Desulme et Al v Desulme et Al

• Jurisdiction: Jamaica
• Judge: Clarke, J.
• Judgment Date: 05 February 1998
• Court: Supreme Court (Jamaica)
• Docket Number: No. E352 of 1994
• Date: 05 February 1998

Supreme Court

Clarke, J.

No. E352 of 1994

Desulme et al

and

Desulme et al

Appearances:

Dr. Lloyd Barnett and Andrew Rattray instructed by Christopher Kellman of Rattray, Patterson & Rattray for 2nd, 3rd and 4th plaintiffs.

R.N. A. Henriques, Q.C. and Maxine Palomino instructed by Levy, Gordon, Palomino & Co. for the defendants

Trusts - Whether the deed of settlement is bad on the ground that the trust it seeks to create are incomplete or void for avoiding the rule against perpetuities — Re: Rose [1952] 1 A.I.I. E.R. 1217 applied — Court held that the Deed was invalid on both grounds.

Clarke, J.

1 The plaintiffs are residuary legatees under the will of Thomas Desulme who died on 9th December, 1993. They are expressed to be beneficiaries under a deed of settlement executed by him on 6th October, 1993 some two months prior to his death.

2 The residuary estate includes the corpus of the assets included in the settlement, namely, 902,988 shares of thermoplastics (Jamaica) Limited and 74,998 shares of Eaton Hall Development Company Limited. This is plainly the case, for it is common ground that the settlement, even if held to be completely valid, does not purport to dispose of the corpus of the trust fund. Accordingly, there is a resulting trust for the settlor. On his death the defendants qua executors of his will hold a vested interest in the shares of the two companies. That vested interest therefore passes to the residuary legatees under the will.

3 Nevertheless, the vested interest is subject to the settlement provided that the validity of the latter, which the plaintiffs impugn, is upheld. The questions the plaintiffs therefore seek to have determined on the originating summons herein are:

1

whether the deed of settlement is bad on the ground that the trusts it seeks to create are incomplete; 2. whether the deed of settlement is void for offending the rule against perpetuities; 3. whether the trusts which the deed of settlement seeks to create are void on the basis that they conflict with the principle of company law that the management of the company is vested in the board of directors.

4 Now, the settlement purports to vest in the defendants, as trustees, possession of the capital and income of the trust fund, namely, the shares in the two companies referred to in the settlement: Clause 3. Under Clause 5 the trustees are empowered to accumulate the “whole or any part of the income of the Trust Fund” in accordance with the provisions of that Clause. Furthermore, the trustees are directed to use the capital of the trust fund, viz, the said shares, in the manner prescribed in Clause 3 and 4 of the settlement.

5 Dr. Barnett has submitted that the entire settlement is void and unenforceable because:

• (a) the provisions of Clause 3 in relation to the purported trusts constitute an unlawful fetter on the right of the registered owner of shares and the powers of directors of a company as conferred by the Companies Act;

• (b) the provisions of Clause 5 as to the accumulating of income (and for the dividing of any part thereof) are void for remoteness;

• (c) there was, in any case, no effectual transfer of the shares to the trustees of the settlement prior to the settlor's death and there is no equity to perfect an imperfect gift.

Question as to the contravention of company law

6 Clause 4 prescribes as follows:

“The Trustees shall stand possessed of the stocks and shares in Thermoplastics (Jamaica) Limited (‘Thermoplastics’) and Eaton Hall Limited (‘Eaton Hall’)… and the parcel of land described in the Third Schedule … for the trust period upon the following trusts:

• 1. to exercise and cast the votes to which he is entitled as the majority shareholders in the companies in order to ensure that:

  • (i) the settlor shall, so long as he shall live, be and remains the chairman of the companies;

  • (ii) Jean Marie shall, so long as he shall live, shall hold the office. and exercise the powers of Managing Director and Chief Executive Officer of the companies;

  • (iii) the companies continue to pay to the settlor so long as he shall live, all dividends, salary, perquisites, bonuses and other benefits and emoluments which he has received in the past and as he may request or direct in the future;

  • (iv) ensure that the companies continue to pay to Jean Marie the salary, perquisites, bonuses and other benefits and emoluments which he has been accustomed to receive for performing the functions of Managing Director and Chief Executive Officer of Thermoplastics and any increases in salary, benefits and emoluments to which he may reasonably be entitled as may be determined by the Board of Directors of Thermoplastics from time to time;

  • (v) so long as they shall live provide to each of the persons who constitutes the first appointed class such salaries, wages allowances, perquisites or other benefits as the companies have provided to them in the past, save and except for my wife Juliette Desulme who shall be paid the monthly sum, of One Thousand Five Hundred United States Dollars (US$1,500.00);

  • (vi) each of the settlor's children and Maurice's children shall either be employed to Thermoplastics or receive directly or indirectly from Thermoplastics such salaries, wages, allowances, perquisites or other benefits as Thermoplastics is at the date of this Deed providing;

• B Upon the death of the settlor to cast the votes to which he is entitled as the majority shareholder in the companies in order to ensure that:

  • (i) the companies continue to pay to Jean Marie the salary, perquisites, bonuses and other emoluments which he has been accustomed to receive for performing functions of Managing Director and Chief Executive Officer of Thermoplastics and any increases in salary and emoluments to which he may reasonably be entitled as may be determined by the Board of Directors of Thermoplastics from time to time;

  • (ii) so long as they shall live provide to each of the persons who constitutes the first appointed class such salaries, wages, allowances perquisites or other benefits as the Companies have provided to them in the past;

  • (iii) each of the settlor's children and Maurices's children shall be employed to Thermoplastics and/or receive directly or indirectly from Thermoplastics such salaries, wages, allowances, perquisites or other benefits as the company is at the date of this Deed providing.

• C Upon the death of the settlor and the last serving member of the first appointed class to hold the shares in the companies in nine equal parts on the following trusts and to ensure that:

  • (i) Jean Marie shall, so long as he shall live, continue to hold the office and exercise the position of Managing Director and Chief Executive Officer of the companies;

  • (ii) ensure that the companies continue to pay to Jean Marie the salary, perquisites, bonuses and other emoluments which he has been accustomed to receive for performing the functions of Managing Director and Chief Executive Officer of Thermoplastics and any increases in salary and emoluments to which he may reasonably be entitled to as may be determined by the Board of Directors of Thermoplastics from time to time;

  • (iii) each of the settlor's children and Maurice's children shall either be employed to Thermoplastics or receive directly or indirectly from Thermoplastics such salaries, wages, allowances, perquisites or other benefits as Thermoplastics is at the date of this deed providing” :

7 So, it is plain that the scheme of arrangement concerning aspects of the running of the companies is, as Dr. Barnett put it, integrally bound up in, the settlor's disposition of his property and is heavily dependent on the maintenance during the “trust period” of a set of managerial and personal arrangements in the interests of those beneficiaries specifically named.

8 The settlement attempts, as witness the particulars of Clause 4, to control for the duration of the trust period important aspects of the management of each company in the following respects:

1

before the settlor's death, to control the appointment of the chairman of the board, the tenure of the office of managing director, the payment of salary to the settlor and the employment and payment of others; and 2. after the settlor's death to ensure the employment of and payment of emoluments to pre-designated persons.

9 Mr. Henriques Q.C. sought to meet Dr. Barnett's characterisation of these directions as illegal by submitting that if they are illegal they may be ignored by the trustees as being not binding upon them.

10 The point, however, is this: if the directions are illegal, the trusts created by Clause 4 are illegal and the question arises whether any valid trust is created by the settlement. In the first place Clause 4 in its imperative language contains directions that are, indeed, illegal. The Clause constitutes an unlawful fetter on the powers of the directors of the companies as conferred by the Companies Act because the Clause:

• (a) requires that particular directors be retained in office for the rest of their lives contrary to the Companies Act: see section 175;

• (b) purports to nullify the managerial powers and discretions of the Board contrary to the articles of association see articles 84 and 86 (Thermoplastics), article 87 (Eaton Hall).

• (c) circumscribes and controls the responsibilities discretion and powers of the directors contrary to the general principles of company law - see, for instance Automatic Self-Cleansing Filter Syndicate Co. v. Cunninghame [1906] 2 Ch. 34 (CA.) where the articles were held to constitute a contract by which the members had agreed that “the directors and the directors alone shall manage.”

11 In the second place Clause 4 is the very foundation of the scheme of the settlement whereby the trustees are enjoined to stand possessed of the shares for the specific purpose of ensuring that the...