Gany Holdings (PTC) SA v Khan and others

Beneficial ownership following a gratuitous transfer is determined primarily by the parties’ declared or inferred common intention. The court may consider statements, conduct and context, and may use a process of elimination. Traditional presumptions, including a presumed resulting trust, are a last resort where the evidence yields no reliable inference. A transfer by a settlor to an existing trustee may provide powerful contextual evidence that the property was intended to augment the trust, but it creates no automatic legal presumption. An appellate court may re-examine a factual issue where a plain error concerning a threshold fact has prevented a reliable analysis. A trustee disposition made under a misconception caused by breach of fiduciary duty may be set aside in the court’s discretion. A volunteer who received trust property under the disposition must return it, or account for it if it has been disposed of.

The appeals arose from proceedings brought by beneficiaries of the ZVM Trust against its corporate trustee, Gany Holdings, and Asif Rangoonwala. The central disputes were whether three companies had become trust property during the settlor’s lifetime and whether a 1998 appointment of the trust fund to Asif was liable to be set aside because Gany’s directors misunderstood the extent and value of the trust property.

The trial judge treated the trust property as limited to the initial settlement sum and shares in one company and rejected the challenge to the appointment. The Court of Appeal reversed those conclusions, directed that the three companies be included in the trust accounts, ordered Asif to account, and held that the first-instance costs order in his favour had been set aside. The Privy Council considered the beneficial ownership, misconception, accounting and costs issues.

Lord Briggs delivered the judgment of the Board, which dismissed the appeals and upheld the material orders of the Court of Appeal.

1. Beneficial ownership. Equity first gives effect to any written or oral declaration of beneficial ownership. In its absence, the court infers common intention from statements, conduct and the surrounding factual context, and may use a process of elimination. Presumptions such as advancement or resulting trust are a last resort. The settlor–trustee relationship is a powerful contextual factor, but does not create a legal presumption.
2. Application to the three companies. The judge had made a plain threshold error in finding that there was no evidence that the shares had been gratuitously vested in Gany while it was trustee. That error prevented a reliable analysis. On the available evidence, the common-sense inference was that MAR intended Gany to hold the shares as an accretion to the Trust. The Court of Appeal therefore reached the correct result, although its reliance on a legal presumption derived from In re Curteis’ Trusts (1872) LR 14 Eq 217 was wrong.
3. 1998 Appointment. Under Pitt v Holt [2013] 2 AC 108, a disposition made under a misconception may be set aside where the misconception amounted to, or resulted from, a breach of fiduciary duty; the court then has a flexible discretion, in which the would-or-might-have-acted-differently question is relevant but not decisive. Gany’s directors seriously breached fiduciary duty by failing to appreciate that the three companies formed part of the Trust property. Setting aside the appointment was therefore justified.
4. Account. Asif was a volunteer, not a bona fide purchaser. Setting aside the appointment revested beneficial ownership in the Trust beneficiaries. He was required to return any property still held, or account for what he had done with it. The order imposed no personal liability to compensate for property already disposed of.
5. Costs. Construed as a whole, the Court of Appeal’s March 2016 Order allowed the respondents’ appeal in full, including their appeal against the costs order made in Asif’s favour.

• Privy Council: appeals dismissed; the Board advised that the Court of Appeal’s orders should stand.
• Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands): reversed the trial judge on the trust property and misconception issues, ordered Asif to account, and construed its March 2016 Order as setting aside the first-instance costs order in his favour.
• Commercial Court of the British Virgin Islands: held that the Trust property was limited to the initial settlement sum and shares in ECL HK, rejected the challenge to the 1998 Appointment, and ordered the respondents to pay Gany’s and Asif’s costs.