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Mrs Justice Roberts gives comprehensive summary of the law regarding sham trusts

Trust disclosed in Form E found to be genuine

In ND v SD & Ors [2017] EWHC 1507 (Fam) Mrs Justice Roberts has been concerned in financial remedy proceedings with the resolution of a preliminary issue concerning whether a trust set up by the husband is genuine or whether, as the wife has claimed, it is a sham and of no legal significance in the computation of the resources which will fall to be divided between them. Roberts J found that the trust is genuine, thus removing some £50 million from the overall computation of the couple's accumulated family wealth.

The couple had been married for some 25 years or more and have two daughters who are now 28 and 25 years old. The applicant wife applied for financial remedy orders. The husband disclosed in his Form E the existence of an offshore trust which was set up in 2007. He claimed that, with his wife's agreement, the vast bulk of the fortune which was built up over the course of their marriage was settled into the trust for the benefit of their children shortly after their separation. Neither the husband nor the wife are beneficiaries of the trust.

In paragraphs 176 to 190 of the judgment (running in total to 268 paras), Roberts J provides a comprehensive modern summary of the law regarding sham trusts.

She agrees with the guidance and analysis of Munby J (as he then was) in A v A [2007] EWHC 99 (Fam). He said:

"[49] … Whatever the settlor or anyone else may have intended, and whatever may have happened since it was first created, a trust will not be a sham – in my judgment cannot as a matter of law be a sham - if either:

(i) The original trustee(s), or

(ii) The current trustee(s),

were not, because they lacked the relevant knowledge and intention, party to the sham at the time of their appointment. In the first case, the trust will never have been a sham. In the second case [which is not relevant here – my addition], the trust, even it was previously a sham, will have become a genuine – a valid and enforceable – trust as from the date of appointment of the current trustee(s)."

Munby J went on to review earlier authorities.

"What is required," concludes Roberts J, "is a common intention [on the part of the trustees not to act on the terms of the trust deed], but reckless indifference will be taken to constitute the necessary intention."

Roberts J was not persuaded on the evidence that there was such an intention and concluded that the trust was genuine.

The judge also said that it was clear from Munby J's judgment in A v A that a trust which is not initially a sham cannot subsequently become a sham. Since Roberts J found that the 2007 trust was not a sham, nothing said or done subsequently could make it so.

For the judgment, click here.

24/6/17