Three certainties emerge from Basement

The Eastern Caribbean Court of Appeal has provided important guidance on the Court’s approach to certainty of intention in relation to express trusts. In Culgoa Limited v Basement Investments Limited BVIHCMAP2024/0011, the Court was required to consider whether certainty of intention, a foundational requirement for the creation of an express trust, could be established in the face of unequivocal documentary evidence which indicated an intention to transfer beneficial ownership.

Background

The dispute arose from a 2008 transfer of 144,470.65 Egerton Capital European Fund plc shares (the Egerton Shares) from Culgoa Limited (Culgoa) to Basement Investments Limited (Basement) for no consideration. Culgoa was a BVI company legally and beneficially owned by the trustees of three BVI discretionary trusts settled by the late Stella Shawzin (the Settlor) for the benefit of her three daughters. Basement, also a BVI company, was owned by the Settlor through nominee ownership and later settled into a Jersey discretionary trust for the benefit of only one daughter.

The transfer was effected by a common director and documented in a transfer form (the Transfer Form), which, crucially, stated that Basement was taking the shares ‘free and clear’ and that the shares were to be dealt with at the direction of the Settlor.

In 2023, Culgoa initiated proceedings seeking a declaration that Basement held the Egerton Shares on an express bare trust for Culgoa. It asserted that the transfer was merely an internal administrative step and that there was never an intention for Culgoa to divest itself of beneficial ownership. Basement applied for reverse summary judgment, arguing that Culgoa had no real prospect of succeeding on the claim.

At first instance, Walbank J (the Trial Judge), granted summary judgment in Basement’s favour, finding that Culgoa had no realistic prospect of establishing that Basement took or held the Egerton Shares on trust for Culgoa. While acknowledging that Culgoa’s legal argument was ‘internally coherent’, the judge held it was ‘fanciful’ when assessed against the factual evidence, which indicated that the Settlor had always acted as the ultimate beneficial owner with power to direct transfer. Culgoa appealed the decision to grant summary judgment.

Appeal

The Eastern Caribbean Court of Appeal upheld the Trial Judge’s findings and dismissed the appeal. It held that the Trial Judge had properly confined himself to the correct legal test: whether Culgoa had sufficiently pleaded, and placed before the court any evidence capable of demonstrating, an intention to create an express bare trust at the time of the 2008 transfer?

Express trust and certainty of intention

The Court of Appeal reaffirmed that the creation of a valid express trust requires satisfaction of the three certainties:

1. Certainty of intention – a clear intention, demonstrated through words or conduct, that the property is to be held on trust;
2. Certainty of subject matter – identifiable trust property; and
3. Certainty of objects – clearly ascertainable beneficiaries.

Certainty of intention was decisive in this case. Certainty of intention is an objective inquiry. The question is not what the parties subjectively intended, but what intention is objectively manifested by the language used and the surrounding circumstances. Whilst no formal terminology is required and intention may be inferred from conduct, the intention to create a trust must be manifested ‘in substance’.

The Court held that the wording in the Transfer Form was unequivocal and insufficient to establish an intention to create an express trust. It held that a document must be construed holistically, considering the language used in light of what a reasonable person with the relevant background knowledge would have understood the parties to mean. This is an objective exercise and where different constructions are available the Court is entitled to prefer the one that accords with business common sense.

The evidence showed that the Settlor consistently acted as the beneficial owner of the Egerton Shares and the transactions were executed on her direction. The conduct of the trust professionals involved also clearly showed that Basement had accepted the transfer of the Egerton shares in its own right. The notion that the shares were moved from one entity to another, only for the second entity to hold them for the first ‘made no logical or business sense’ in the context of the family’s administrative reorganisation. The Court of Appeal held that the Trial Judge was entitled to conclude that the only commercially sensible reading of the Transfer Form was that Basement took the shares beneficially, not as trustee for Culgoa.

Resulting trusts

By contrast to an express trust, a resulting trust does not require an intention to create a trust. A resulting trust may arise by operation of law when there is a gratuitous transfer (a transfer of property for no consideration). It is presumed in such cases that the transferor intends to retain beneficial ownership.

Culgoa sought to rely on the presumption that a gratuitous transfer does not pass beneficial ownership. The Court of Appeal confirmed that such a presumption is merely evidential and is readily displaced by evidence of actual intention. Importantly, Culgoa had pleaded an express trust, which requires proof of positive intention. The Court of Appeal held that Culgoa could not rely upon an unpleaded resulting trust to rescue a defective claim in respect of an express trust. The Trial Judge had been correct in confining his enquiry to whether Culgoa had a realistic prospect of establishing an express bare trust on the evidence it advanced.

Key takeaways

• Substance over form: Culgoa v Basement reaffirms that while no particular form is required to create a trust, the intention must be clearly and unambiguously manifested. A claim to establish an express trust may be summarily dismissed in the absence of contemporaneous evidence of intention to create a trust. For offshore structures, maintaining clear documentary evidence of intended trust relationships remains critical.
• Documents will be construed commercially: Where transfer documentation is ambiguous, courts will prefer interpretations consistent with business common sense.
• Resulting trust presumptions are limited: Presumptions arising from gratuitous transfers are rebuttable. If a party intends to rely upon the presumption of a resulting trust in the alternative, it must ensure that its case is expressly pleaded. Parties must align their pleaded case with the available evidence.

For trustees, directors and advisors, this serves as a reminder that clarity of structuring and documentation at the time of transfer is essential to avoid later disputes as to beneficial ownership.