The Dispute Resolution team at Ogier in Jersey has successfully represented UK administrators BDO and Creditforce Limited in a significant multi-million-pound fraud judgment against a trustee found to have misappropriated assets in a vehicle purporting to be a charitable trust.
In its judgment in Cohen & Crooks as Joint Administrators of the Estate of James Donald Hanson & Anor v Arbitrage Research and Trading S.A. & Ors, Jersey’s Royal Court made findings of fraud against the former trustee of a Jersey trust.
In coming to its conclusions, the Royal Court also revisited the test for determining whether a trust is a sham and considered, for the first time, when it might be appropriate to exercise its statutory jurisdiction to save a trust which is wholly or partially unlawful.
The case involved the estate of the late James Donald Hanson, who during his lifetime had been the second most senior figure globally within accountancy firm Arthur Andersen.
It revolved around a breakdown in relations between the appointed executors of the estate and, in particular, a Jersey-registered purportedly charitable trust (the SR Charitable Trust).
The first plaintiffs in the case were partners of BDO, Malcolm Cohen and Shane Crooks, Joint Administrators appointed by the High Court of England and Wales to administer the estate after relations between Mr Hanson’s appointed executors broke down. The second plaintiff is an English limited company wholly owned by the Estate, Creditforce Limited (Creditforce), which had been Mr Hanson’s private investment vehicle during his lifetime.
It was alleged by the plaintiffs, represented by the Ogier team, that the trust was a sham trust intended in reality to operate as a personal tax avoidance mechanism for personal investments, holding shares in a company worth some £20m.
The Royal Court found for the plaintiffs and concluded that the Trust was established to shelter assets from UK taxation, and that it was never the intention for the Trust to be a genuine charitable trust.
Further, the Court found that the assets held by the Trust had been fraudulently misappropriated and transferred by the sole remaining trustee after Mr Hanson’s death to vehicles first in St Kitts and Nevis and ultimately Panama.
The Ogier team representing the plaintiffs in the ten-day trial included Partner Nick Williams, Managing Associate James Angus and Associate Matthew Davies.
Commenting on the case, Nick Williams (pictured) said: “We are really pleased to have come to a successful conclusion on behalf of the administrators in what was a lengthy and highly complex case that brought together a number of significant and progressive points for practitioners and trustees alike. These included sham trusts, the treatment of reckless indifference of trustees, the validity and definition of charitable trusts, and the discretion of the Royal Court to intervene to save a trust which is partly lawful.
“Of particular note in relation to the concept of fraudulent breach of trust, the judgment has resulted in the adoption into Jersey law recent English authority that an award of compound interest is the standard order against a fraudulent trustee. Meanwhile, on the point of proving trustee reckless indifference, the Royal Court appears to have left the door ajar, which may raise its head again in future cases.”