the subject of the 6 transactions, made just before SICL’s winding up order was made. The effect of the disposition, if the liquidators are right, was to deprive SICL’s creditors of shares to which it was entitled worth some US$318 million. The underlying issue, put shortly, is whether it was at least arguable that the shares were indeed held on trust for SICL.

The Court of Appeal at this stage is not concerned with whether the liquidators will ultimately prove to be entitled to a declaration that the Transfer was void. Nor with whether Samba might be entitled to a validation order in respect of the Transfer on the grounds that Samba was a good faith purchaser of the Shares: it is ‘simply’ concerned with whether or not to confirm a stay of proceedings in England, granted earlier. Reasons given for that stay were that each of the relevant trusts was governed by either Saudi Arabian law or Bahraini law, neither of which will enforce foreign (trust) laws or recognise any division of the legal and beneficial interests in shares. Sir Terence Etherton at the High Court [2014] EWHC 540 (Ch) had held that these proceedings should be stayed on the grounds that the courts of Saudi Arabia were clearly and distinctly a more appropriate forum.

Lord Vos leading, the Court of Appeal lifted the stay after complete yet somehow fairly concise review of the most relevant existing scholarship on the implications of the various articles of the Hague Convention. (including the most recent by prof Hayton in the Recueil des cours). It was held:

i) On the assumption that the governing law of the declarations of trust is Cayman Islands law, article 4 does not operate to exclude the application of the Convention to the declarations of trust under the 6 transactions. Whilst Saudi Arabian law as the lex situs would still govern the question of whether Mr Al-Sanea had capacity to alienate the Shares at all, Cayman Islands law would govern the capacity of Mr Al-Sanea to alienate an interest in the Shares by way of declaration of trust, and the transfer of the beneficial interest effected by the declarations of trust.

ii) It was not appropriate in this case to determine on a stay or summary judgment application whether article 15 applied to the transfer of the equitable interests under the declarations of trust, because (i) the mandatory nature of the Saudi Arabian law rules was not explored in the expert evidence, and (ii) it would be better for the interaction between the application of the governing law of the trust to the validity, construction and effects of the trust under article 8, and the application of article 15(d) to the transfer of the beneficial interest in the Shares to SICL, to be decided after a full evidential hearing.

iii) It is at least arguable that it is to be implied from the terms of the declarations of trust in the later transactions that they were to be governed by Cayman Islands law under article 6. In that event, article 7 would not be engaged for those later declarations of trust. It would be better for all questions under articles 5, 6 and 7 to be determined after a full evidential hearing in the light of all the circumstances of the case.

Both counsel had argued that the case had monumental consequences: at 35: ‘There must be large numbers of trusts established under the laws of common law jurisdictions, onshore or offshore, that comprise registered shares in civil law countries amongst their assets. Mr Mark Howard QC, counsel for the liquidators, opened this appeal by pointing out that it would be remarkable if all those trusts were to be held to be ineffective. Mr Mark Hapgood QC, counsel for Samba, responded by pointing out that there was nothing to stop people purporting to put shares registered in civil law jurisdictions into common law trusts; it was just that the trusts would create only personal remedies in those jurisdictions and not proprietary remedies against third parties to whom the shares were transferred or in the event of the trustee’s bankruptcy’. It would seem the High court for now would seem to side with the need to ensure effectiveness of those many trusts which are a staple part of international finance and assets management.

To be continued, however. Geert.

 

 

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The corporate veil in wedlock – Supreme Court decides Petrodel v Prest on the basis of trust

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Postscript 21 September 2015: Petrodel was applied by the High Court in Wood v Baker. The corporate veil was pierced in a bankruptcy case.

I noted in my post on Eni that the waters remain deep in national law re piercing the corporate veil. Point made by the Supreme Court on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

The focus in the UK is very much a presumption against piercing the veil and leaving the distinct nature of corporations intact – consequently a high burden of proof for those wishing to pierce.

Geert.

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Piercing the corporate veil in competition cases – The ECJ in Eni

Update 13 June 2019 for an interesting paper by Anil Yilmaz Vastardis and Rachel Chambers, comparing investment law and the relevant issues for corporate veil and human rights abuses, see here.

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Update 20 June 2016 the strict approach was confirmed in C-155/14P Evonik.

There is no general EU rule on the piercing of the corporate veil. Neither company law nor tort law is sufficiently (or in the case of tort law even embryonically) harmonised to be able to speak of much EU influence here. However in EU competition law, the principle is more or less established and may, one suspects, inspire in other areas, too. In Eni, the ECJ confirmed on 8 May the strong presumption of attribution in the case of shareholder control.

It is established case-law under EU competition law that the conduct of a subsidiary may be imputed, for the purposes of the application of Article 101 TFEU, to the parent company particularly where, although having separate legal personality, that subsidiary does not autonomously determine its conduct on the market but mostly applies the instructions given to it by the parent company, having regard in particular to the economic, organisational and legal links which unite those two legal entities. In such a situation, since the parent company and its subsidiary form part of a single economic unit and thus form a single undertaking for the purpose of Article 101 TFEU, the Court has repeatedly held that the Commission may address a decision imposing fines to the parent company without being required to establish its individual involvement in the infringement.

In the particular case in which a parent company holds all or almost all of the capital in a subsidiary which has committed an infringement of the European Union competition rules, there is a rebuttable presumption that that parent company exercises an actual decisive influence over its subsidiary. In such a situation, it is sufficient for the Commission to prove that all or almost all of the capital in the subsidiary is held by the parent company in order to take the view that that presumption is fulfilled.

In addition, in the specific case where a holding company holds 100% of the capital of an interposed company which, in turn, holds the entire capital of a subsidiary of its group which has committed an infringement of European Union competition law, there is also a rebuttable presumption that that holding company exercises a decisive influence over the conduct of the interposed company and also indirectly, via that company, over the conduct of that subsidiary.

In the present case, for the entire duration of the infringement in question, Eni held, directly or indirectly, at least 99.97% of the capital in the companies which were directly active within its group in the sectors in which there had been a violation of competition law. The ECJ held that in particular the absence of management overlap between Eni and the daughter companies, was not enough to rebut the presumption of the companies being a single economic unit. In competition law, therefore, the corporate veil may be quite easily pierced in a holding context, which undoubtedly is not the approach which many Member States take outside of the competition law area.

The waters therefore on the piercing of the corporate veil other than in the area of competition law, remain quite deep. This has an impact on the conflicts area, in particular in the application of the Rome II Regulation and the debate on corporate social responsibility, on which I have reported before on this blog.

Geert.

postscript: point made in e.g. the UKSC on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

 

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