T Choithram International SA v Pagarani
Encyclopedia
T Choithram International SA v Pagarani and Others [2001] 2 All ER 492 was a decision of the Judicial Committee of the Privy Council
on appeal from the British Virgin Islands
in relation to the vesting of trust
property in a trustee
. In the British Virgin Islands it is often referred to simply as the "Pagarani case".
The case arose out of the death of Thakurdas Choithram Pagarani. Shortly before his death, he tried to transfer various assets to the Choithram International Foundation, a philanthropic body created by him at the same time as the gift.
Mr Pagarani was born in 1914 in India
. He was a devout Hindu
. In 1928 he married his first wife, Lalibai Thakurdas Pagarani, by whom he had six daughters. In about 1937 Mr Pagarani left India and eventually established a supermarket business in Sierra Leone
, Lalibai and their children remaining in India. In Sierra Leone he met and in 1944 married Virginia Harding, who bore him eight children including three sons.
Mr Pagarani remained in Sierra Leone until the 1980s but used to return to India to visit his Indian family and those members of his Sierra Leone family whom he had taken to India to be brought up according to Indian ways and customs.
The businesses carried on by Mr Pagarani were outstandingly successful and spread widely throughout the world. They were usually named "T. Choithram and Sons" and were often known simply as "Choithrams". In 1989 Mr Pagarani brought most of his business under the umbrella of the first various offshore companies
(including T Choithram International SA), in effect, holding companies
. He was not the sole owner of the shares in those companies, but he held a majority share.
Throughout his life Mr Pagarani was outstandingly generous in his charitable giving
. His gifts amounted to many millions of U.S. dollars. The judge at first instance found as a fact that:
having made generous provision for his first wife and each of his children, [he] intended to leave much of the remainder of his wealth to charity, to the exclusion of his children. This he hoped to achieve by setting up a foundation to serve as an umbrella organisation for those charities which he had already established and which would in due course be the vehicle to receive most of his assets when he died. This was from all accounts, a longstanding intention of the deceased.
At the end of 1991, Mr Pagarani was diagnosed as suffering from cancer
. He left his home in Dubai
(where he had primarily established himself after he left Sierra Leone in the 1980s) and came to London to stay with his son. Preparations were made for an elaborate ceremony at which he was to establish the Choithram International Foundation and give it all his wealth. As Mr Pagarani's condition worsened various family members were summoned to his bedside. In an upstairs bedroom in his son's house on 17 February 1992 Mr Pagarani executed the Foundation's trust deed
in the presence of various persons. Immediately after signing the Foundation trust deed Mr Pagarani said certain words. The witnesses varied in their recollection of the details of what was said but all were in substantial agreement. In substance, he was thought to have said: "I now give all my wealth to the Trust" or "I have given everything to the Trust". Mr Pagarani then said to the group's accountant, Mr Param (who was in attendance), that he, Mr Param, knew what to do and that he should transfer all his balances with the companies to the Foundation and his shares as well. Again the exact words used are not identically remembered. On the same day, 17 February 1992, the other trustees present in London
signed the trust deed. The remaining Trustees of the Foundation who were not in London signed the Foundation trust deed shortly thereafter.
Later that same day meetings of the board of directors
of each of the companies were held acknowledging the earlier gifts. The Articles of Association
contained certain pre-emption right
s, which the other shareholders duly waived
.
Mr Pagarani had also prepared a will
, which gave all of his wealth to the Foundation. However, at the time the will was drafted, the Foundation had not been constituted. The will was never signed, and Mr Pagarani had asked a new will to be prepared and for arrangements to made to transfer his assets inter vivos
.
In the event, no transfer documents were ever signed. Shortly afterwards Mr Pagarani was admitted to intensive care where he died. His relatives, who stood to benefit from an intestacy
, claimed the assets had never been transferred to the Foundation and fell to be distributed with his estate
. The relatives who were trustees of the Foundation claimed that the gift to the Foundation was valid, and that the shares in the companies had not been transferred properly in the manner specified by law in the International Business Companies Act
.
summed up the point admirably succinctly. The central and most important question was this: on the basis that Mr Pagarani intended to make an immediate absolute gift "to the Foundation", but had not vested the gifted property in all the trustees of the Foundation, are the trusts
of the Foundation trust deed enforceable against the deposits
and the shares
, or was it (as the judge at first instance and the Court of Appeal had held) a case where there has been an imperfect gift which cannot be enforced against Mr Pagarani's estate whatever his intentions might have been?
The judge and the Court of Appeal had taken the view that a perfected gift
could only be made in one of two ways, viz.
In case 1 above, the donor must have done everything necessary to be done which is within his own power to do in order to transfer the gifted asset to the donee. If the donor has not done so, the gift is incomplete since the donee has no equity to perfect an imperfect gift, for which there is a long line of authority. Moreover, the court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee, see Milroy v Lord (1862) 4 De G F & J 264.
So in this case Mr Pagarani used words of gift to the Foundation (not words declaring himself a trustee) - unless he transferred the shares and deposits so as to vest title in all the Trustees, he had not done all that he could in order to effect the gift; so under the law as it had previously been understood, the gift would have failed. Further it would not be possible to treat Mr Pagarani's words of gift as a declaration of trust, because they make no reference to trusts. Therefore if the case does not fall within either of the possible methods by which a complete gift can be made, then the gift should have failed.
The Privy Council did not agree with that conclusion. They opined that the facts of this case were novel and raised a new point not previously judicially considered. The Privy Council held that the fairness required by equity meant the fact that the trust property was vested in one trustee (Mr Pagarani himself) at the time of the gift was sufficient to make the conveyance to the trust valid. This was a slightly surprising conclusion, as there was clear legal precedent in Bridge v Bridge (1852) 16 Beav. 315 establishing that the vesting of the trust property in one trustee, the donor, out of many is not sufficient to constitute the trust. The Privy Council sidestepped this point, expressing "some doubt" whether that case had been correctly decided on this point (although not overruling it), but then distinguishing it on technical grounds.
Judicial Committee of the Privy Council
The Judicial Committee of the Privy Council is one of the highest courts in the United Kingdom. Established by the Judicial Committee Act 1833 to hear appeals formerly heard by the King in Council The Judicial Committee of the Privy Council (JCPC) is one of the highest courts in the United...
on appeal from the British Virgin Islands
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
in relation to the vesting of trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
property in a trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
. In the British Virgin Islands it is often referred to simply as the "Pagarani case".
Facts
The background facts to the litigation are extremely unusual. Although they were bitterly contested, the summary below was the factual background as found by the court at first instance (and in respect of which there was no appeal).The case arose out of the death of Thakurdas Choithram Pagarani. Shortly before his death, he tried to transfer various assets to the Choithram International Foundation, a philanthropic body created by him at the same time as the gift.
Mr Pagarani was born in 1914 in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
. He was a devout Hindu
Hindu
Hindu refers to an identity associated with the philosophical, religious and cultural systems that are indigenous to the Indian subcontinent. As used in the Constitution of India, the word "Hindu" is also attributed to all persons professing any Indian religion...
. In 1928 he married his first wife, Lalibai Thakurdas Pagarani, by whom he had six daughters. In about 1937 Mr Pagarani left India and eventually established a supermarket business in Sierra Leone
Sierra Leone
Sierra Leone , officially the Republic of Sierra Leone, is a country in West Africa. It is bordered by Guinea to the north and east, Liberia to the southeast, and the Atlantic Ocean to the west and southwest. Sierra Leone covers a total area of and has an estimated population between 5.4 and 6.4...
, Lalibai and their children remaining in India. In Sierra Leone he met and in 1944 married Virginia Harding, who bore him eight children including three sons.
Mr Pagarani remained in Sierra Leone until the 1980s but used to return to India to visit his Indian family and those members of his Sierra Leone family whom he had taken to India to be brought up according to Indian ways and customs.
The businesses carried on by Mr Pagarani were outstandingly successful and spread widely throughout the world. They were usually named "T. Choithram and Sons" and were often known simply as "Choithrams". In 1989 Mr Pagarani brought most of his business under the umbrella of the first various offshore companies
Offshore company
The term offshore company is ambiguous. It may refer to either:# A company which is incorporated outside the jurisdiction of its primary operations regardless of whether that jurisdiction is an offshore financial centre i.e...
(including T Choithram International SA), in effect, holding companies
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
. He was not the sole owner of the shares in those companies, but he held a majority share.
Throughout his life Mr Pagarani was outstandingly generous in his charitable giving
Charity (practice)
The practice of charity means the voluntary giving of help to those in need who are not related to the giver.- Etymology :The word "charity" entered the English language through the Old French word "charité" which was derived from the Latin "caritas".Originally in Latin the word caritas meant...
. His gifts amounted to many millions of U.S. dollars. The judge at first instance found as a fact that:
having made generous provision for his first wife and each of his children, [he] intended to leave much of the remainder of his wealth to charity, to the exclusion of his children. This he hoped to achieve by setting up a foundation to serve as an umbrella organisation for those charities which he had already established and which would in due course be the vehicle to receive most of his assets when he died. This was from all accounts, a longstanding intention of the deceased.
At the end of 1991, Mr Pagarani was diagnosed as suffering from cancer
Cancer
Cancer , known medically as a malignant neoplasm, is a large group of different diseases, all involving unregulated cell growth. In cancer, cells divide and grow uncontrollably, forming malignant tumors, and invade nearby parts of the body. The cancer may also spread to more distant parts of the...
. He left his home in Dubai
Dubai
Dubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...
(where he had primarily established himself after he left Sierra Leone in the 1980s) and came to London to stay with his son. Preparations were made for an elaborate ceremony at which he was to establish the Choithram International Foundation and give it all his wealth. As Mr Pagarani's condition worsened various family members were summoned to his bedside. In an upstairs bedroom in his son's house on 17 February 1992 Mr Pagarani executed the Foundation's trust deed
Trust instrument
A trust instrument is an instrument in writing executed by a settlor used to constitute a trust...
in the presence of various persons. Immediately after signing the Foundation trust deed Mr Pagarani said certain words. The witnesses varied in their recollection of the details of what was said but all were in substantial agreement. In substance, he was thought to have said: "I now give all my wealth to the Trust" or "I have given everything to the Trust". Mr Pagarani then said to the group's accountant, Mr Param (who was in attendance), that he, Mr Param, knew what to do and that he should transfer all his balances with the companies to the Foundation and his shares as well. Again the exact words used are not identically remembered. On the same day, 17 February 1992, the other trustees present in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
signed the trust deed. The remaining Trustees of the Foundation who were not in London signed the Foundation trust deed shortly thereafter.
Later that same day meetings of the board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
of each of the companies were held acknowledging the earlier gifts. The Articles of Association
Articles of Association (law)
The term articles of association of a company, or articles of incorporation, of an American or Canadian Company, are often simply referred to as articles . The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom and many other countries...
contained certain pre-emption right
Pre-emption right
A pre-emption right is a right to acquire certain property in preference to any other person. It comes from the Latin verb emo, emere, emi, emptum, to buy or purchase, plus the inseparable preposition pre, before. It usually refers to property newly coming into existence...
s, which the other shareholders duly waived
Waiver
A waiver is the voluntary relinquishment or surrender of some known right or privilege.While a waiver is often in writing, sometimes a person's actions can act as a waiver. An example of a written waiver is a disclaimer, which becomes a waiver when accepted...
.
Mr Pagarani had also prepared a will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...
, which gave all of his wealth to the Foundation. However, at the time the will was drafted, the Foundation had not been constituted. The will was never signed, and Mr Pagarani had asked a new will to be prepared and for arrangements to made to transfer his assets inter vivos
Inter vivos
Inter vivos is a legal term referring to a transfer or gift made during one's lifetime, as opposed to a testamentary transfer ....
.
In the event, no transfer documents were ever signed. Shortly afterwards Mr Pagarani was admitted to intensive care where he died. His relatives, who stood to benefit from an intestacy
Intestacy
Intestacy is the condition of the estate of a person who dies owning property greater than the sum of their enforceable debts and funeral expenses without having made a valid will or other binding declaration; alternatively where such a will or declaration has been made, but only applies to part of...
, claimed the assets had never been transferred to the Foundation and fell to be distributed with his estate
Estate (law)
An estate is the net worth of a person at any point in time. It is the sum of a person's assets - legal rights, interests and entitlements to property of any kind - less all liabilities at that time. The issue is of special legal significance on a question of bankruptcy and death of the person...
. The relatives who were trustees of the Foundation claimed that the gift to the Foundation was valid, and that the shares in the companies had not been transferred properly in the manner specified by law in the International Business Companies Act
International Business Companies Act
The International Business Companies Act, 1984 was a statute of the British Virgin Islands which permitted the incorporation of International Business Companies within the Territory...
.
Central legal issues
Lord Browne-WilkinsonNicholas Browne-Wilkinson, Baron Browne-Wilkinson
Nicolas Christopher Henry Browne-Wilkinson, Baron Browne-Wilkinson, PC is a former Senior Lord of Appeal in Ordinary in the United Kingdom and former Head of the Privy Council and Vice-Chancellor of the High Court....
summed up the point admirably succinctly. The central and most important question was this: on the basis that Mr Pagarani intended to make an immediate absolute gift "to the Foundation", but had not vested the gifted property in all the trustees of the Foundation, are the trusts
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
of the Foundation trust deed enforceable against the deposits
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
and the shares
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
, or was it (as the judge at first instance and the Court of Appeal had held) a case where there has been an imperfect gift which cannot be enforced against Mr Pagarani's estate whatever his intentions might have been?
The judge and the Court of Appeal had taken the view that a perfected gift
Gift (law)
A gift, in the law of property, is the voluntary transfer of property from one person to another without full valuable consideration...
could only be made in one of two ways, viz.
- by a transfer of the gifted asset to the donee, accompanied by an intention in the donor to make a gift; or
- by the donor declaring himself to be a trustee of the gifted property for the donee.
In case 1 above, the donor must have done everything necessary to be done which is within his own power to do in order to transfer the gifted asset to the donee. If the donor has not done so, the gift is incomplete since the donee has no equity to perfect an imperfect gift, for which there is a long line of authority. Moreover, the court will not give a benevolent construction so as to treat ineffective words of outright gift as taking effect as if the donor had declared himself a trustee for the donee, see Milroy v Lord (1862) 4 De G F & J 264.
So in this case Mr Pagarani used words of gift to the Foundation (not words declaring himself a trustee) - unless he transferred the shares and deposits so as to vest title in all the Trustees, he had not done all that he could in order to effect the gift; so under the law as it had previously been understood, the gift would have failed. Further it would not be possible to treat Mr Pagarani's words of gift as a declaration of trust, because they make no reference to trusts. Therefore if the case does not fall within either of the possible methods by which a complete gift can be made, then the gift should have failed.
Judgment
The judge at first instance and the Court of Appeal ruled in accordance with the law as it had been previously understood.The Privy Council did not agree with that conclusion. They opined that the facts of this case were novel and raised a new point not previously judicially considered. The Privy Council held that the fairness required by equity meant the fact that the trust property was vested in one trustee (Mr Pagarani himself) at the time of the gift was sufficient to make the conveyance to the trust valid. This was a slightly surprising conclusion, as there was clear legal precedent in Bridge v Bridge (1852) 16 Beav. 315 establishing that the vesting of the trust property in one trustee, the donor, out of many is not sufficient to constitute the trust. The Privy Council sidestepped this point, expressing "some doubt" whether that case had been correctly decided on this point (although not overruling it), but then distinguishing it on technical grounds.