Abubaker Mohammed Megerisi plaintiff v 1. Protec Trust Management Establishment 2. Paget-Brown Trust Company Ltd Defendants
| Jurisdiction | Cayman Islands |
| Judge | Chief Justice,Hon. Anthony Smellie |
| Judgment Date | 10 December 2012 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 79 OF 2012 – ASCJ |
| Date | 10 December 2012 |
In the Matter of the Trusts of A Settlement Dated 31 st March 1994 Between Abubaker Mohammed Megerisi and Protec Trust Management Known as the Goldentrust
And In the Matter of the Trusts law (2001 Revision)
And In the Matter of GCR O. 85, r.2
The Hon. Anthony Smellie, Chief Justice
In Chambers
Mr. Edward Davidson QC instructed by Morven McMillan of Mourant Ozannes for the Plaintiff
Mr. Andrew De La Rosa of ICT Chambers instructed by Lucy Diggle of Mourant Ozannes for Paget Brown Trust Company (with him Mr. Sydney Coleman of Paget Brown)
Mr. Chris Young of Forbes Hare for Simmons & Simmons and their insurers (holding a watching brief with permission of the Court)
This is an application by the Plaintiff, Mr. Abubaker Megerisi, to rectify a voluntary settlement made by him on 31 st March 1994 and known as the Golden Trust.
The settlement was originally constituted under the laws of the Principality of Liechtenstein, which thus became the initial forum for its administration.
However, the concerns leading to the need for its rectification having come to light and primarily for the reason that the laws of Liechtenstein do not allow for rectification (as to which legal expert evidence has been made available to this Court); the proper law of the settlement was changed to the laws of the Cayman Islands. This was done in keeping with enabling provisions within the settlement deed and the Cayman Islands became the new forum for its administration.
This effectively took place when the second defendant was appointed as Trustee, replacing the first defendant (a Liechtenstein entity) on 31 st October 2011.
The second defendant is incorporated in and carries on business in the Cayman Islands and is the sole current trustee.
The settlement is a discretionary settlement in favour of the Plaintiff (‘the Settlor’) and his immediate family, with power (not exercised to date) to add beneficiaries, and with an ultimate gift to charity if no beneficiary is living or in existence at the expiry of the trust period.
The error which it is sought to be corrected by way of rectification lies in the omission from the settlement when the deed was originally subscribed, of the very corpus of the trust. The error resulted in the omission of an assignment to the first defendant (as original trustee) of an asset, namely loans totaling £7,950,000 and USD5,434,617; the principal asset which the Settlor avers he intended to settle.
The circumstances of the omission — arising from a mistaken belief on the Settlor's part the result in turn of an omission on the part of his lawyers in the preparation of the deed of settlement — are relied upon by the Settlor now as basis for the grant of the equitable discretionary relief of rectification.
Thus, the case is unusual (though not unique) in that the error which it is sought to correct is one of omission, rather than an error to be found in either the expressed beneficial or administrative provisions of the settlement as it stands.
This unusual feature is, however, described by counsel as being without significance because:
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(1) The legal principles applicable to the rectification of voluntary settlements in general apply to this case exactly as to any other, and
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(2) The applicability of those principles is now established in the Cayman Islands (as well as in the U.K.). This, in the context of the Cayman Islands, could hardly be more pointedly illustrated in this case than by the earlier case of Omar Megerisi v Scotiabank Trust (Cayman) Limited and Another 2004–05 CILR 456. That was the case in which rectification of a settlement was granted on the application of the brother of the Settlor, in circumstances of a like omission of assignment of assets by way of settlement upon a Cayman Islands trust, resulting from the mistaken belief that they were included in the settlement. There, too, the omission was that of the lawyers who drafted the settlement deed, the same lawyers responsible for the present deed.
The difference in the factual circumstances between this and Omar Megerisi's case — that of the domicil of origin of the two settlements — I do not regard as a bar to relief by way of rectification, for reasons to be explained below.
The evidence filed in support of the present application comprises in the main an affidavit filed by the Settlor himself (sworn on 30 th November 2011) with documentary exhibits and an affidavit filed by Mr. Patrick Daniels (also with exhibits) sworn on 28 November 2011.
Mr. Daniels was the lawyer responsible in common both for the drafting of this settlement and that in Omar Megerisi's case. He frankly admits to the omission from the settlement as described above (and had frankly so admitted to the similar omission in Omar Megerisi's case) and explains how it came about.
In essence, despite the Settlor having made known his wishes and intention to settle the aforementioned loans upon the trust, Mr. Daniels had failed to make this known to his associate lawyers within his firm, those who actually drafted the deed of settlement. Mr. Daniels also failed to recognise the omission from the schedule to the settlement of the trust assets when the deed was presented to the Settlor for execution. This is evidence that I had no hesitation in accepting. It is clearly and cogently set out in Mr. Daniels” affidavit and the true nature of the Settlor's intentions and wishes is supported by contemporaneous file notes and internal memoranda retrieved from within the files of Mr. Daniel's firm and exhibited in the evidence.
For his part, not only is the Settlor's account supported in the same way, but his own evidence also explains the background leading to the perceived need on his part to create the settlement and to settle the assets (the loans) upon it, in a manner that is equally cogent and compelling. I take the following summary from that, very helpfully, provided by Mr. Davidson Q.C. in his written submissions.
The Settlor's domicil of origin is Libya but he came to take up residence in London in 1978. Under the United Kingdom Inheritance Tax Act 1984 (section 267 (1) (6) in particular), (‘the Act’) a person who had been resident in the U.K. for the relevant period (as defined under and for the purposes of that section) became deemed to be domiciled there for the purposes of the Act and his assets which were situated in the United Kingdom at the time of deemed domicil, became liable to inheritance tax.
As at the 6 th April 1994 (after 16 consecutive years of residence and that being the first day of his 17 th year of residence and the completion of the relevant period), the Settlor became subject to the Act and had been advised in late 1993 by Simmons & Simmons (Mr. Daniel's firm and the Settlor's and his family's established legal advisers) that he would become deemed U.K. domiciled for inheritance tax purposes on that date.
Accordingly, Simmons & Simmons advised him to settle the bulk of his business assets upon trust before becoming deemed U.K. domiciled that is: before the 6 th April 1994.
By section 6(1) of the Act, property situated outside the U.K. is excluded property, and so outside the scope of inheritance tax, but only if the person beneficially entitled to it is an individual domiciled outside the U.K. So, on 31 st March 1994 when the settlement was created, the Settlor could still have settled property situated outside of the U.K. without incurring inheritance tax. However, as at 6 th April 1994, the making of any such settlement might have been vulnerable to inheritance tax.
The property situated outside of the U.K. as at the time of the settlement on 31 st March 1994, took the form not only of the receivables by way of the loans but also the form of certain shares in a Cayman Islands company as explained below.
The Settlor's assets at the time of settlement included one-third of the shares in Garden Holdings Limited (‘GHL’) the Cayman Islands company in question, all of the shares in which were held jointly and beneficially with his father, Mohamed Megerisi (through a trust earlier settled by him) and brother Omar.
Accordingly, the 100 issued shares of USD 1.00 each in GHL were owned beneficially by each in equal shares and they were each entitled equally between them to repayment by GHL of interest free loans which they had made to GHL in a combined total of £23.85 million and USD16,303,581. These were loans made for the purpose of reinvestment in their various family businesses and it was this arrangement that was the source of the loans owed to the Settlor mentioned above in the amounts of £7,950,000 and USD5,434,607.
The shares in GHL were themselves only of little or nominal value. The real value, representing at the time of settlement the bulk of the Settlor's wealths; was in the loans and so it was of crucial importance, given the perceived need for a settlement, that they be included in it.
The evidence is that this was sought to be done at a meeting in the afternoon of 29 November 1993 between the Settlor, Mr. Daniels and Mr. McNeile, (an associate within Simmons & Simmons), for the settlement of his assets upon his trust. There is a memorandum of the same day by Mr. McNeile which was copied to Mr. Daniels and to Mr. Way (a tax partner at Simmons & Simmons who was assisted by Mr. McNeile) and which noted that the Settlor's assets included ‘one-third share in Garden Holdings’ and that ‘Golden Investments [another Cayman Islands Company not germane for present purposes] and...
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