Y v R

• Jurisdiction: Cayman Islands
• Judge: (Mangatal, J.)
• Judgment Date: 09 January 2018
• Court: Grand Court (Cayman Islands)
• Date: 09 January 2018

Grand Court, Financial Services Division (Cayman Islands)

(Mangatal, J.)

Y

and

R

C. McKie, Q.C. and L. Stockdale for the plaintiff;

N. Dunne and A. Gibson for the defendant.

Cases cited:

(1)Cruz City 1 Mauritius Hldgs. v. Unitech Ltd. (No. 2), [2015] 1 All E.R. (Comm) 336, referred to.

(2)Gartside v. Inland Rev. Commrs., [1968] A.C. 553; [1968] 2 W.L.R. 277; [1968] 1 All E.R. 121; [1967] T.R. 309, referred to.

(3)Hutton v. Watling, [1948] Ch. 26; [1947] 2 All E.R. 641; (1947), 63 T.L.R. 615, referred to.

(4)JSC Mezhdunarodniy Promyshlenniy Bank v. Pugachev, [2015] EWCA Civ 139; [2016] 1 W.L.R. 160; [2015] 2 P. & C.R. DG4; [2015] 2 All E.R. (Comm) 816; [2015] WTLR 991; [2015] 1 C.L.C. 238, considered.

(5)JSC VTB Bank v. Skurikhin, [2015] EWHC 2131 (Comm), considered.

(6)Masri v. Consolidated Contractors Intl. Co. SAL (No. 2), [2008] EWCA Civ 303; [2009] Q.B. 450; [2009] 2 W.L.R. 621; [2009] Bus. L.R. 168; [2008] 2 Lloyd’s Rep. 128; [2008] C.P. Rep. 28; [2008] 1 C.L.C. 657, not followed.

(7)R. v. Lincolnshire County Court Judge (1887), 20 Q.B.D. 167, considered.

(8)TMSF v. Merrill Lynch Bank & Trust Co. (Cayman) Ltd., 2011 (1) CILR 467, not followed.

(9)Webb v. Stenton (1883), 11 Q.B.D. 518, referred to.

Legislation construed:

Confidential Information Disclosure Law 2016, s.4(2):

“If a person intends to or is required to give evidence in or in connection with any proceeding . . . and the evidence consists of or contains any confidential information within the meaning of this Law, the person shall apply for directions in accordance with this section before giving that evidence . . .”

Grand Court Law (2015 Revision), s.11(1): The relevant terms of this sub-section are set out at para. 35.

Grand Court Rules 1995 (Revised), O.51, r.1: The relevant terms of this rule are set out at para. 51.

Senior Courts Act 1981 (c.54), s.37(1): The relevant terms of this sub-section are set out at para. 36.

Trusts — receivers — appointment — may not appoint receivers over future distributions beneficiary/judgment debtor may receive from discretionary trust — beneficiary of discretionary trust has no legal or beneficial interest in trust fund

The plaintiff sought the appointment of receivers.

The plaintiff was a professional law corporation of which the defendant was a former client. The defendant’s father had transferred certain of his assets to a Bahamian trust and the trustees of that settlement had settled its assets on a Cayman Islands discretionary trust of which the defendant was a beneficiary. The defendant had engaged the plaintiff to act for him in relation to his late father’s estate. A dispute subsequently arose concerning the payment of legal fees. An arbitral tribunal issued an award in favour of the plaintiff and against the defendant for US$1,987,219.51 (of which the plaintiff had recovered US$91,720.63). The plaintiff sought to enforce the award pursuant to s.5 of the Foreign Arbitral Awards Enforcement Law. The court entered judgment on the same terms as the award. The award now fell to be enforced against the defendant as judgment debtor.

The plaintiff sought the following orders against the defendant:

(1) The appointment of receivers by way of equitable execution to receive all distributions to or for the benefit of the defendant from the trust in or towards satisfaction of the moneys, interest and costs due to the plaintiff as judgment creditor;

(2) Alternatively, garnishment of such distributions out of the trust that were payable to the defendant.

The defendant raised a preliminary point that the evidence relied upon by the plaintiff contained a great deal of highly confidential information relating not only to his affairs but also to those of the other potential beneficiaries and trustee of the trust. The plaintiff should have sought the court’s directions under s.4 of the Confidential Information Disclosure Law.

In response, the plaintiff submitted that (a) the enforcement of the award itself involved consideration of the facts and information in relation to the trust exchanged between the parties. Even if the information were confidential, it could not be confidential as between the parties; (b) in any event, a substantial amount of relevant information was already in thepublic domain; and (c) even if the information were provided in breach of a duty of confidentiality, that would not render it inadmissible.

With respect to the appointment of receivers, the plaintiff submitted that there was no doubt that where a judgment debtor owned the beneficial interest in a bare trust the court could appoint receivers by way of equitable execution in respect of that beneficial interest. The court had jurisdiction to appoint receivers where a judgment debtor did not yet own but might reasonably be expected in the future to own, the beneficial interest in a bare trust, although no reported judgment to that effect had been identified. As the defendant had very limited other financial means and a substantial liability in the form of the judgment debt, it was fanciful to suggest that the trustee would not at some point in the near and foreseeable future exercise its discretion in his favour. When the trustee was about to pay an amount to the defendant, he would own the entire beneficial interest in that sum. Once he owned the entire equitable interest, it was an asset that could be applied towards the discharge of the judgment debt and was amenable to execution.

The defendant submitted that the case for the appointment of receivers under GCR O.51, r.1 was not made out. The judgment debt was not particularly large and it was not clear that the debt’s collection justified the significant expenses that would be incurred by the appointment of receivers. The defendant had significant available assets against which to enforce in an overseas jurisdiction, the jurisdiction in which the debt arose and the parties resided. It could not be said that the defendant had assets in the Cayman Islands as a discretionary beneficiary of the trust.

Held, refusing the application:

(1) The defendant’s submissions on the preliminary point must succeed. In the circumstances, the plaintiff should have made an application under s.4 of the Confidential Information Disclosure Law, which should have been served on the trustee. This was particularly so where the plaintiff relied upon what it said the trustee had done in the past in order to attempt to predict the trustee’s future actions. The information regarding the funds that had been disbursed, the details of the beneficiaries and such other matters about the trust was confidential information for the purposes of the Law. Even if the defendant had waived confidentiality, he could not have waived confidentiality on the part of the trustee or the other beneficiaries. They had a right to have the court perform its role as gatekeeper for the use of confidential information in these proceedings. The major part of the evidence relied upon by the plaintiff was therefore inadmissible (paras. 25–29).

(2) If the court were wrong on the preliminary issue, it would not in any event have granted the plaintiff’s application for the appointment of receivers. The defendant had no assets in the Cayman Islands over which receivers could be granted. As a discretionary beneficiary, the defendant had no legal or beneficial interest in the trust fund. His only right was to require the trustee to consider from time to time whether or not to applythe whole or some part of the trust fund for his benefit. It was clear that where there were no available assets to be viewed as the judgment debtor’s assets in equity, receivers could not be appointed. To grant the relief sought by the plaintiff in the present case would amount to a radical, impermissible extension of the law. Furthermore, the appointment of receivers was a discretionary remedy. It was clear that there were other adequate remedies for the plaintiff. There were plainly assets amenable to execution at law available to the plaintiff in another jurisdiction. There did not appear to be any need for recourse to Cayman Islands receivers in these circumstances (paras. 66–74).

1 MANGATAL, J.:

Introduction

The plaintiff (“Y” or “the judgment creditor”) is a professional law corporation, incorporated in the State of . . . It specializes in entertainment law, intellectual property law and related disciplines.

2 The defendant (“R” or “the judgment debtor”) is a former client of the plaintiff. He is the son of the late M . . . M died . . . when R was two years old. Prior to his death, M had transferred certain of his assets to a Bahamian law governed trust . . . In . . . the managing trustees of that settlement settled its assets upon a new Cayman Islands law governed discretionary trust . . . (“the trust”). R is a beneficiary of the trust.

3 R engaged the plaintiff to act for him in relation to certain matters in connection with his late father’s estate in order to secure additional income from the estate, including from the trust.

4 A dispute subsequently arose between the plaintiff and the defendant in connection with the payment of legal fees.

The judgment debt

5 On August 4th, 2015, the plaintiff commenced arbitration against the...