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avoidance, sham, Taxation, Trustees, Trusts

Equity as a sword upholds ruse

The Court of Appeal has upheld the High Court decision in Glover No 2 Limited v Glover Trust Limitd et ors  that a deed of bare trust that was entered into only to avoid a tax liability was a valid document and did not represent a sham.

The deed of bare trust was entered into to “obscure what had happended”.  What had happened being a considered, if hastily prepared arrangement whereby the following documents were executed:

  • deed of trust
  • trustee resolution distributing properties to the new trust
  • trustee resolution accepting the properties
  • transfer documents
  • memorandum of wishes
  • deed of novation regarding a joint venture
  • deed of bare trust

The first six documents referred to were to achieve the object of transferring four properties from one trust to another following a relationship breakdown.  The purported transfer was to secure property for the benefit of the trust’s settlor and her children.  The fly in the ointment was that there would be a significant tax impost following the transfer of the properties.  The solution put forward was document number 7 the deed of bare trust for production to Inland Revenue if necessary to evidence that there had not really been a transfer.

For further background on the transaction see earlier post A ruse is not a sham even if it is

When things fell apart it was argued that while the first six documents were valid, the seventh was not. 

The Court of Appeal was no more moved by the arguments put forward than the High Court was finding that:

  • the parties’ intention was unmistakable
  • the inconsistency between the deed of bare trust and the trustee resolution relating to the distribution was clearly explainable in that the trustee resolution must be read as subject to the deed of bare trust, otherwise the resoluton “would make no legal sense”
  • there was no intention to conceal the true nature of what had happened, the deed of bare trust was clear
  • the parties could not have intended an express trust in appearance only.

The case is a salutory lesson in not trying to be too clever.  It is also a useful reminder that courts will look to the equitable jurisdiction to ensure a “ruse” such as this cannot be used to defeat creditors.  In otherwords, equity as a sword …

References:

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Discussion

2 thoughts on “Equity as a sword upholds ruse

  1. Vicki – my comment isn’t specifically related to this blog but I wanted you know how helpful I find your blogs. Thank you.

    Posted by Glyn Lewis-Jones | December 12, 2013, 11:13 am

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