What is trust revocation and retention?

Perez v Equiom Trust Corp (UK) Ltd and another [2022]

Ms Belen Velutini Perez (the Claimant) is an unmarried wealthy 98-year-old without children or immediate family. The claim concerned assets worth between $30m and $50m which had been held within various trust structures since 2011 (the Assets).

On 15 April 2021 the BCV Foundations Trust (the Trust) was established to replace the previous settlements. Equiom Trust Corp (UK) Ltd were appointed as trustees (herein described as the Former Trustees).

By deed on 8 November 2021 the Claimant revoked the Trust (the Revocation), and subsequently set up the BCV Trust (the New Trust) on substantially the same terms as the Trust, save that the New Trust was irrevocable. Geneva Trust Company (GTC) were appointed as trustees.

The Claimant has health, sight and mobility issues, but medical evidence confirmed that she had capacity to make the decisions she did in November 2021.

The decision

Declaration

As established in Rolls-Royce v Unite the Union [2009], the court’s power to grant declaratory relief is discretionary, and there must be a real and present dispute between the parties as to the existence or extent of a legal right between them, with the parties being affected by the court’s determination of the issue.

The validity of the Revocation, and the fact it resulted in the Assets being held by the Defendants on bare trust, was not disputed by the Defendants at the time of judgment. However, such challenge had been raised before and the judge concluded there remained a real risk that further difficulties could arise. The declaration sought by the Claimant was therefore granted.

Assets Transfer

The Defendants accept that the Assets must be transferred to GTC to be held in the New Trust. However, they continued to resist a deadline on the transfer being completed. There had already been delay, not just on the part of the Defendants, but the nature of the Assets and the steps required to transfer them were not straightforward. Despite substantial disclosure, it remained unclear precisely what remained outstanding, what steps needed to be taken and by whom, or a timeline for the transfer.

The court held that both the Defendants and GTC owe duties to the beneficiaries and should ensure they cooperate to transfer the Assets without further delay. The Assets needed to be transferred within 28 days of this judgment being handed down, failing which witness statements would need to be produced by the Defendants and GTC on both the current position and indicated timescale for completing the transfer. A further hearing to be listed if required.

Retention

This was the main area of dispute. It was common ground that the Defendants have a right of indemnity from the Assets, which enables them to retain Assets to the extent required “to meet the worst case on the basis of reasonable but not fanciful assumptions, making proper enquires as to what the future liabilities consist of”. However, the Defendants’ position was that they should be able to retain $1.5m indefinitely until they are satisfied there will be no further liabilities or expenses, whereas the Claimant’s position was $250,000 held for up to three years was sufficient. Poles apart from each other.

• i) PMA Arbitration

This was an arbitration commenced in September 2021 subject to Venezuelan law. Neither the Defendants or previous trustees were parties to it. The Defendants’ proposed retention of $1.5m included $500,000 against the risk of having to defend themselves from enforcement action that might arise from the PMA Arbitration, whereas the Claimant provided for no retention in relation to the PMA Arbitration.

The court found that such enforcement proceedings arising from the PMA Arbitration against the Defendants was “not reasonably arguable, and the risk is entirely fanciful”. Therefore, no retention was granted in relation to this.

• ii) Handover and litigation costs

The Defendants sought to retain c.$330,000 for handover costs to GTC and c.$280,000 for the costs of these proceedings. Despite ‘working on the estimates’ between December 2021 and March 2022, they were no more detailed – the explanation being the Defendants had hoped the Claimant would agree to a full indemnity and so had not undertaken any detailed work on the quantification. The Defendants also said they hoped there would be considerable surplus, which suggested the sum sought exceeded that which they actually thought they would incur. At the subsequent hearings the figures asserted by the Defendants continued to vary, without the introduction of a thorough evidential basis for the same. This was a factor that could not be ignored by the court.

To take his own words – doing the best he could on the limited evidence available but having regard to the figures put forward – the judge held that $500,000 was a reasonable sum for both handover and legal costs. The balance of sums retained should be released.

The court confirmed that any determination of the amount of the retention does not affect the actual costs which may be incurred or allowed on assessment in due course.

• iii) Time period

The Defendants sought no limit, whilst the Claimant sought three years. The court found that by the time this judgment was handed down the transfer of Assets will be virtually completed or a time limit imposed, and this claim will have been substantially determined. As no retention for the PMA Arbitration had been granted the timing of the arbitration needed not be considered. Taking account of all the above, the court determined a retention period of 12 months from the hand-down of this judgment would be adequate.

Indemnity

The final issue was whether the Defendants can rely on their right to an indemnity for costs and expenses in respect of the Revocation and transfer of Assets.

The judge referred back to the summary of Lady Asplin: “[An indemnity] is designed to ensure that the trustee is not out of pocket when acting in his capacity as trustee on behalf of the trust and that the trust is efficiently and properly administered… Were the expenses properly incurred? And were they incurred by the trustee when acting on behalf of the trust?”

The judge held that upon receipt of the Revocation the Defendants were entitled to seek advice and to incur the reasonable costs of doing so as well as the reasonable costs for assisting with the transfer of the Assets, including the costs of their advisers – but only to the extent they are properly incurred.

The judge found the Defendant’s conduct since they were notified of the Revocation caused both parties to incur unnecessary costs and cause delay, which would qualify as misconduct. The decision therefore was that the indemnity should be limited to 70% of their incurred costs/expenses.

Commentary

The judge commented that the Claimant was entitled to expect the Defendants and GTC (as former and new trustees) to co-operate to resolve these types of issues in a proportionate manner, without the need for court intervention. The judge also considered it was not unreasonable for the Claimant to issue the claim when she did, rather than wait to see what the Former Trustees would do. For example, it was only after the claim was issued that the Defendants accepted the revocation was valid. This, combined with the ongoing delays in progressing the transfer of Assets, feed into the question of the Defendants’ conduct.

Did the majority of the claim ever really need to come before the court at all? A detailed assessment of costs (if decided) will be telling.