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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Equiom Trust (CI) Limited v Mattas and Ors [2022] JRC 288 (16 December 2022) URL: http://www.bailii.org/je/cases/UR/2022/2022_288.html Cite as: [2022] JRC 288 |
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Trust - applications for the Court's blessing of two decisions - decision and reasons
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Before : |
Sir Michael Birt, Commissioner, and Jurats Averty and Le Cornu |
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Between |
Equiom Trust (C.I.) Limited |
Representor |
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And |
(1) Jean-Pierre Mattas (2) Philippe Mattas (3) The Government of Greece (4) HM Attorney General (5) Richard Arthur Falle and John Le Cras Bisson as Executors of the Will of Aréty Racadji Deceased |
Respondents |
Advocate S. J. Williams for the Representor.
Advocate R. D. J. Holden for the First Respondent.
Advocate P. Ali-Noor for the Second Respondent.
Advocate S. J. Alexander for the Third Respondent.
Advocate S. A. Meiklejohn for the Fourth Respondent.
The Fifth Respondents were excused attendance.
judgment
the COMMISSIONER:
1. This is an application by the Representor ("the Trustee") for the Court to exercise its powers under Article 47(3) of the Trusts (Jersey) Law 1984 ("the 1984 Law") to vary the administrative provisions of a trust and for the blessing of two decisions which it has taken in connection with a potential French tax liability.
2. Following the conclusion of the hearing on 24 November, the Court announced that it was refusing the application under Article 47(3), it was blessing the first decision of the Trustee and it was refusing to bless the second decision.
3. What follows constitutes our reasons for reaching those decisions.
4. Constantin Mattas ("the deceased") died on 30 November 1979, domiciled and resident in Jersey. He left a will and two codicils (together "the Will") in respect of which probate was granted on 16 January 1980 to the Trustee (as executor and trustee) under its former name.
5. Under the terms of the Will, the residue of the deceased's estate ("the trust fund") was to be held upon certain trusts. In the events which have happened, those trusts are as follows:
(i) The income is payable in equal shares to the First Respondent ("Jean-Pierre") and the Second Respondent ("Philippe") for their lives. They are the two nephews of the deceased.
(ii) On the death of the first of the nephews, the income which would have been paid to him is to be accumulated until the death of the second nephew.
(iii) On the death of the surviving nephew, the capital and accumulated income is to be paid to the Greek Government. Specifically, Clause 11 of the Will directs the Trustee to pay the trust fund:
"....to the Greek Government in Athens which for the purposes of construing this clause shall be any Greek Government in Athens recognised as such by the Government of the United Kingdom of Great Britain and this for the purpose of creating a 'Prêt d'Honneur Trust' to be known as 'The Dr Constantin Mattas Scholarship Fund' to employ the income arising from the same in such manner as the Greek Government shall see fit to provide further university education in England, France, Germany, Italy and the USSR (subject to the proviso hereinafter contained with regard to the children and grandchildren of the said Jean-Pierre Mattas and Philippe Mattas) for intelligent and promising young men of Orthodox Greek Church religious belief born in Greece of Greek Nationals also of Orthodox Church religious persuasion....provided always that the children and grandchildren whether male or female of my two nephews the said Jean-Pierre Mattas and Philippe Mattas wherever born and whatever their religious belief and whatever the religious beliefs and nationality of their parents shall be entitled to and have priority to further education in the manner aforesaid from the 'Prêt d'Honneur Trust' to be created by the Greek Government from the Trust Fund..." (the "Intended Capital Trust")
6. A question has arisen as to the validity of the Intended Capital Trust and this will be subject of determination by the Court at a hearing in February 2023. If the Intended Capital Trust is held to be invalid, there will be an intestacy in respect of the trust fund after the death of the nephews. In that event, one half of the trust fund will be paid to the estate of the deceased's sister (hence the presence of the Fifth Respondents) and her will provides that her residuary estate is to be paid to the Government of Greece to be applied towards charitable objects, namely the supply of food to and the maintenance of the needy children of Greece. The other half will pass equally to the nephews.
7. The upshot is that if the Intended Capital Trust is valid, the trust fund will pass to the Greek Government to be held upon the terms of the Intended Capital Trust. If, on the other hand, the Intended Capital Trust is invalid, the trust fund will pass as to one-quarter to each nephew and as to one-half to the Greek Government to hold upon different terms from the Intended Capital Trust, namely for the benefit of the needy children of Greece.
8. It follows that at this stage the Trustee is not certain for whom it will hold the capital of the trust fund.
9. In July 2019, the Trustee received a tax assessment from the French Tax Authority ("FTA") which levied a tax charge on the Trustee as trustee of the trust fund ("the FTA notice"). The FTA notice was levied in connection with French wealth tax. Until 1 January 2018, all French residents with a net asset value exceeding €1.3m were subject to French wealth tax payable annually on the value of their worldwide assets. From 31 July 2011 all assets held in a trust wherever situated were deemed to be the assets of the settlor for these purposes. Should the original settlor have died, the beneficiaries were treated as the deemed settlors in relation to their respective shares.
10. As Jean-Pierre was resident in France at the relevant time when French wealth tax was in existence (2011 - 2017), the Trustee submitted annually a 'Déclaration de Constitution, Modification Ou D'Extinction D'un Trust' to the FTA confirming the existence of the trust fund and the fact that it had a French resident beneficiary (namely Jean-Pierre) who was entitled to income but not to capital.
11. The FTA notice was issued to the Trustee on the basis that the nephews were each 'deemed settlors' of one-half of the trust fund despite the fact that they had no entitlement to the capital. Jean-Pierre had not disclosed his interest in the trust fund on his French wealth tax return because he was only entitled to income and had no access to the capital. Nevertheless, the FTA raised an assessment calculated as 1.5% of the value of Jean-Pierre's deemed half share of the trust fund from 1 January 2013 to 31 December 2017 plus interest. This assessment is known as the 'Prélevement Sui Generis' or the 'Sui Generis Levy'. We shall refer to it simply as "the Levy".
12. The Trustee has taken French tax advice from the firm of Desfilis and Jean-Pierre has also taken tax advice which has been disclosed to the Trustee. Both advisers confirm that the primary obligation to pay the Levy is that of the Trustee and that if it fails to do so then there is a joint and several liability on the part of the beneficiaries. The amount of the Levy including interest currently stands at €954,511, with interest continuing to accrue.
13. The Trustee has been advised that it has a reasonable prospect of successfully appealing the Levy or alternatively reducing its amount. The process of challenge is in two stages. First, there is a challenge to the FTA to see if it will change its decision. Secondly, if the FTA refuses to do so, there is a right of appeal to the French courts. An appeal lies from any decision of the first instance court to the Court of Appeal and thence ultimately to the Cour de Cassation.
14. Recently, there have been developments which have resulted in the matter needing to be dealt with as a matter of some urgency. On 7 October 2022, the FTA served an enforcement notice on Jean-Pierre which had the effect of freezing his bank account. It would further result in payment out of the bank account of the amount of the Levy (or all the money in the account if less, as it is at present) unless the Levy was paid or a challenge to it was brought within two months. This development was brought to the attention of the Trustee on 14 October and it was in those circumstances that the Trustee filed its Representation on 18 October.
15. Since the filing of the Representation, there have been further developments. In particular, in order to lift the freezing of his bank account, Jean-Pierre has mounted his own appeal against the Levy and has given the FTA security over his home in respect of the Levy. This has resulted in the FTA releasing the freeze over his bank account.
16. The Trustee sought three main heads of relief at the hearing on 24 November:
(i) It applied under Article 47(3) of the 1984 Law for an order varying the provisions of Clause 11 of the Will so as to add specific powers to pay tax and fiscal liabilities whether domestic or foreign, to give security over the trust fund or any part thereof and to bring and compromise proceedings before any competent body, authority or court.
(ii) It sought the blessing of the Court to its decision to challenge the Levy both with the FTA and before the French courts.
(iii) It sought the Court's approval of its decision in principle to provide substituted security for that provided by Jean-Pierre.
We shall consider each of these in turn.
17. Clause 11 of the Will is very limited in the administrative powers it confers on the Trustee. The only substantive power is one of investment which authorises the Trustee to invest in such investments as they may in their absolute discretion think fit regardless of whether such investments are authorised by law for the investment of trust monies. The Trustee is concerned that there is no specific power to pay foreign taxes (particularly if unenforceable) or to give security over the trust fund in respect of any actual or contingent liability or to institute proceedings such as an appeal to the French courts in respect of an alleged tax liability.
18. It therefore applies under Article 47(3) of the 1984 Law which provides as follows:
19. The applicable principles for the exercise of the power under Article 47(3) were considered in Re Greville Bathe Fund [2013] (2) JLR 402 at [39] - [45]. The Court held that there were three matters to be considered on an application under the Article, namely whether the Court has jurisdiction to act under the Article, whether it is expedient to confer the power which is sought and whether the Court should, in the exercise of its discretion, confer that power. The meaning of 'expedient' was described as anything that would benefit the trust as a whole.
20. The factual situation in the Greville Bathe case was however very different from that in the present case. There was no trust deed at all and it was clearly expedient that the powers of the trustees should be set out in written form.
21. We can well understand why the Trustee has made its application under Article 47(3) in this case. However, we do not consider that it is necessary. That is because of Article 24(1) of the 1984 Law which provides:
22. Article 58 of the 1984 Law goes on to state that, subject to the exceptions in Article 59 (none of which are applicable in this case) the 1984 Law shall apply to trusts constituted or created either before or after the commencement of the 1984 Law. It follows that Article 24 applies to the trusts created under the Will.
23. As Advocate Williams ultimately accepted during the hearing, a natural person acting as the beneficial owner of property has power to pay foreign taxes (even if they are not enforceable against him), to give security over his property in respect of any actual or contingent liability and to institute proceedings, including to take court proceedings to challenge any claimed tax liability against him.
24. It follows that the Trustee, pursuant to Article 24(1), already has all the powers which it seeks under its application. In those circumstances, given that the powers are only sought because of a particular issue which has arisen, we do not think it expedient to confer the powers expressly, as there is no need to do so.
25. We should of course emphasise that, although the Trustee has the legal power to pay any French tax (even if unenforceable), to give security in respect of that tax liability, and to take proceedings to challenge that liability, the question of whether it would be a breach of trust to do so is of course a very different matter and Article 24(1) itself makes clear that the power to carry out transactions is subject to a trustee's duties under the 1984 Law. But that would equally be the position if the powers were conferred expressly as requested by the Trustee; the exercise of any such specific powers would still be subject to the Trustee's fiduciary duties.
26. For these reasons we rejected the Trustee's application under Article 47(3).
27. In relation to this issue and issue (iii), the Trustee has made its decisions in principle and seeks the Court's blessing to those decisions. The position of the Court is therefore different from that on issue (i). In relation to issues (ii) and (iii), the Court must consider first whether each decision is a momentous decision. We are satisfied that both of them are. If it is a momentous decision then, before it can give its blessing, the Court must satisfy itself that (i) the Trustee's decision has been formed in good faith, (ii) the decision is one which a reasonable trustee properly instructed could have reached, and (iii) the decision has not been vitiated by any actual or potential conflict of interest. There is no suggestion that (i) and (iii) are not satisfied in both instances and we are therefore only concerned with (ii).
28. The Trustee has decided that it should challenge the Levy both with the FTA and by way of appeal to the French courts if necessary. In this, it is supported by Jean-Pierre and Philippe, but is opposed by the Greek Government and the Attorney General. The reason for this difference of opinion amongst the beneficiaries arises out of what has been referred to in these proceedings as the 'revenue rule', namely the principle encapsulated in Rule 20 of Dicey, Morris and Collins, The Conflict of Laws, 16th edition at 8R-001 which states that the English courts have no jurisdiction to entertain an action for the enforcement, either directly or indirectly, of a revenue law of a foreign state. That principle is equally applicable in Jersey in relation to the Jersey courts; see for example, Re Walmsley [1983] JJ 35.
29. On behalf of the Greek Government, Advocate Alexander, supported by Advocate Meiklejohn on behalf of the Attorney General representing charitable interests, submitted that the Levy is unenforceable in Jersey pursuant to the revenue rule and that, as the trust fund has no assets in France so as to be available to the FTA, it would be a breach of trust for the Trustee to pay the Levy; see Walmsley at page 38. It would therefore be wrong to spend money from the capital of the trust fund in order to challenge the imposition of the Levy. Such expenditure would only be for the benefit of Jean-Pierre and he was an income beneficiary who had no interest in the capital. The correct approach was therefore to ignore the Levy and it was outside the band of reasonable decisions for the Trustee to expend money from the capital of the trust fund on challenging the Levy.
30. Advocate Williams, supported by Advocate Holden and Advocate Ali-Noor, submitted that the position was not as simple as Advocate Alexander suggested. The evidence before the Court from both tax advisers was to the effect that the primary liability for payment of the Levy rested with the Trustee, with the beneficiaries being jointly and severally liable if the Trustee did not pay. As Jean-Pierre was resident in France and had given security over his home, any enforcement would no doubt be against him with the result that he would ultimately pay the Levy.
31. The Trustee was advised that, in those circumstances, Jean-Pierre would have a right of recovery against the Trustee for any sums which he paid. This right of recovery or indemnity could be said to arise in a number of ways. First, it could be said to arise as a matter of restitutionary principle - see Goff & Jones, Law of Unjust Enrichment at 19-19 to 19-21 and the authorities cited therein. Alternatively, a right of indemnity could be said to arise under principles analogous to those in respect of 'caution' under Jersey law, whereby a guarantor who pays a debt which he has guaranteed is entitled to be reimbursed by the principal debtor. Similarly, the evidence before the Court from Desfilis was that Jean-Pierre would have a right of indemnity against the Trustee under French law. The Trustee submitted that such a claim to indemnity/reimbursement would not amount to indirect enforcement of a foreign tax liability.
32. The Trustee further submitted that, if the Trustee decided voluntarily to pay the Levy or to reimburse Jean-Pierre after he had paid the Levy, and thereafter the Court merely approved of this decision on the part of the Trustee, that would not amount to indirect enforcement of a foreign tax claim contrary to the revenue rule. There would be no element of enforcement. The decision to pay the tax or indemnify Jean-Pierre would be that of the Trustee and it would be open to the Trustee to pay the sum or indemnify Jean-Pierre without the approval of the Court. The fact that the Court was being asked to approve the payment would not amount to enforcement as the Court would not be ordering the Trustee to pay the Levy or indemnify Jean-Pierre. Furthermore, the fact that the Court might approve a payment of a foreign tax in appropriate circumstances was clearly envisaged by the Crill DB in Walmsley where he said at page 38:
He then went on at 39-41 to consider some of the circumstances in which the Court might grant such an order.
33. It seemed from the skeleton arguments that the parties were inviting the Court at this stage to determine definitively whether it would be proper and/or reasonable for the Trustee either to pay the Levy or to reimburse Jean-Pierre if he should pay it and whether the Court should bless any such decision given the existence of the revenue rule.
34. In our judgment, that would be premature. At present it is not known whether the Levy will be successfully challenged or reduced, nor is it known how, assuming he has to pay it, Jean-Pierre would frame any claim to indemnity or reimbursement, nor is it known for whom the Trustee is holding the trust fund given the issue which has arisen concerning the validity of the Intended Capital Trust.
35. What one can say is that, should the issue of whether any claim to reimbursement by Jean-Pierre would be enforceable in this jurisdiction or whether this Court should approve a decision of the Trustee to reimburse Jean-Pierre arise in due course, the answer is not straightforward and there are arguments both ways. On the one hand, the revenue rule in respect of indirect as well as direct enforcement is a well established rule of private international law which is applied in this jurisdiction. On the other hand, the courts have already recognised some circumstances in which a trustee may properly pay a foreign tax liability; see Lewin on Trusts, 20th ed at 19-026. It is at least arguable that such circumstance should be extended to cover the facts of this case. Indeed, during the course of these submissions, Advocate Alexander ultimately conceded that there was a lack of certainty as to whether Jean-Pierre could successfully bring a claim to indemnity or reimbursement in the event of his having to pay the Levy.
36. In those circumstances, we do not think it appropriate at this stage to resolve the arguments over the effect of the revenue rule on the particular facts of this case when those facts are not yet definitively determined.
37. Turning to whether the Court should approve the Trustee's decision to challenge the imposition of the Levy, such decision is in our judgment entirely reasonable and should be approved. We so conclude for the following reasons:
(i) The principal liability to the Levy rests with the Trustee. It is reasonable therefore for the Trustee to take the lead on challenging the Levy so as to be in control of such challenge. By bringing its own challenge, the Trustee will be able to ensure that all the points which it wants to make in support of the challenge are properly put in the way it would wish and that appeals to the French courts are taken as far as it considers reasonable. Although Jean-Pierre is also challenging the imposition, he will run his own arguments and may or may not be willing to take the same points in the same way as the Trustee would wish or take the challenge as far in the French court system as the Trustee would wish.
(ii) The French tax advice is that, if the Trustee does not pay the Levy, liability falls upon all the beneficiaries. Whilst it is true that, because of their residence, it might be difficult for the FTA to enforce any such liability against the Greek Government or against charitable interests, the fact remains that they would have this liability. In those circumstances, it would be in their interests as well as the interests of those beneficiaries resident in France for the Levy to be successfully challenged so that it no longer exists or is in a reduced sum.
(iii) There is no downside to the Trustee challenging the Levy other than the costs of doing so. Thus, the fact that the Trustee will have participated in challenging the Levy will not affect the outcome of any ultimate proceedings concerned with whether the Trustee would have to reimburse Jean-Pierre.
(iv) It is not appropriate to disclose in this judgment the details of the advice which the Trustee has received on the merits of any challenge but suffice it to say that the Trustee advises that there are reasonable prospects of removing or reducing the Levy. As stated above, any such removal or reduction would be to the benefit of all the beneficiaries.
(v) The Trustee has been advised that the costs of challenging the Levy would be comparatively modest, particularly in the context of the amount of the Levy and the value of the trust fund as a whole. The fund is worth approximately £20 million and the amount of the Levy as at a 7 October 2022 was €954,511 with interest continuing to accrue. The estimated cost of mounting a challenge is less than €100,000. Because the likelihood of Jean-Pierre successfully claiming an indemnity is not certain, as discussed above, the Government of Greece and charitable interests, as capital beneficiaries, face some risk of the capital of the trust fund having to be utilised to indemnify Jean-Pierre. In those circumstances, it is reasonable for the Trustee to conclude that it is in the interests of the beneficiaries as a whole to incur costs at the comparatively modest level referred to above (having regard to the amount of the Levy and the value of the trust fund) in the hope of extinguishing or reducing the Levy.
38. For these reasons, we consider the decision of the Trustee to challenge the imposition of the Levy to be reasonable and we give our approval. [REDACTED].
39. The Trustee also seeks approval to its decision in principle to provide security to the FTA in respect of the Levy, so as to allow the security over Jean-Pierre's home to be released by the FTA. The Trustee's decision is supported by Jean-Pierre and Philippe but is opposed by the Greek Government and the Attorney General.
40. The Trustee considers that it has a strong moral obligation to assist Jean-Pierre given his vulnerable position. He is only an income beneficiary, but he is at risk of losing his home because of a charge based upon the capital of the trust fund, to which he has no entitlement. He is 88 years old and the evidence is that he is in poor health and that the whole matter has put a great deal of strain on him both physically and mentally. His daughter's affidavit disclosed a short report from Jean-Pierre's doctor advising that he should avoid any stressful situations given his current state of health.
41. The Court fully understands the wish of the Trustee to assist Jean-Pierre in these circumstances. However, the Trustee's duty is to act in the best interests of the beneficiaries as a whole and, on the facts as they now are, we cannot accept that the Trustee's decision is reasonable. We so find for the following reasons:
(i) There is no need for the Trustee to provide security. The security provided by Jean-Pierre over his home means that the Trustee does not have to provide security in order to mount its challenge to the Levy both before the FTA and the French courts.
(ii) Not surprisingly, it is clear from the minutes of the Trustee meeting on 18 November, that the FTA insists on security against which it would be able easily to enforce any tax liability which is ultimately upheld. Thus, it is said in the minutes that the FTA would insist either on the Trustee paying the amount of the Levy into the FTA's bank account or into the account of Desfilis on terms that, if the Levy is upheld, that sum is paid to the FTA.
(iii) It follows that the effect of the Trustee providing security would be that it would lose completely the chance of arguing that the Levy is not enforceable against it (either directly or by way of a claim for reimbursement by Jean-Pierre). If security is provided, the FTA will simply enforce against the security in France if the challenge to the Levy is unsuccessful.
(iv) In circumstances where there are perfectly arguable grounds for contending that the revenue rule would prevent Jean-Pierre succeeding in any claim against the Trustee for reimbursement, it cannot be in the interests of the beneficiaries as a whole (particularly the capital beneficiaries) to, in effect, give up the possibility of this argument by providing security against which the FTA could enforce, particularly in circumstances where it is not necessary to do so as summarised at sub-paragraph (i) above. The Trustee would in effect be surrendering at this stage on the whole issue of enforceability, direct or indirect, against it.
(v) We accept that the current situation is very stressful for Jean-Pierre and the provision of security by the Trustee would ameliorate that position. However, that cannot be a reason to put the capital of the trust fund at risk when it is not necessary to do so. Furthermore, although this is not material, we note in passing from his daughter's affidavit, that the FTA already has security over Jean-Pierre's home in respect of another tax liability, from which we presume that security over his home would remain even if the security in respect of the Levy were removed.
42. We remind ourselves, as Advocate Holden urged, that it is not a question of what we would do if we were the trustee; we can only refuse our blessing if the Trustee's decision is not one which any reasonable trustee, properly directed, could reach. However, for the reasons we have given, we are satisfied that this is the case. By giving security when it is not required in order to challenge the Levy, the Trustee would be accepting that it will pay the Levy (if upheld) in circumstances where there are serious arguments that it should not do so as a result of the revenue rule.
43. For the reasons set out above, our decision was as follows:
(i) We refused the Trustee's application to vary the terms of Clause 11 of the Will pursuant to Article 47(3) of the 1984 Law.
(ii) We approved the Trustee's decision to challenge the Levy both with the FTA and by bringing proceedings in the French courts [REDACTED].
(iii) We refused to approve the Trustee's decision to provide security to the FTA in substitution for the security provided by Jean-Pierre.
