Ruling in favour of Estera on its application for the strike out of certain aspects of the Claimants’ claim against it, the court chronicled the authorities on each of the trustee de son tort  and ex tunc  points.

Estera was the trustee of the R&S Trust which was purportedly initially established in August 2014 (the Trust). When Estera was approached to take on the trusteeship, Mr Lagur, the Second Defendant, was the trustee of the Trust but the Trust instrument provided for the appointment of a new trustee. Estera agreed to take on the appointment as trustee but only on the basis that the Trust be converted into a trust under the regime set out in the Virgin Islands Special Trusts Act (VISTA). The Trust was therefore converted into a VISTA trust by way of a deed of amendment dated 31 May 2016 (the Amendment Deed). The Amendment Deed was, however, set aside by order of the Court dated 2 May 2018.

The Claimants’ claim is that Mr Lagur, along with the Third Defendant, Mr Ivakhiv, effectively forged the Trust instrument. Mr Lagur and Mr Ivakhoiv were the owners, along with the late Mr Ieremiev, through a number of offshore companies, of a large private enterprise in Ukraine known as the Continuum group. The Claimants are the widow and son of Mr Ieremiev and they claim that Mr Lagur and Mr Ivakhiv fabricated the Trust in order to shift value from Mr Ieremiev’s portion of the Continuum group to themselves. In the alternative, the Claimants claim that even if the Trust was valid, various acts of value shifting occurred. Estera, as the replacement trustee was accused of acting in breach of trust and assisting with the alleged value shifting.

The Claimants alleged that if the Trust was fabricated (their primary case) then Estera was liable as a trustee de son tort. In the alternative they alleged that if the Trust was valid then Estera was liable under the provisions of the VISTA legislation.

Estera filed an application for strike out and summary judgment on the bases that:

1. it could not possibly be a trustee de son tort, inter alia, because the Claimants were arguing that the Trust was invalid and in order for obligations to arise as a trustee de son tort  there needs to have been an underlying valid trust or other fiduciary relationship; and
2. if the Trust is valid then Estera could not be liable under the provisions of the VISTA legislation because the Amendment Deed had been set aside and when voluntary dispositions are set aside the set aside operates ex tunc.

In considering the point at which an order setting aside a trust operates, Justice Wallbank considered the Jersey case of Re Strathmullen Trust, which is authority for the proposition that an order setting aside a trust operates ex tunc. This judgment relied upon numerous extracts in Lewin on Trusts  including the following:

This approach was also followed by the Jesey court in In re Ontario Settlement  where it was also noted that this conclusion was in line with English law as explained in Pitt v Holt  and the earlier case of AC v DC.

Justice Wallbank then having gone on to find that Estera had been operating under an operative mistake (in that it thought that the beneficiaries knew and approved of the conversion of the Trust to a VISTA trust) and that the Trust was a voluntary disposition, went on to find that the 2 May 2018 order had the effect of setting aside the Amendment Deed as if it had never been made. Accordingly, Estera could not be liable under the provisions of the VISTA legislation. The claim made on the basis that the Trust was valid was therefore “incurably hopeless and ought to be struck out”.

With regard to the situation if the Trust is invalid, Estera argued that it could not possibly be a trustee de son tort  because a number of key conditions for the imposition of obligations as a trustee de son tort  had not been met.

In summarising the position with regard to the concept of trustees de son tort, Justice Wallbank (with reference to Lewin  and after having reviewed a number of cases in this area) stated that:

1. a trusteeship de son tort  is not an express trusteeship but one that arises by operation of law;
2. trusts that arise by operation of law include constructive trusts;
3. constructive trusts are of two kinds – ‘institutional trusts’ and a ‘formula for equitable relief’;
4. in the case of ‘institutional trusts’, relief is granted by reference to a pre-existing trust or other fiduciary relationship; and
5. trusteeships de son tort  are a kind of institutional trust.

Following from this, Justice Wallbank found that although for a trustee de son tort  to arise there was no requirement for there to have been an “express trust” (ie a formally created trust) there does need to be some “pre-existing trust or fiduciary relationship”. In this case, if the Trust was invalid there was no pre-existing trust.

The Claimants had asserted that there was a pre-existing trust in that there was a constructive trust because they alleged that Mr Lagur had assumed the purported trusteeship fraudulently. The problem with this, however, is that this would constitute a constructive trusteeship of the ‘second kind’ namely “nothing more than a formula for equitable relief imposed where no fiduciary relationship previously existed”. Lewin  at [8-011] refers to two classes of constructive trust, namely (1) constructive trusts which arise by operation of law (the ‘first kind’); and (2) “the imposition by the court of the liability to ‘account as constrictive trustee’ by way of remedy” (the ‘second kind’).

In short Justice Wallbank noted that the Claimants’ error had been:

Accordingly, Justice Wallbank found that the “Claimants have no reasonably arguable case that Estera assumed liability as a trustee de son tort  if the R&S Trust was invalid”. The parts of the claim based on the allegation that Estera was a trustee de son tort  were therefore also to be struck out.

This decision is important because there are relatively few decisions in the BVI or elsewhere in relation to trustees de son tort  or the point at which orders operate when trusts are set aside. Justice Wallbank, in his well-reasoned decision, however, sets out succinctly the reasoning in the main cases and practitioner textbooks in these areas. It will therefore be a useful decision whenever issues concerning the setting aside of voluntary dispositions or whether or not a trusteeship de son tort  has arisen come up.

Claire Goldstein, Victoria Lissack, Kimberly Crabbe-Adams and Julia Iarmukhametova from Harneys acted for Estera in these proceedings, alongside Robert Weekes KC of Blackstone Chambers and James Walmsley of Wilberforce Chambers