Jersey Unreported Judgments

Companies - reasons for the directions given

[2021]JRC133

Royal Court

(Samedi)

7 May 2021

Before     :

R. J. MacRae, Esq., Deputy Bailiff, and Jurats Ramsden and Austin-Vautier

 

IN THE MATTER OF THE REPRESENTATION OF ANTHONY NICHOLAS YIANNI AND JANET LOUISE YIANNI

AND IN THE MATTER OF THE MOVEABLE ESTATE OF THE LATE CHRISTAKIS YIANNI

AND IN THE MATTER OF ARTICLE 25 OF THE PROBATE (JERSEY) LAW 1998

Advocate K. O. Dixon for the Representors.

judgment

the deputy bailiff:

1.        On 16^th April, 2021, we gave various directions in this case but reserved our reasons for so doing.  We now provide those reasons.

2.        Christakis Yianni ("the Deceased") died in Cyprus on 30^th April, 2019.  He was domiciled in Cyprus. 

3.        He was survived by his widow Janet and his two adult children Nick and John.  Nick is married to Elena and John is married to Emma.  Janet and Nick are the Representors in these proceedings. 

4.        On 4^th October, 2000, the Deceased made a Will in respect of all his property wherever situate, save that situate in Cyprus ("the Will").  The Will was admitted to probate in the Probate Division of the High Court of England and Wales on 13^th January 2021.  This case does not concern the subject of the Deceased's Will, although it is an application pursuant to Article 25 of the Probate (Jersey) Law 1998 ("the Probate Law").  Article 25 provides:

"25.    Variation of dispositions etc. by consent

(1) Subject to paragraph (2), the Court may by order made with the consent of all parties who in its opinion should be consulted and having regard only to the interests of the beneficiaries or heirs interested in so much of the estate as is affected by the order -

(a) vary any disposition (whether effected by will, under the law of intestacy or otherwise) of the movable estate of the deceased person;

(b) provide that any variation made under sub-paragraph (a) shall have effect as if it were a disposition effected by the will of the deceased person or under the law of intestacy, as the case may be; and

(c) direct to whom and in what manner the movable estate of the deceased person shall be distributed.

(2) An order for a variation under paragraph (1)(a) may only be made within 2 years after the death of the deceased person."

The Shares

5.        The Deceased set up a company called Giannco Investments Limited ("the Company") in 2007.  The Company is a Jersey company which owns property in England and Wales. 

6.        At the date of the death of the Deceased, the Company's share capital was divided into 100,000 limited liability par value shares of which 1,000 had been issued and fully paid up.  Originally those shares were in the sole name of the Deceased. 

7.        On 27^th July, 2012, the shares were cancelled and 1,000 shares were issued in the names of the Deceased and Janet.

8.        On 14^th September, 2019, those shares were cancelled and a third share certificate representing 1,000 shares was issued in the joint names of the Deceased, Janet and Nick.  Eleven weeks after the death of the Deceased, these shares were cancelled and a further share certificate representing 1,000 shares was issued to Janet and Nick jointly.  Three days later Janet gifted her interest in the shares to Elena and the share certificate was cancelled and a new share certificate issued in the joint names of Nick and Elena.

9.        One of the matters which the Court needed to resolve was whether or not the jointly held shares, in particular the shares held by the Deceased, Janet and Nick as at the date of the death of the Deceased, were held jointly for the holders and the survivor of them, or in equal shares as owners in common.

10.      Although the share certificates themselves are silent on this issue, it is clear from the minutes of the Company made in respect of all relevant transactions, and associated correspondence, that the shares were to be held jointly i.e. on a survivorship basis, and we so find.

11.      Accordingly, we were content to declare that immediately prior to the Deceased's death on 30^th April, 2019, the shares issued in the Company were held by the Deceased, Janet and Nick as joint owners for themselves and for the survivor(s) of them.

12.      The consequence of the rule of law in respect of survivorship was that automatically on the death of the Deceased the shares would become jointly owned by Janet and Nick.

13.      In the case of joint ownership, the right of the Deceased devolves to the surviving owner by right of survivorship, it does not form part of the estate of the Deceased (see Le Sueur v Le Sueur [1968] 1 JJ 889 and Re Degrevement Bonn [1971] 1 JJ 1771 at 1776).  In Le Sueur v Le Sueur Le Masurier, Bailiff, said:

"It was common ground between the parties that the law of Jersey recognizes two chief forms of co-ownership, that is to say ownership in common and joint ownership. 

The most important difference between these relates to the effect of the death of one of the co-owners.  In ownership in common the right of a dead man passes to his successors like any other inheritable right.  But on the death of one of two joint owners his interest dies with him and the survivor becomes the sole owner by virtue of his right of survivorship or jus accrescendi."

14.      Janet, Nick, John and their respective spouses all reside in the United Kingdom and there is a wish shared by all of them that there be no doubt about the extent and ambit of the 'spouse exemption' to which Janet is prima facie entitled pursuant to the relevant United Kingdom inheritance tax regime.  Disclosure of the shareholding has been made to Her Majesty's Revenue and Customs using the appropriate form and it is not anticipated that there will be any difficulty with the claiming of the spousal exemption with respect to Janet's receipt of the shares on the death of the Deceased.  However, there is a concern that there may be a residual argument to the effect that the spousal exemption may not apply to the full extent in this case because the transfer by way of survivorship in this case was in respect of the Deceased's notional one-third share/undivided co-ownership share of the issued shares was to his widow and son jointly, as oppose to his widow outright.

15.      For this reason, the family all support this application and seek, if possible, a variation of the disposition on survivorship so that on the death of the Deceased the joint tenancy pursuant to which the shares were hold were severed so that Nick would hold one-third of the shares as owner in common, and the Deceased and Janet would hold the remaining two-thirds of the shares jointly for themselves and the survivor, and that accordingly title to the said two-thirds of those issued shares pass to Janet only. 

16.      To achieve this the Court would need to exercise its powers under Article 25 of the Law.

Article 25 of the Probate Law

17.      The Court needed to be persuaded that it had the power to make the orders that were sought in this case.  This was not a case of the Court being invited to vary a disposition by will or following an intestacy. 

18.      Counsel for the Applicant emphasised that the power of the Court to vary a disposition under Article 25 arose when the disposition was "effected by will, under the law of intestacy or otherwise" (our emphasis). 

19.      We were reminded that the Royal Court has jurisdiction to hear an application for variation, notwithstanding that the Deceased is domiciled outside Jersey (Re Wakefield [1999] JLR Notes 19b).

20.      As to whether or not Article 25 confers the power on the Court contended for by the Representors, our attention was drawn to the history of the enactment of the statutory power to vary 'dispositions' which was first provided to the Royal Court when the Probate Law came into force on 2^nd January 1999.  Article 25 in fact resembles the statutory power given to the English High Court a few years prior to this pursuant to, inter alia, section 142 of the Inheritance Tax Act 1984.  Indeed the Projet which accompanied the draft Probate Law when it was lodged for debate with the States explained the rationale for Article 25 in these terms:

"Article 25(1) creates two new provisions.  The first allows the Court, with the consent of all parties who in its opinion should be consulted and having regard only to the interests of the beneficiaries or heirs interested in the part of the estate affected by the Order, to change the terms of the Will within two years after the death of the deceased person.  Such an Order will take effect as from the date of death of the deceased person.  This is a provision which has been requested by the finance industry because its existence is desirable from the point of view of people who invest monies in the island.  If their Will is inefficient from a tax point of view or they have failed to make a Will then the distribution of the estate can be varied by consent in a more tax efficient way.  The Committee does not believe that this provision will create any difficulties from the point of view of British or other tax authorities because a similar power exists in Great Britain to make a deed of family arrangement within a two year period from the date of death."

21.      Section 142 of the Inheritance Tax Act 1984 provides:

"142 - Alteration of dispositions taking effect on death

(1)       Where within the period of two years after a person's death-

(a)       any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied, or

(b)       the benefit conferred by any of those dispositions is disclaimed,

by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred.

(2)       Subsection (1) above shall not apply to a variation unless the instrument contains a statement, made by all the relevant persons, to the effect that they intend the subsection to apply to the variation."

22.      Can the corresponding Jersey provision extend to property passing by way of survivorship?

23.      As to the word 'disposition', we were provided with a copy of an extract from Jowitt's Dictionary of English Law (5th Edition) which states that "disposition" included 'The passing of property to another party, whether by an act of the parties or by operation of law'.  This would, on the face of it, extend to survivorship.

24.      But are the words 'or otherwise' apt to extend to property devolving by way of survivorship?  In this regard, although there is no authority in Jersey or the United Kingdom on this point, our attention was drawn to McCutcheon on Inheritance Tax (7th Edition - 2017) paragraph 8-137 where the authors state:

"Property passing on survivorship

Property passing by survivorship raises special problems under s142.  Where a person has a joint interest in property, e.g. where a husband and wife or civil partners own the matrimonial home as beneficial joint tenants, each of their respective joint interests will be comprised in their respective estate immediately before they die, and this is so notwithstanding the fact that the property will pass by way of survivorship and not under their wills or intestacy.  This gives rise to the question of whether a joint interest is within s142 at all.  The answer is 'yes' because it was comprised in the deceased's estate immediately before he died.  Can it be said, however, that he disposed of it?  Section 142(1)(a) refers to dispositions 'whether effected by will under the law relating to intestacy or otherwise'.  The prevailing view is that the words 'or otherwise' extend to property passing by survivorship.  This is certainly the practice of HMRC."

25.      In this respect our attention was drawn to a copy of the Inland Revenue Tax Bulletin for December 2004, which we understand still represents UK tax practice in this area.  Under the title 'Inheritance Tax (IHT): Post-Death Variation of Inheritance by Survivorship', the text provides:

"Beneficiaries of the estate of a deceased person - whether under the will, relating to intestacy or otherwise - may wish to change their inheritances.  There are special IHT rules for changes or variation made within 2 years after the deceased's death.

If a variation made within the 2-year period satisfies certain other conditions, IHT is charged on the death as though the deceased person had made the variation and the beneficiaries do not have to pay tax on any gift of their inheritance.  The main conditions are that the variation is made in writing and that the variation contains a statement that the IHT rules are intended to apply.

Similar rules apply for certain purposes of capital gains tax (CGT).

Recently, we have seen suggestions that these rules do not apply to a variation of the deceased's interest in jointly held assets, which passed on the death to the surviving joint owner(s).

For example, the family home was owned by a mother and her son as beneficial joint tenants and on the mother's death, her interest passed by survivorship to the son who then became the sole owner of the property.  It has been suggested that, in this example, the son cannot, for IHT / CGT purposes, vary his inheritance of his mother's interest by redirecting it to his children.

We do not share this view."

26.      We agreed that it was appropriate to adopt a purposive interpretation to the legislation and accordingly the words 'or otherwise' in Article 25 must be taken to mean something other than a disposition bought about pursuant to a will or under the relevant rule of law applicable to intestacy.  It was submitted to us that the right of survivorship would qualify and that it was difficult to think of any other similar rule of law which might fall within this category of disposition.

Decision

27.      Although the point was not contested, as only the advocate for the Representors appeared before us, we were persuaded that in the circumstances we did have the power to vary the disposition in this case, even though it was a disposition arising by way of the right of survivorship.

28.      In the exercise of our discretion we granted the relief sought noting, as we have said, the support of all historic and / or current shareholders of the Company (there was subsequent reorganisation pursuant to which John and Emma also became shareholders) for this application.  We note that the Company had no objection to the relief being sought and that a letter had been sent to HMRC, although a response had not yet been received to that correspondence.  We varied the disposition of the shares on survivorship so that: 

(i)        The joint ownership was severed on death so that Anthony Nicholas Yianni then held title to one-third of the shares as an owner-in-common, and the Deceased and Janet Louise Yianni then held title to the remaining two-thirds of the Issued Shares jointly for themselves and the survivor of them; and

(ii)       Title to the said two-thirds of the shares passed to Janet Louise Yianni (as the surviving joint owner thereof) by operation of law.

29.      We also granted consequential relief namely various amendments that needed to be made to the share register by way of rectification pursuant to Article 47 of the Companies (Jersey) Law 1991.  We ordered rectification of the register of the company so that it records that:

(i)        On 30^th April, 2019, Anthony Nicholas Yianni became the sole owner of one-third of the shares and Janet Louise Yianni became the sole owner of two-thirds of the shares respectively; and

(ii)       On 19^th July 2019 each of the Representors respectively transferred title to each of their shares respectively to Anthony Nicholas Yianni and Elena Christofides Yianni jointly for themselves and the survivor of them. 

Authorities

Probate (Jersey) Law 1998. 

Le Sueur v Le Sueur [1968] 1 JJ 889. 

Re Degrevement Bonn [1971] 1 JJ 1771. 

Re Wakefield [1999] JLR Notes 19b). 

Jowitt's Dictionary of English Law (5th Edition). 

McCutcheon on Inheritance Tax (7th Edition - 2017). 

Companies (Jersey) Law 1991