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Saunders v Vautier - Guernsey's version

Gordon Dawes and Matt Guthrie, Mourant, Partners, Guernsey, 27 February 2020

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The Guernsey Court of Appeal case of Molard International (ptc) Ltd v Rusnano Capital AG (in liquidation) was decided just before Christmas. It dealt with the rights of a single beneficiary of a trust - which might be a family member - to bring that trust to an end.

The case tackled head-on the Guernsey statutory equivalent of the rule in the leading English trust law case of Saunders v Vautier [1841] EWHC J82, (1841) 4 Beav 115 (of which all trustees and compliance officers at wealth management firms ought to be aware) and the question of whether an existing single beneficiary could require a trust to be terminated notwithstanding that the trust instrument contained a power to appoint additional beneficiaries in circumstances where an individual claimed that he too should be appointed beneficiary and opposed the termination of the trust.

The facts of the case

The factual background is set out succinctly by the Court of Appeal (Sir Michael Birt, the former Bailiff of Jersey, now also a Justice of Appeal of the Cayman Islands, John Martin QC, also a Cayman Justice of Appeal, and David Perry QC).

Rusnano Capital AG (in liquidation) was a subsidiary of a Russian state-owned entity. The group invested in nanotechnology. A Mr Pavel Erochkine was one of its employees. He worked on a transaction where an investment was made in a company called Pro Bono Bio plc (PBB). The shares in PBB were to be held through a trust called the RN Pharma Trust. The trustee was a BVI company called Molard International (ptc) Ltd and the appointor and enforcer of the trust was another BVI entity called Pullborough International Corp. Mr Erochkine beneficially owned both BVI companies.

There was a dispute between Mr Erochkine and Rusnano Capital about the background to the creation of the trust and whether there had been an intention that Mr Erokchine should benefit from the success of the investment in PBB through the mechanism of the trust by being added subsequently as a beneficiary.

The trust instrument itself contained powers to add or exclude beneficiaries; nobody had exercised these powers. At all relevant times there was only one beneficiary, Rusnano Capital.

The liquidator of Rusnano Capital wrote to the trustee calling for the determination of the trust and invoking section 53 Trusts (Guernsey) Law 2007 which states: "Without prejudice to the powers of the Royal Court under subsection (4), and notwithstanding the terms of the trust, where all the beneficiaries are in existence and have been ascertained, and none is a minor or a person under legal disability, they may require the trustees to terminate the trust and distribute the trust property among them."

The construction of s53(3) and the right to terminate

The preliminary issue arose as to whether the power to appoint meant that the beneficiary class had not been ascertained and therefore the s53(3) right to terminate did not arise.

The Deputy Bailiff found in favour of Rusnano Capital, holding that, contrary to the generally accepted effect of the rule in Saunders v Vautier and notwithstanding the fact that the Guernsey provision was the enactment of an equivalent principle, the object of a mere power was not a beneficiary within the meaning of the Law of 2007. Rusnano Capital was the only beneficiary and could therefore require the trust to be terminated.

He held that: "What matters...is how to give effect to the statutory regime that operates in Guernsey, using the definitions found in the 2007 Law itself and giving the other words their meanings through applying usual principles of statutory interpretation."

He went on to find that the definition of a beneficiary in the Law of 2007 did not extend to the object of a power to appoint. In doing so, the Deputy Bailiff applied the same distinction drawn in the Jersey case In re Exeter Settlement [2010] JLR 169.

The Court of Appeal

The Court of Appeal upheld the Deputy Bailiff's judgment. It accepted that the construction of s53(3) meant that Guernsey law may not be to the same effect as the rule in Saunders v Vautier (the court not finding it necessary to determine the issue under English law). It followed that, as a matter of Guernsey law, the agreement of the object of a power of appointment was not required by s53(3). The court noted that English trust law had in certain respects been modified by statute both in Jersey and Guernsey.

Section 53(4) - a twist

However, there was a twist. Both parties appeared to have overlooked the significance of s53(4) when arguing about s53(3). It was only in the Notice of Appeal that the possible effect of subsection (4) was raised for the first time by the appellants.

Section 53(4) says that: "The Royal Court, on the application of any person mentioned in section 69(2), may (a) direct the trustees to distribute, or not to distribute, the trust property, or (b) make such other order in respect of the termination of the trust and the distribution of the trust property as it thinks fit."

Section 69(2) includes a trustee, settlor, beneficiary or "...with the leave of the Royal Court, any other person."

It followed that, although the appeal failed in respect of the construction of s53(3), it succeeded in its reliance on s53(4).

The court found that the Royal Court could make an order under subsection (4) notwithstanding satisfaction of the requirements of subsection (3). It enabled the Royal Court, amongst other matters, to make an order directing the trustees not to distribute the trust property and to make such other order in respect of the termination of the trust as it thought fit. The court therefore upheld the Deputy Bailiff's construction of s53(3) but remitted the case to him to consider the exercise of his discretion under s53(4).

The court gave examples of the way in which s53(3) might operate.

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