Estera Trust (Jersey) Ltd v Singh & Ors

The court refused the Petitioners' application to permit a court-ordered transfer of the Petitioners' shares to a newly incorporated Jersey company and to impose option rights (put/call) to achieve a tax-advantageous sale structure. The judge held that, while the court retained jurisdiction to amend or perfect an order before it is sealed, it should not in a commercial context compel reluctant parties to enter into a bespoke transactional structure whose sole or principal purpose is to avoid tax.

Key legal principles applied included: the court's residual power to amend orders before final perfection (Re L and another); analysis of income v capital tax treatment under the Income Tax (Trading and Other Income) Act 2005 (notably section 385 and the provisions governing distributions); and the application of Ramsay-type reasoning in the tax context where a scheme may be regarded as aggressive tax avoidance. The judge also applied established principles on relief for mistake (Pitt v Holt) and distinguished family-law authorities permitting tax-motivated orders in the context of welfare and settled practice (Sherdley).

Material grounds for refusal were the realistic prospect that the proposed scheme could be regarded as aggressive tax avoidance and provoke HMRC scrutiny of the Company and its principal, the potential interference with the Respondents' commercial and governance rights and plans, the absence of a compelling public interest or fiduciary duty justifying ordering reluctant parties to enter the scheme, and the availability of less intrusive alternatives (DTA application or on-shoring the trusts) to mitigate tax consequences.

Background and parties: This is the judgment following a contested minority shareholder action in which the court previously ordered on 5 July 2018 that the First and Fourth Respondents purchase the Petitioners' shares; quantum and timing of payment were determined at a second trial with an initial payment ordered and the balance due within six months. The Petitioners (including Estera Trust (Jersey) Limited) subsequently sought a further order to enable a bespoke JerseyNewCo transfer and option structure to defer or avoid an immediate income tax liability.

Nature of the application: The Petitioners applied for an order permitting the transfer of their shares to a new Jersey company between April and May 2020, and for put/call option rights to be available later in May/June 2020 so that Jersey NewCo (not the Petitioners) would receive the sale proceeds and thereby avoid immediate UK income tax treatment on receipt.

Issues framed by the court:

• Whether the court had jurisdiction to permit or order the proposed alternative structure after its earlier buy-out order (considering Re L and another).
• Whether the proposed scheme was capable of being seen as aggressive tax avoidance and accordingly whether the court should compel reluctant parties to implement it.
• Whether, even if the scheme were lawful, it was appropriate and fair to order parties to enter into it, having regard to the risk of HMRC scrutiny, the commercial prejudice to the Company and the availability of alternative remedies.

Court's reasoning and decision: The judge accepted that the court retained jurisdiction to amend or perfect orders before sealing but concluded that the July 2018 order defined the shares to be bought, not the transactional mechanisms, and that trial 2 could determine the manner of sale. However, the court refused the specific relief sought. The principal reasons were:

• The proposed JerseyNewCo structure was devised solely to avoid a substantial income tax liability and could reasonably be regarded by HMRC as aggressive tax avoidance; that would risk scrutiny of the Company and its principal, with potential adverse commercial consequences.
• The court should not, as a matter of public policy and fairness, compel unwilling parties to enter into a speculative tax-avoidance arrangement, particularly where the order would require a non-party company to play a central role and where enforcement mechanisms would be uncertain.
• The Petitioners had available alternative, less intrusive means to mitigate tax (application under the Double Taxation Agreement or on-shoring the trusts with prior clearance under the Corporation Tax Act provisions), and there was no compelling reason to favour the novel order sought.

The court therefore refused the application to create the transfer and option structure and left the existing buy-out framework intact, allowing the Petitioners a limited period to pursue conventional tax mitigation steps.

The Petitioners' application to order the transfer of their shares to a new Jersey company and to impose put/call options was refused. The court held it had jurisdiction to amend orders before perfection but declined to exercise its discretion to force reluctant parties to enter a structure that was primarily directed at avoiding tax and which risked HMRC scrutiny and commercial prejudice; alternative mitigation routes were available.