Hidayat Ullah v Mohammed Anf Ullah & Anor
[2023] EWHC 3313 (KB)
Alan Adams & Ors v FS Capital Limited & Ors
3 July 2023
[2023] EWHC 1649 (Ch)
High Court
Imagine a group of people lent money through a complicated tax scheme. When the scheme fell apart, the trustee sold the debts cheaply to a company with inside knowledge. The judge decided this was cheating and gave the debts back to the people who originally lent the money. The company that bought the debts and the trustee who sold them will have to pay for their wrongdoing.
Key Facts
- •Disputed sale of debt assets held in three Jersey trusts (the Trusts) to the First Defendant (FS Capital Limited).
- •Claimants (around 700 beneficiaries) allege the sale (the Disposal) was for an improper purpose and in breach of trust.
- •Defendants deny the claims, asserting the sale was legitimate.
- •The Trusts were part of Employer-Financed Retirement Benefit Schemes (EFRBSs) impacted by the UK Loan Charge.
- •The Loan Assets comprised rights to repayment of loans made to beneficiaries.
- •The First Defendant counterclaimed for loan repayment from the Claimants.
- •Significant non-engagement by many Claimants with the trustee.
- •The consideration for the sale was primarily based on fees owed to the trustee and Hatstone Jersey, not a valuation of the Loan Assets.
- •Metadata discrepancies in several documents raised concerns about document creation dates.
Legal Principles
Improper purpose rule in the exercise of fiduciary powers.
Grand View Private Trust Co Ltd v Wong [2022] UKPC 47
Duties of a trustee in an insolvency situation (cash-flow insolvency).
Representation of the Z Trusts [2015] JRC 196C; BTI 2014 LLC v Sequana SA [2022] UKSC 25
Trustee's right of indemnity and power of sale.
Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36
Bona fide purchaser for value without notice.
Trusts (Jersey) Law 1984, Articles 33, 54, 55
Fraud on a power – void or voidable?
Cloutte v Storey [1911] 1 Ch 18; Pitt v Holt [2013] UKSC 26
Setting aside voidable transactions.
Rice v Rice 61 ER 646; Snell’s Equity
Liability of retiring trustee for successor's breach of trust.
Head v Gould [1898] 2 Ch 250
Outcomes
Claimants' challenge to the Disposal succeeds.
The Disposal was made for an improper purpose, breaching the Trusts. The First Defendant had actual notice and cannot claim bona fide purchaser status. The Disposal was void (Beneficial Interest).
Counterclaim dismissed.
The First Defendant's right to enforce loans is voided by the improper purpose of the Disposal.
First Defendant liable for knowing receipt of trust property (potentially).
Further hearing needed to determine the extent of liability as it is not possible for all the Loan Assets to be transferred back.
Second Defendant liable for breach of trust.
The Second Defendant's actions facilitated the breach of trust, despite regulatory concerns being the stated reason for their retirement.
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