Trust - applications for the Court's blessing of two decisions - decision
and reasons
[2022]JRC288
Royal Court
(Samedi)
16 December 2022
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Before :
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Sir Michael Birt, Commissioner, and Jurats
Averty and Le Cornu
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Between
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Equiom Trust (C.I.) Limited
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Representor
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And
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(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
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Respondents
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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.
Background
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.
French tax issue
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.
The current application
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.
(i) Application
under Article 47(3)
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:
“Where in the management or
administration of a trust, any sale, lease, pledge, charge, surrender, release
or other disposition, or any purchase, investment, acquisition, expenditure or
other transaction is in the opinion of the court expedient but the same cannot
be effected by reason of the absence of any power for that purpose vested in
the trustee by the terms of the trust or by law the court may confer upon the
trustee either generally or in any particular circumstances a power for that
purpose on such terms and subject to such provisions and conditions, if any, as
the court thinks fit and may direct in what manner and from what property any
money authorised to be expended and the costs of any transaction are to be paid
or borne.”
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:
“24. Powers of trustee
(1) Subject
to the terms of the trust and subject to the trustee’s duties under this
Law, a trustee shall in relation to the trust property have all the same powers
as a natural person acting as the beneficial owner of such property.”
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).
(ii) The
Trustee’s decision to challenge the French Tax Levy
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:
“I am of the opinion that an
executor or trustee under a Jersey will or settlement should not pay
unenforceable debts without an order of the Royal Court.”
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].
(iii) Provision
of security
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.
Summary of conclusions
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.
Authorities
Trusts (Jersey) Law 1984.
Re
Greville Bathe Fund [2013] (2) JLR 402.
Dicey, Morris and Collins, The
Conflict of Laws, 16th edition.
Re Walmsley [1983] JJ 35.
Goff & Jones, Law of Unjust
Enrichment
Lewin on Trusts, 20th ed