Former law firm partner ‘should have known better’ in trusts breach, CoA rules

A former partner in 'a well-known firm' is among a number of trustees who carried out a scheme to cut out beneficiaries from trusts in Jersey, according to the Court of Appeal.

FS Capital Limited & Ors v Alan Adams & Ors concerned transactions (referred to in the judgment as ‘the disposal’) carried out by FS Capital Ltd, a company registered in England and Wales. It purchased loan assets from three Jersey trusts, basic consideration was paid and deferred contingent consideration was capped at a maximum of £1,176,033.93 which was the sum allegedly owed to the trusts’ creditors. The book value of the loan assets was £410 million. That figure was subsequently reduced to £279 million.

Mr Justice Edwin Johnson, in the High Court, concluded ‘the disposal’ constituted a breach of the trusts and was void in equity. 

FS Capital appealed the decisions, but the Court of Appeal unanimously dismissed its case. The appeal heard that the parent company of FS Capital is Redbox Associates LLP, set up by Simon Emblin, an accountant, and Mark Reid, a solicitor.

Pinotage PTC was a British Virgin Islands registered company, appointed as a trustee and to which the loan assets were transferred. It then transferred the loan assets to FS Capital. Carl O’Shea, a director, was the effective decision maker of Pinotage.

Ruling on the appeal, Lord Justice Males said: ‘Messrs Emblin, Reid and O’Shea devised a scheme to cut out the beneficiaries and to divert those assets to a company under their control.

‘Mr Emblin had been an inspector of taxes and had worked for major firms of accountants as a senior tax manager. Mr Reid is an English solicitor and a former partner in a well-known firm. Mr O’Shea is a Jersey advocate and a solicitor qualified in England and the British Virgin Islands, with over 20 years of legal experience. If any of them had thought that this was a legitimate way for trustees to behave, they should have known better.’

In fact, he said, the High Court judge found that ’They did know better. The judge found that none of them thought that it was legitimate to disregard the interests of the beneficiaries in disposing of the loan assets in this way.’

The appeal was dismissed.