NEW ZEALAND COURT GRANTS INTERIM ORDER TO PREVENT CREMATION AFTER WEIGHING BALANCE OF CONVENIENCE

In Clark v Cottingham [2018] NZHC 773, the New Zealand High Court considered an oral and without notice application for an interim order to prevent a cremation which was to be held in the afternoon on the same day of the hearing. The Court granted the order in terms, deciding that there was a serious issue to be tried and that far greater harm would result if the order was not made.

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HONG KONG COURT OF APPEAL REAFFIRMS NATURE OF BEDDOE APPLICATIONS

The Court of Appeal in Hong Kong has recently reaffirmed the nature of the Beddoe jurisdiction in Jong Yat Kit (as Sole Administrator of the Estate of Li Chung (Deceased) v Lee Man For and Ors (unrep, CACV 147/2017, [2018] HKCA 235). In adopting its previous decision in Re Mong Man Wai, Deceased [2013] 4 HKC 179, this case provides a reminder to defendant beneficiaries that the Beddoe jurisdiction is not a trial. Although a beneficiary defendant may be heard in such an application, the focus of the Beddoe court is the protection of the trust or estate’s interest such that a worthwhile claim should not be left unpursued for want of indemnity from the trust or estate against the trustee or personal representative’s potential exposure to costs. We consider the decision further below.

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Filed under Hong Kong and Singapore, Trustee directions

Cayman court rejects request to appoint receivers over a discretionary trust interest

The Grand Court of the Cayman Islands has held that a discretionary interest under a Cayman Islands law trust is not an asset over which a receiver can be appointed for the purposes of enforcing an arbitral award (Y v R – Mangatal J, 9 January 2018). Continue reading

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ENGLISH HIGH COURT CONSIDERS THE USE OF THE COURT’S EQUITABLE JURISDICTION TO REMEDY DEFECTIVE EXECUTION

In the recent High Court decision of English v Keats [2018] EWHC 637 (Ch), the Court confirmed that it will use its equitable jurisdiction to remedy the defective execution of a deed of appointment. The case, in certain circumstances, has arguably also widened the meaning of ‘defective execution’, to include cases where one of the appointers failed to sign the deed. The case has cemented the modern application of this doctrine which dates back to at least 1728 and the case has also provided the potential for the scope of the “categories of people” condition to be reformed and widened in the future. Continue reading

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HSF Private wealth team boosted by three promotions

Herbert Smith Freehills’ highly regarded private wealth team has been boosted by the promotion of Joanna Caen and Gareth Keillor to Partner and Of Counsel respectively.  HSF’s private wealth team specialises in trusts, estates, charities, family company and mental capacity issues.  It frequently collaborates with other specialists across the firm including real estate, tax, funds and corporate.  The team is further strengthened by the promotion to partner of Nick Clayton.

Joanna heads up the firm’s private wealth practice in Greater China and is based in the Hong Kong office.  She travels frequently to Singapore and other destinations across Asia.  She can call upon a multi-lingual team across the firm’s Asia network.

Gareth has been with the firm since 2003 and has a particular specialism in contentious work.  He has worked on numerous matters involving Russia and former CIS states and a number of the leading offshore jurisdictions.  Gareth is based in the London office.

Nick is also based in the London office and specialises in tax disputes and investigations and works frequently on issues involving ultra-high net worth individuals.  He has particular experience of Switzerland-related issues.

If you would like to know more about HSF’s work in this area, please speak with Gareth, Joanna or Nick, alternatively Richard Norridge who heads up the team.

Richard Norridge
Richard Norridge
Partner
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+44 (0)20 7466 2686
Joanna Caen
Joanna Caen
Partner
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+852 2101 4167
Nick Clayton
Nick Clayton
Partner
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+44 (0)20 7466 6409
Gareth Keillor
Gareth Keillor
Of Counsel
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+44 (0)20 7466 2350

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REASONABLE FINANCIAL PROVISION CLAIM TRUMPS FINAL WILL EXCLUDING COHABITANT FROM THE ESTATE

The High Court of England and Wales has upheld a claim by a cohabitant of 42 years under the Inheritance (Provision for Family and Dependants) Act 1975 for reasonable financial provision, despite her being expressly written out of the deceased’s final will. We discuss the case (Thompson v Ragget & Ors [2018] EWHC 688) below.

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Personal representative liable for inheritance tax on fully distributed estate

 

The First-tier Tax Tribunal (“FTT“) has provided a valuable reminder in the case of Harris v HMRC [2018] UKFTT 204 that, with limited exceptions, personal representatives are liable for inheritance tax arising on the deceased’s estate (Section 200 Inheritance Tax Act 1984). Continue reading

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Filed under Tax, Wills

Cayman Islands court considers legal test for mental capacity in exercise of a legal power

The Grand Court of the Cayman Islands recently confirmed In the Matter of the O Trust (23 February 2018) that the legal test for establishing mental capacity for the exercise of an impugned legal power, in this case a reserved power under a discretionary trust deed, is the same as for the making of a will.

Background

A discretionary trust was established which initially provided for the settlor’s niece and nephew to be the ‘remaindermen’. However only shortly after settlement of the trust, the settlor changed the remaindermen from the niece and nephew to the first defendant, a trusted friend, using a power vested in the settlor under the trust deed.

In 2012 the settlor sought to exercise the power once again to make the second defendant, another trusted friend, the remainderman. The trustee, who pursuant to the trust deed was able to decline to accept an exercise of the power by the settlor, declined to give effect to the amendment.  This was because the trustee feared the settlor may not have been mentally capable of exercising the power. The settlor subsequently attempted again to exercise the power in favour of the second defendant by declaration to the trustee in 2015. The trustee however asked for the settlor to be examined by an independent physician before acquiescing to the amendment. The settlor provided medical records from her own doctors but was never examined by an independent doctor agreeable to the trustee before her death later that year.

Despite the trustee’s unfettered power to decline the proposed amendments by the settlor, due to the trustee’s relative unfamiliarity with the parties and a desire to be prudent, they asked the court to determine who the true beneficiary was under the trust. The issue was whether the settlor had had the capacity to exercise the power of amendment in either 2012 or 2015.

Judgment

Kawaley J heard from a large number of factual and expert witnesses before concluding that the settlor did have the requisite mental capacity to amend the trust deed in 2012 and 2015.

The legal test for capacity

The Court held that the test comprised of two limbs:

  1. What does the law recognize as the essential requirements for establishing capacity; and
  2. How should that test be applied depending on the factual matrix of the case?

Kawaley J confirmed that the essential requirements for establishing capacity are the same whether the question is posed in the context of making a will or exercise of any other impugned legal power. The judge cited Gibson LJ in the English case of Hoff-Atherton [2004] EWCA Civ 1554 who summarized the relevant test and in doing so drew on the words of Cockburn CJ in Banks v Goodfellow (1870) LR 5 QB 549:

it is essential … that a testator shall understand the nature of his act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he might give effect …”

This did not go so far as to require the settlor always to have the level of understanding and lucidity required to exercise the power in question, merely that they had such an understanding at the requisite time. This was evident from Banks v Goodfellow where the testator had spent many years prior to executing his will in a mental asylum, but nevertheless possessed the capability to execute his will at the relevant time.

Burden of proof

Despite the usual presumption of capacity, the Court adopted a ‘practical approach’ and held the burden of proof fell on the second defendant to discharge.  This was so because she was asserting that capacity had existed at the relevant times. The judge also addressed another important issue in this case, which was that the second defendant’s husband was in fact the settlor’s lawyer and drafted the 2012 and 2015 documents purporting to make the second defendant the beneficiary. It was therefore submitted that the standard civil burden of proof was insufficient and should be raised to reflect the fact that the person preparing the relevant instrument could be expected to benefit from its implementation. Kawaley J however rejected this submission and confirmed that the civil standard remained the standard of proof citing Fuller v Strum [2001] EWCA Civ 1879 in which Chadwick LJ had held that while the Court must be suspicious of circumstances where the author of the instrument stands to benefit from it, and seek to ensure that the testator approved of the instrument’s contents, this did not necessitate a higher standard of proof in every case.

Level of understanding required

The Court also reiterated the principle that the requisite level of understanding a settlor needs is dependent on the facts of each case. Kawaley J relied in this regard on the judgment of Martin Nourse QC (as he then was) in re Beaney [1978] 1 W.L.R 770 who set out the principle that the requisite degree of understanding required is “relative to the particular transaction which it is to effect“. Therefore an act relating to a minor or trivial asset may require a lower degree of understanding than an act which purports to deal with the entirety of the trust assets. The Court also stated that this is to be viewed in parallel with the important principle set out In re Walker (deceased) [2014] EWHC 71 (Ch) that the evidential threshold for capacity in the context of elderly testators should be low “so as to not deprive elderly persons of the ability to make wills in their declining years.”

Relevant factors

In concluding that the settlor did indeed have the requisite capacity at the relevant times the Cayman Court relied on a number of factors:

  • The settlor changed the principal beneficiary to the first defendant, a geographically local friend rather than distant relatives, shortly after establishing the trust;
  • The settlor’s decision then to nominate the second defendant instead was entirely rational given the support that she had provided to the settlor for many years;
  • The settlor also changed her will in 2012 to make the second defendant her beneficiary and this was not challenged by the first defendant;
  • The first defendant took no active role in the proceedings, nor did he challenge the impugned exercise of power in 2015 despite being afforded the opportunity to do so; and
  • The impugned exercise involved simple assets and two individuals who were known to the settlor for many years prior to the exercise of the power.

Comment

This case demonstrates a welcome clarification of the position relating to mental capacity in the Cayman Islands as well as providing interesting analysis on a number of points and principles from cases of this nature. It however most usefully demonstrates that the legal test for establishing mental capacity is uniform whether the case concerns the making of a will or the exercise of inter vivos powers.

Richard Norridge
Richard Norridge
Partner
Email | Profile
+44 (0)20 7466 2686
Joanna Caen
Joanna Caen
Senior Consultant
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+852 2101 4167
Gareth Keillor
Gareth Keillor
Senior Associate
Email | Profile
+44 (0)20 7466 2350

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Filed under Mental capacity, Offshore

UK authorities obtain first Unexplained Wealth Orders

In our recent blog post on the introduction in the UK of Unexplained Wealth Orders (“UWOs“), which can be found here, we explained how the new investigative tool could affect you and your business. In short, UK authorities may require the owner of property to provide details of how the property was acquired, where the authority has reasonable grounds to suspect that the owner would not have sufficient lawfully obtained assets to finance the purchase of the property.

Although UWOs were only introduced on 31 January 2018, the UK National Crime Agency (“NCA“) has already acted so as to secure two UWOs in connection with assets with a total value of £22m belonging to an unnamed “politically exposed person” from central Asia. In an accompanying press release, Donald Toon, the Director for Economic Crime at the NCA, stated that UWOs “have the potential to significantly reduce the appeal of the UK as a destination for illicit income” and that they will “enable the UK to more effectively target the problem of money laundering through prime real estate in London and elsewhere“.

It is clear that the UK authorities are prepared to use UWOs in appropriate cases. As set out before, HM Government has not yet provided guidance on best practice in responding to a UWO. However, as the UK authorities have now secured UWOs, there may now be more information regarding the obligations of a respondent in replying to a UWO, either as a result of judicial decision or official guidance.

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Supreme Court considers limitation defence where directors have benefited from breach of fiduciary duty

The UK Supreme Court has recently considered section 21(3) of the Limitation Act 1980 which provides or a six-year limitation period for actions by a beneficiary to recover trust property or in respect of any breach of trust (other than where the claim is based upon a fraud or fraudulent breach of trust, or where the claim is to recover trust property held by a trustee, for which there is no limitation period).

In Burnden Holdings (UK) Limited v Fielding and another [2018] UKSC 14, the Supreme Court held that directors of companies are to be treated as being in possession of the property of their company. This means that in actions brought by companies against their directors in relation to the company’s property, the directors will be unable to rely on the six year limitation period where they are in possession of the trust property or its proceeds or have converted the trust property. The Court also commented, in passing, in relation to the (very common) position where trustees hold assets through companies. Continue reading

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Filed under Fiduciaries, London, Trust disputes