Judgment was handed down by His Honour Deemster Rosen on 21 August 2023 in Cruz City 1 Mauritius Holdings v. Unitech Ltd & others following a trial in the High Court of Justice of the Isle of Man, Civil Division (Chancery Procedure) held in Douglas last month.
The trial concerned a claim made by the claimant (Cruz) against the fifth defendant (Nectrus) seeking a declaration to the effect that Nectrus had settled all of its assets, rights and interests on bare trust for its ultimate parent company, Unitech. The bare trust declaration was sought in the context of Cruz’s enforcement of an arbitral award against Unitech pursuant to which some US$365m or so is said to remain outstanding. Enforcement steps have taken place or remain ongoing in several jurisdictions including England and Cyprus. The claim was dismissed by His Honour Deemster Rosen.
The 145-paragraph judgment contains a review of the principles and key authorities pertaining to proof of a so-called ‘inferred express trust’ in the absence of an explicit or written declaration by the putative settlor: see paragraphs [57] to [81]. This analysis includes discussion of drawing adverse inferences from missing evidence (see [79] to [81]) and the operation of the burden of proof in cases where alternative legal explanations, e.g. corporate control of debtor evasion, may suffice (see [122] & [123]) given that a trust structure alters the fundamental distinction between ownership of shares in a corporate entity and ownership of assets by that corporate entity. This discussion is prefaced in paragraph [7] of the judgment with the following observation:
“… whilst Cruz’s claim turns on specific facts without great legal dispute, it tests more generally the legal relationship between parent and subsidiary companies set up offshore for tax purposes, and the limits of the legal proposition often cited by reference to Salomon v Salomon & Co Ltd. [1897] AC 22, an English case concerned with the Companies Act 1862…”
The claim failed because “the bare trust alleged was not justified on any rational basis by the facts proved” (paragraph [144]). As stated in [143]:
“On full examination at trial there are many – and some fundamental – objections to Cruz’s desired inference as regards a declaration of trust over Nectrus’ assets and I am well satisfied that it is not established on the balance of probabilities. The bare trust alleged was glaringly uncertain. Cruz fails both on its pleading, and on the evidence, according to law.”
The judgment is expected to be of interest to company law, insolvency and trusts practitioners given its focus on common behavioural attributes of an offshore entity and the cogency of evidence needed to find a declaration of (bare) trust by a subsidiary in favour of its (direct or indirect) parent in light of separate corporate personality.
A link to the full judgment can be found here.
Stephen Houseman KC appeared pursuant to special licence for Nectrus at trial, instructed by Chiva Samani at Athena Law in the Isle of Man and assisted by Andrew Legg (Essex Court Chambers), Edward Blakeney (Falcon Chambers) and Hugh Cartwright & Amin LLP in London.
