Royal Court asked to release whole discretionary trust from saisie judiciaire

The Royal Court has very recently clarified the principles to be applied as to whether assets of a discretionary trust fall to be considered as ‘realisable property’ of a person who is a discretionary beneficiary of such a trust.

In Tantular v HM Attorney General [2014] JRC 128 the beneficiaries of a Jersey discretionary trust, known as the Jasmine Trust, applied for the assets of the trust to be released from a saisie judiciaire.

Saisie judiciaire

A saisie judiciaire is an order granted by the Bailiff, on behalf of the Royal Court, and is a formal means of restraining assets. The assets do not have to be suspected of being derived from, or intended to be used in connection with, criminality although a saisie is often sought to ‘hold the ring’ pending the outcome of confiscation proceedings.

If proceedings are concluded and a confiscation order is made by the Royal Court, the court may empower the Viscount to realise any realisable property which has been vested in the Viscount in order to satisfy the confiscation order. If no confiscation order is made the Royal Court may discharge the saisie judiciaire and the realisable property will be returned to the owner.

Background

Mr Robert Tantular, the settlor of the Jasmine Trust, was convicted of various banking offences in Indonesia in September 2009 and was sentenced to 9 years imprisonment. He had been prosecuted for further offences and on 4th February 2010, in connection with those proceedings, the Central Jakarta District Court issued a restraint order in respect of the assets of the Jasmine Trust.

The Indonesian Ministry of Law and Human Rights in due course sought the assistance of Jersey’s Attorney General to obtain a saisie judiciaire in Jersey and such an order was granted on 9th August 2013.

The saisie was in the normal form in that it was granted in respect of the realisable property of the settlor situated in Jersey, but also specifically extended to the assets of the Jasmine Trust.

The Jasmine Trust

The Jasmine Trust was established by deed dated 17th June 2004 between the settlor and ING Trust Company (Jersey) Limited as the first trustee. The trustee at the date of the application was BOS Trust Company (Jersey). The beneficiaries were listed as the settlor, his wife, his three children and his wife’s younger sister.

The Jasmine Trust was a discretionary Jersey law governed trust in conventional form with a power of appointment of capital and income in favour of any one or more of the beneficiaries. Subject to any such appointment, the trustee was to apply the capital or income to or for the benefit of any one or more of the beneficiaries as in its discretion it thought fit with a duty to accumulate income in default. At the expiry of the trust period, which was expressed to be 78 years (or such earlier day as the trustee may declare) the trust fund is to be held upon trust for such one or more of the beneficiaries in such shares or proportions as the trustee may determine, in default of which upon trust for the individual beneficiaries then living in equal shares.

The original assets of the Trust were first settled into a New Zealand trust on 13 March 2003. On 17 June 2004, all the assets of the New Zealand trust were transferred to the Trust.

At the time of the application to release the saisie the Trust owns the entire share capital of two companies. The shares of one company,  called Perennial Investment Holdings Limited (“Perennial”) were added to the Trust in 2004. Perennial owned a property in Singapore which it acquired in 2000. That property was subject to a mortgaged in the sum of approximately S$2.4m with remaining equity in the property of over S$1m. The Trust also owned a BVI company called Jonzelle Limited “Jonzelle” which was incorporated on 19 August 2004. In 2005 Jonzelle purchased what is now the home of the settlor’s family in Singapore. That property was again mortgaged to Credit Suisse which has a balance of some S$4.4m, leaving a substantial equity in the property. The Trust also owned a third company which was said to have comparatively little value.

The settlor had also written a letter of wishes dated 19 June 2004 to the original trustee. The letter recognised that the settlor’s wishes were not legally binding upon the trustee and that it granted no rights to any of the potential beneficiaries. However, it expresses the hope that the trustee would take the settlor’s wishes into account when exercising any discretionary powers. The letter went on to say that, during the settlor’s lifetime, the settlor would like the trustee to consider him as the ‘principal beneficiary’ and after his death, he wished the trust fund to be held for his wife and children in specified shares, passing to grandchildren in default. It went on to say that, should all his children die without issue, he would wish the trust fund to be held for the sister-in-law.

 The Law

 The Proceeds of Crime (Enforcement of Confiscation Orders) (Jersey) Regulations 2008 (“the 2008 Regulations”) modify the Proceeds of Crime (Jersey) Law 1999 (“the 1999 Law”) as it applies to external confiscation orders i.e. confiscation orders made by courts outside Jersey.

 The relevant provisions of the modified Law for the purposes of the application were follows:-

 15 Cases in which saisies judiciaires may be made

(1) The powers conferred on the Court by Article 16 are exercisable where –

(a) proceedings have been instituted against the defendant in a country or territory outside Jersey and –

(i) the proceedings have not been concluded, and

(ii) either an external confiscation order has been made in the proceedings, or it appears to the Court that there are reasonable grounds for believing that such an order may be made in the proceedings; or

(b) it appears to the Court that proceedings are to be instituted against the defendant in a country or territory outside Jersey, and that there are reasonable grounds for believing that an external confiscation order may be made in those proceedings.

(2) Where the Court has made an order under Article 16 by virtue of paragraph (1)(b), the Court shall discharge the order if the proceedings have not been instituted within such time as the Court considers reasonable.

 16 Saisies judiciaires

(1) The Court may, subject to such conditions and exceptions as may be specified in it, make an order (in this Part referred to as a saisie judiciaire) on an application made on behalf of the government of a country or territory outside Jersey.

(2) An application for a saisie judiciaire may be made ex parte to the Bailiff in chambers.

(3) A saisie judiciaire shall provide for notice to be given to any person affected by the order.

(4) Subject to paragraph (5), on the making of a saisie judiciaire –

(a) all the realisable property held by the defendant in Jersey shall vest in the Viscount;

(b) any specified person may be prohibited from dealing with any realisable property held by that person whether the property is described in the order or not;

(c) any specified person may be prohibited from dealing with any realisable property transferred to the person after the making of the order, and the Viscount shall have the duty to take possession of and, in accordance with the Court’s directions, to manage or otherwise deal with any such realisable property; and any specified person having possession of any realisable property may be required to give possession of it to the Viscount.

            (5) […]

Article 2 of the modified 1999 Law deals with the meaning of ‘realisable property’ and the relevant provisions are as follows:-

“2 Meanings of expressions relating to realisable property

(1) In this Law, “realisable property” means –

(a) in relation to an external confiscation order in respect of specified property, the property that is specified in the order; and

(b) in any other case –

(i) any property held by the defendant,

(ii) any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Law, and

(iii) any property to which the defendant is beneficially entitled.

[…]

(9) A gift (including a gift made before the commencement of the Enforcement Regulations) is caught by this Law if:-

(a) it was made by the defendant at any time after the conduct to which the external confiscation order relates; and

(b) the Court considers it appropriate in all the circumstances to take the gift into account.”

 Finally, in Article 1(1), dealing with interpretation, the following definition is to be found:-

““property” means all property, whether movable or immovable, or vested or contingent, and whether situated in Jersey or elsewhere.”..

 The Arguments

 The argument advanced on behalf of the beneficiaries was simple:

  • Most of the assets of the Trust – and in particular the two properties in Singapore – did not constitute ‘realisable property’ and cannot therefore properly be made the subject of a saisie judiciaire.
  •  That these assets were contributed to the Trust before any alleged criminal conduct began and, therefore, were not gifts caught by 1999 Law as modified by the 2008 regulations.
  •  The fact that the settlor was a beneficiary of the Trust did not of itself mean that all the assets of the Trust were realisable property.
  •  A beneficiary of a discretionary trust was not ‘beneficially entitled’ to the property subject to the trust.

The Attorney General’s submissions

For the Crown, Advocate Belhomme asserted that the assets of the Trust were in fact realisable property on two grounds:-

  1. It is alleged that the settlor had made gifts to the Trust after the date of commencement of his alleged criminal conduct. The assets of the Trust are therefore realisable property under Article 2(1)(b)(ii) to the extent of such gifts.
  2. (ii) More generally, as the settlor is a beneficiary of the Trust, he was ‘beneficially entitled’ to the assets of the Trust so that all the trust assets are realisable property as falling within Article

The Crown referred to the earlier Jersey decision of Re Kaplan 2009 JLR 88 in which Bailhache, Bailiff made it clear that, when interpreting the 1999 Law, the Court should adopt a purposive approach. Thus at paragraph 18 of his judgment the Bailiff quoted with approval from a passage from an earlier case of In re Illinois District Court 2001 JLR 160 at para 10 as follows:-

It is true that this is not directly in point, but the passage does nonetheless serve to emphasize (a) that the whole purpose of the legislation is to curb the menace of drug trafficking; and (b) that in furtherance of that end it is undesirable for the court to adopt a restrictive view.”

 The Bailiff then went on at paragraph 19 of Kaplan as follows:-

… We agree that the court should try to give effect to the purpose of the legislation. A passage from Maxwell on the Interpretation of Statutes, 12th ed., at 201 (1969), cited by Mr. Belhomme in Batalla-Esquival, seems equally relevant in this case:

“Where possible, a construction should be adopted which will facilitate the smooth working of the scheme of legislation established by the Act, which will avoid producing or prolonging artificiality in the law, and which will not produce anomalous results.”

Clearly, the words of the statute must be given their proper meaning. Nonetheless, the language employed should, having regard to the purposes of the 1999 Law, be construed in such a way as to accommodate the widely different procedures in other jurisdictions designed to penalize the concealing or laundering of the proceeds of serious crime. …”

The Crown then turned to the definition of “property” in Article 1(1) of the modified 1999 Law, namely: “all property, whether movable or immovable, or vested or contingent and whether situated in Jersey or elsewhere”.

Referring to Article 2(1)(d) of the modified 1999 Law, which includes in the definition of realisable property “any property to which the defendant is beneficially entitled”, the Crown submitted that, adopting the purposive construction, a combination of these two provisions was wide enough to encompass the contingent beneficial interest of a beneficiary of a discretionary trust and that the settlor had a contingent beneficial entitlement to the entirety of the assets of the Trust.

Decision

  •  a discretionary beneficiary (whether technically a beneficiary of a discretionary trust or an object of a discretionary power of appointment) is not ‘beneficially entitled’ to the property which is the subject of the trust or power of appointment.
  •  there is no special definition of ‘beneficially entitled’ in the modified 1999 Law. It follows that the States must have intended such expression to have its ordinary meaning and this is to be ascertained by applying ordinary principles of property or trust law
  •  a beneficiary of a discretionary trust has no ‘entitlement’ to any of the trust property. His sole right is to be considered as a potential recipient of benefit by the trustee and he also has a right to have his interest protected by a court of equity (see Lord Wilberforce in Gartside v Inland Revenue Commissioners [1968] AC 553 at 617).

The Court consulted Snell’s Equity (32nd Edition) and Lewin on Trusts (18th Edition) as follows:-

22-005 (b) Nature of the beneficiary’s interests.  The beneficiary’s only right is to be considered for the exercise of the trustee’s discretion and to compel due administration of the trustee’s duties.  He has no more than a hope that the discretion will be exercised in his favour.  Except for any money that the trustee has already appointed to him, he therefore has no interest that his creditors or assigns could claim against.  His interest is not alienable to another person.”

Snell’s Equity (32nd Edition)

1-08 The beneficiary has no equitable proprietary interest in the narrower sense, and of course no equitable ownership, if either his rights or the assets in which they are to be enjoyed are not sufficiently ascertained.  For instance, a discretionary beneficiary, who is merely a member of a class to whom the trustees have a discretion to apply trust capital or income, has no interest in the narrow sense.  He has a mere right to require the trustees to consider from time to time how to exercise their power…”,

Lewin on Trusts (18th Edition)

12.13 A discretionary trust may be of income, or of an interest in income, of capital or an interest in capital, or any combination of these.  The important thing is that someone (usually the trustees) has power to decide how the benefits available should be distributed.  As already stated at para 9.14 above, unless and until the discretion is exercised in favour of a particular person, that person, although a “beneficiary” within the meaning of TJL Art 1(1), has no individual right to call for any part of the distributable assets. …”

Matthews and Sowden, The Jersey Law of Trusts

The Court held that it was incompatible with fundamental principles of trust law to assert that a discretionary beneficiary of a trust is “beneficially entitled” to all – or indeed any – of the assets of the trust.  The true position (uncontroversially) is that a discretionary beneficiary has no right to any of those assets unless or until the trustees decide in their discretion to make an appointment to him and he then becomes beneficially entitled only to such assets as are appointed to him.  As Lord Reid said in Gartside at 607:-

But a right to require trustees to consider whether they will pay you something does not enable you to claim anything. If the trustees do decide to pay you something, you do not get it by reason of having the right to have your case considered: you get it only because the trustees have decided to give it to you.”

Even if a discretionary beneficiary’s interest can be described as ‘contingent property’, it is only that interest which can conceivably be so described, not the underlying property of the trust.  Thus all that could be made the subject of a saisie judiciaire would be a discretionary beneficiary’s interest under the trust, which would mean his right to be considered for appointment by the trustee.  That is completely different from the suggestion that he is beneficially entitled to all or any part of the trust property.

Having disposed of the application on that basis the Court went on the consider the possible consequences of the arguments advanced by the Crown.

All things being equal, there is no difference as a matter of law between the position of one discretionary beneficiary and another.  The fact that one may be the settlor does not make his legal position different, nor does anything said in the letter of wishes.  The fact that the settlor referred to himself as the ‘principal beneficiary’ in the letter of wishes did not alter the legal position. Even if in reality it may be more likely (as a result of the letter of wishes) that the trustee would appoint assets to the settlor than, say, to the sister-in-law, this still does not mean that the settlor is entitled to those assets.  The settlor would only become entitled to them if and when the trustee, in its discretion, appoints them to him.

The logical consequence of the Crown’s argument would have been that the entire trust fund can be made subject to a saisie and in due course confiscated under a confiscation order if any of the discretionary beneficiaries commits a crime in circumstances where an external confiscation order could be made against that beneficiary.  Thus, if a grandfather set up a discretionary trust for his children and grandchildren and if, many years later, one of his ten grandchildren committed a crime such that a confiscation order could be made against that grandchild, the entire trust fund could be made the subject of a saisie and in due course confiscated, to the prejudice of all the other children and other grandchildren of the grandfather.  Had it been the sister-in-law rather than the settlor to have committed a crime which rendered her liable to an external confiscation order the entire trust fund could be taken, even in circumstances where she had never contributed anything to the trust.

The logical flaw in the Crown’s argument becomes even more acute when applied to a fixed trust where the assets are settled upon A for life with the reversion in equal shares to his two children.  Let us assume further that one of those children commits a crime and is liable to have a confiscation order made against him.  It seems obvious that in those circumstances the saisie and any resulting confiscation order could only be made in respect of that child’s 50% reversionary interest.  Yet, on the Crown’s argument, where an offender has no right to any of the trust assets but merely a right to be considered for benefit at the discretion of the trustee, the whole of the trust fund can be taken.

In R v Waya [2013] 1 All ER 889 the UK Supreme Court considered whether in some circumstances the making of a confiscation order could amount to a breach of Article 1 of the First Protocol of the ECHR which provides:-

Every natural or legal person is entitled to the peaceful enjoyment of his possessions.  No-one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.  The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

Article 1 requires a balance to be struck and imports the requirement that there must be a reasonable relationship of proportionality between the means employed by the State in, inter alia, the deprivation of property as a form of penalty, and the legitimate aim which is sought to be realised by the deprivation.  It went on to hold that the mandatory provision of the relevant English statute (which required the court to make a confiscation order) had to be read down so as to provide that the court could only make a confiscation order which would be compatible with the ECHR.

In the Court’s judgment, to make a confiscation order in respect of the whole of a trust fund merely on the ground that the offender is a discretionary beneficiary was disproportionate in that it would remove any possibility of the other (innocent) beneficiaries benefiting from the trust assets.  It would therefore amount to a breach of Article 1 of Protocol 1.

Summary

  • A beneficiary of a discretionary trust is not ‘beneficially entitled’ for the purposes of Article 2(1)(b)(iii) of the modified 1999 Law to any of the assets of that trust.
  • The Court may not grant a saisie judiciaire over the assets of a discretionary trust merely on the ground that the offender (or suspected offender) is a beneficiary of such a trust.
  • That is not to say that a saisie can never be ordered against the assets of a discretionary trust.  It will often be the case that there is evidence that the offender has contributed assets to the trust after the date upon which the alleged criminal conduct began.  In those circumstances the trust assets would be realisable property under Article 2 (1)(b)(ii) to the extent of any such gifts.  It is not to prove that such gifts were the proceeds of the criminal conduct.  The legislation does not require there to be any link between the proceeds of crime and the realisable property.
  • It follows that is might well be appropriate to make an application for a saisie judiciaire against a trust in support of an anticipated application to register an external confiscation order where there is evidence of gifts to a trust after the date upon which the criminal conduct in question began.  In deciding whether to grant the saisie at that stage the Court will have regard to the policy objectives of the legislation in seeking to remove from offenders the benefit of criminal conduct but must at the same time have regard to the need for any order to be proportionate.
  • This does not close the door entirely to the possibility of a saisie judiciaire being made in respect of the entire extent of the trust fund where, for example, all the trust property has been settled after the alleged criminal conduct began and in circumstances where the settlor was the only discretionary object of the trust.
  • In the present case, the Attorney General was not entitled to maintain the saisie on the ground that all the assets of the Trust are realisable property by virtue of the settlor’s position as a beneficiary of the Trust.  However, there was evidence of gifts by the settlor to the Trust after the commencement of the alleged criminal conduct.  Accordingly, the Court maintained the saisie whilst directing that further investigations be carried out as to the extent and timing of any such gifts and ordered the trustee of the Trust to provide information about gifts to the Trust.

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s