Vadim Schmidt v Rosewood Trust - Essay Example

Running Head: Vadim Schmidt V Rosewood Trust Vadim Schmidt V Rosewood Trust s Introduction The essay aims to discuss the issue raised by the case Vadim Schmidt V Rosewood Trust limited in 2003. The case basically explains the issue of court’s right to seek the disclosure of the trust documents. The case discusses an important problem faced by the close relatives of the people who placed their funds in the trusts of other countries that guarantee the confidentiality of their information. The decision made by the count clarifies that the court has the jurisdiction to supervise as well as intervene the administration of the trusts and the trustees are always required to disclose confidential documents and information as per order of the court1. The decision made by the court for this case explains the issue being raised by the applicants and trustees of the case2. The decision also provides clear guideline for the associated organizations and individuals that are already involved or intend to get involved in the process of placing funds in offshore trusts while seeking confidentiality of their details and information. The essay explains the background of the issue and provides a brief synopsis of the case to allow having complete understanding of the context in which the entire case was evolved. Furthermore, the essay indicates other cases and decisions that have been kept in consideration while making this decision. Back ground The wealthy people residing in different parts of the world have developed a common practice to invest their money in to the trusts of different other countries. These trusts are usually run by network of companies or the trustees of the country where the trust is established. The people placing their funds in these trusts generally have no substantial connection with the companies or the trustees but through their investment they became beneficiaries of the trusts they operate other than their own country. The managers of the trusts and the settlers placing their funds in the trusts have little interaction or face to face meetings but still these trusts act as tax havens for them3. The trend of placing funds in offshore trusts was evolved in 1930s when some of the wealthy individuals realized that they have to pay heavy taxes and to avoid this they created some settlements using their money that allow the oversee trustees to accumulate their funds. When the capital gain tax was introduced in 1965, the trend of establishing such settlements further got momentum. However, the settlements were mostly formed in manner where the true identified beneficiaries were not used to clearly indicate in the settlement and the beneficiaries also do not have interest in the trust property4. This kind of set up was made mainly to avoid taxes however, when these types of settlements became common and gain stable position, people at large stating involving in these settlements even if they were not actually intended to avoid taxes. Another factor behind the popularity of these establishments was the enactment of the estate duty after the Second World War that the UK government stated charging at high rates. At that time, the people associated with the agriculture and business sector were not granted any flexibilities or relief and due to this reason also, people tend to prefer placing their funds in the settlements where the beneficiaries are not clearly disclosed5. There are certain important reasons that encourage the wealthy people to place their money in the trusts of other countries. The trusts are generally chosen on the basis of the geographical convenience but they offer certain other benefits as well. At first, such trusts generally assure the confidentiality of the information and protect these people from the fiscal demands. The people place their funds in these trusts to hide their money and to avoid the problems that possibility rose from the insolvency laws of their own country that restrict the freedom of testamentary disposition6. These benefits made the off shore trusts an attractive destination for the funds as the settlers are allowed to entrust substantial amount of their money to an apparently secure as well as confidential shelter where their personal information are not publicly disclosed and the funds are placed for wide numbers of beneficiaries. Through these trusts people find an opportunity to keep their property undisclosed and also free from taxes and this opportunity act as great source of encouragement and motivates people to make their money safe, undisclosed and tax free at some far and secured place7. Along with these benefits, there are some problematic issues also being encountered by the people dealing with this business. One of the most problematic issue rises with the death of the settler. If any of the settler dies accidently or unexpectedly then the close relatives face problems in drawing his money from the trust because the information about that person is not disclosed by the trust publicly and the relatives entitled to share his property have to file case against the trustees to get hold of adequate information about the placed funds8. Issue raised by Vadim Schmidt V Rosewood Trust The case Vadim Schmidt V Rosewood Trust limited (2003) is also based upon such problem that evolved when Mr. Vitali Schmidt died suddenly. He was the co-settler of two trusts including Angora Trust and Everest trust. He was resident of Morocco whereas he had placed his funds in the trusts established in Isle of Man. Mr. Schmidt was senior executive director of largest Russian oil company Lukoil that was also among the largest oil companies of the world. He was supposed to have assets in different countries including Liechtenstein, Austria, Cyprus and the Isle of Man. 9 When Mr. Schmidt passed away, his son Vadim filed the appeal in court in order to obtain the information about the funds placed by his father in both the trusts. Rosewood Trust Limited is the sole trustee of both the trusts Angora and Everest Trust where Mr. Schmidt had placed his funds. Rosewood operates the business of providing corporate and trustee services to the people that might belong to other countries. After the death of Mr. Schmidt in August 1997, the application of his son was accepted for hearing in 1998. In the appeal, Vadim the son of Mr. Schmidt took the stand that he along with his mother and paternal grandmother is entitled to share the estate and property left by his father. Vadim was nineteen years old when his father was dead10. The proceedings of the case began in June 1998 in which Rosewood trust, its directors and other defendants were the respondents. In July, the court issues him an ex parte order that prohibited the Rosewood trust to deal with the assets of the two trusts. The court also ordered Rosewood to provide extensive information about the funds of the appellant’s father. In June 1999, the Vadim submitted an affidavit and informs that Rosewood has provided unclear and incomplete information due to which he is not able to acquire complete picture about the property of his father. He also claims that some part of the disclosed documents have been eliminated by the trustee due to which it has become further difficult to acquire complete information11. It was claimed that the appellant has been paid the amount of US$ 14.6m by the trust though his father appears to place the funds worth US$105m in the two trusts. He didn’t accept the paid amount and filed the application that he has been paid only a friction of his father investment that is not acceptable. Rosewood, on the other hand denied that Mr. Schmidt placed that particular amount of fund in the trusts but they just accepted that he was involved in setting up of the two trusts in Isle of Man. This claim of rosewood was based upon the fact that in the trust documents the name of Mr. Schmidt was not present as settler12. Court Decision The application of Vadim to ask the trust disclosing the complete information about the trust and its funding was challenged by Rosewood on the grounds that they have right to keep their information secure and confidential however, this appeal was rejected by the court and the trustees were asked to disclose complete information to the applicant. The court decides that it is not the abuse of the process to provide the applicant with complete information about the funding being placed by the applicant’s father in the trust. Thus, the trustees were required to make extensive disclosure of the information13. The court asks rosewood that it has to provide the required information to the names accountants and the lawyers that are supposed to keep in information in confidence. Rosewood denies that Mr. Schmidt as well as his son was not among the interest holders of the trusts and thus they do not have the right to access the documents and information containing information about the trust funding. The decision of the court was clear that the court has the right to seek disclosure of the trust documents and it could also intervene in the administration of the trusts14. Implications and Consideration of other Cases The issue raised by the case has already been discussed with varied perspective in different other cases and court decisions however, this case provides a clear and extensive decision that also affirms certain other decisions of the court taken at different time. The council while making this decision very adequately referred to the authorities and also reflected the important decisions that have been taken by the court several years ago. The decision has been taken keeping inconsideration several important court decisions of the part. For instance, ORourke v Darbishire (1920) AC 581decides that the beneficiaries have the right to claim the full disclosure of the trust documents and this right is not dependent upon the fact that the beneficiary should also have transmissible interest in trust property. The court decision for the case Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 was also considered while making this decision that set out the rule that the sellers could ask for the court intervention in the administration of the trusts and for this it is not necessary to have transmissible beneficial interest in the trust property15. The claim of the settler’ son to seek the disclosure of his father’s investment related document and information was examined by the court in order to decide if Vadim actually has the right to seek this information. The court also raised the point that if Mr. Schmidt had placed the funds in these settlements just to avoid the taxes, then he is responsible for these acts and one could not actually claim that the transactions were being unfair or non-transparent because the intention of the person are already not transparent and fair. This aspect of the issue was understood in the light of the decision made by Lord Greene while taking the decision for Howard de Walden v Inland Revenue Commissioners [1942] 1 KB 389, 397. In this decision, the court clearly expressed that the tax payers are responsible for the harms occurred to them while they try to hide them money to avoid taxes16. Despite this fact, the overall response of the court remains in favour of Vadim and his father because legally, placing funds in such settlements was not illegal. Thus, the court decided to intervene in the administration of the Rosewood and ordered the trustee to provide the applicant with complete information and documents. The decision complies with another decision taken for Hartigan Nominees Pty Ltd v Rydge in 1992, which affirms that regardless of the trust’s discretion the trustee is liable to disclose confidential information if the court orders the trustees to do so17. The decision of the council for this case also explains the general characteristics and rights of the interests under the trust. It provides more powers to the trustees to make decisions regarding providing information and documents to the beneficiaries and their entitled relatives. In implies that the trustees have the right to disclose the documents to the relatives even without the order of the court. Thus it is better for the other party to contact with the trustee and ask for the fuller provision of the documents and information before going to the court. This type of case could be easily settled down between the trustees and the relatives because the court confers trustees the right to disclose confidential information to the eligible people and in the light of this decisions, all the trustees are become obliged to cooperate with the relatives by providing them documents without any elimination18. This issue was raised by In re Manisty; settlement (1974) Ch 17, in which Templeman J decides that the trustees have the power to decide about the disclosure of the trust documents however, at the same time it is important for the trustees not to exercise their power with negative approach. The court still has the power to control the administration of the trust and to give them suitable order regarding the disclosure of the trust documents. Lord Eldon LC in Morice V Bishop of Durham (1805) also gave the decision that the trustees have to exercisable power that could also be controlled by the court in case of any complaint receive from the person regarding the disclosure of the trust documents that he has the right to seek19. The issue of disclosure of trust information has also been discussed in the decision taken for Chaine – Nickson V Bank of Ireland (1976). In this case also, the main issue is the disclosure of trust documents to the beneficiaries’ relatives. The decision taken by the Kenny J, Court of Ireland explains that the trust has the power to decide about providing a part of information or its summary to the applicants. It implies that the trustees have been given an option that they could provide the relatives only with the summary or some parts of the trust documents initially and if the relatives ask for detailed information, only then they are supposed to provide those complete documents and information20. The decision through light upon the issue from a different angle and make it necessary for the trustees that they have to provide a concise but correct summary of the accounts details to the beneficiaries. The court also clarifies that the potential beneficiaries of the discretionary trusts don’t have the right to be paid the capital or income from the trust funds. The trustees are solely authorize to hold the trusts of the funds and if the beneficiaries have no adequate information about the funds being transferred to the trust, then they have no right to claim any amount from the funds of the trusts and the trustees are also not legally obliged to pay that amount to the trustees. This decision throws light upon the trustees’ rights also and resolves the issue in case the beneficiaries have to claim about the funds placed in the trust21. Conclusion The case possesses great value in the context of offshore funding and investment. The decision of the case makes it very clear that the court has complete authority to seek the confidential information. The trustees are however, not required to disclose this information publicly but they are obliged to provide full documents and information to the appointed accountants or representatives allocated by the court and the advocates that have to keep the information confidential. There are several other important court decisions found in the judiciary history of Europe that are emphasized upon the same issue from different perspective and the review of these related cases allow having understanding that the case under discussion has been resolved by the council property consulting to the past cases that provide guidance for the solution of this case. It is revealed that the issue of disclosure of the trust documents is not any new problem or issue but there are numerous cases being placed in front of the court for several decades that needs the court decision regarding the disclosure of the trust documents. It is also found that the issue of seeking trust documents has gained more importance in the context of increased taxation and accountability in several countries. The countries where the wealthy people have to pay high taxes or they have to fairly inform about the sources of their income, the people eagerly look towards the options through which they could save their money from the taxes and investigations. The quest of secure place for the money took the wealthy people towards the offshore trusts that provide them an excellent opportunity to hide their money under the shelter of broad range of beneficiaries. The decision of the case simplifies the complications rose in case of the death of any person that has placed his funds in such trust where the documents about his funds are kept confidential and his name also doesn’t appears as the beneficiary. In such case, the relatives of the dead person are supposed to contact the trust seeking information about the funds that trust got from that person. The trusts are making obliged to provide the information demanded by the relatives otherwise the court has the right to interfere in the matter on the request for the relative of the dead person. It also becomes clear from the case that the people entitled to share the property of any dead person also has the right to seek disclosure of the documents related with the investments made by the dead person. The case provide the solution to an evolving important issue and it became clear that the trustees must be aware of the fact that despite documenting unclear list of beneficiaries in the trust documents, they are supposed to disclose complete information about the funds being received by the trust. The issue has become more important in the context of high taxes enacted to the wealth of the people in different countries. 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