Trusts And Protectors - Sham Trusts - An Update

In the case of Mezhprom v Pugachev [2017], the English High Court set aside five discretionary trusts established by a Russian oligarch. This ground-breaking case has potentially introduced the concept of an "illusory trust", which differs in important respects from a sham trust. The case serves as a reminder to Channel Islands' trust and fiduciary practitioners that the validity of a trust may be compromised if extensive powers are granted to a protector/settlor. Appleby Guernsey's Dispute Resolution and Private Client & Trusts teams review this important decision and the impact in the Channel Islands.

Background and the establishment of the trusts

Following the collapse of Mezhprom Bank (Bank) in 2010, the Bank and its liquidators pursued Mr Pugachev (Pugachev), the founder of the Bank, for the misappropriation of large sums of money.