AB Jnr v MB

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 18 December 2012
• Court: Grand Court (Cayman Islands)
• Date: 18 December 2012

Grand Court, Financial Services Division

(Smellie, C.J.)

AB JUNIOR and MADAME B

and

MB and FOUR OTHERS

A. Boyle, Q.C., J. Machell, Q.C., Mrs. L. DaCosta, W.J.A. Gordon and Ms. C. Fraser for the plaintiffs;

C. G. Nugee, Q.C., Ms. L. Lutterman and Ms. Z. Robertson for the first, second, third and fifth defendants;

C. Tidmarsh, Q.C., Ms. L. Lutterman and Ms. Z. Robertson for the fourth defendant.

Cases cited:

(1) A.N. v. Barclays Private Bank & Trust (Cayman) Ltd., 2006 CILR 367, considered.

(2) Archbold v. Scully(1861), 9 H.L. Cas. 360; 11 E.R. 769, referred to.

(3) Banque Jacques-Cartier v. Banque d”Épargne de la Cité et du District de MontréalELR(1888), 13 App. Cas. 111, referred to.

(4) Boardman v. Phipps, [1967] 2 A.C. 46; [1966] 3 W.L.R. 1009; [1966] 3 All E.R. 721, considered.

(5) De Bussche v. AltELR(1878), 8 Ch. D. 286, referred to.

(6) Erlanger v. New Sombrero Phosphate Co.ELR(1878), 3 App. Cas. 1218; [1874–80] All E.R. Rep. 271; 48 L.J. Ch. 73, dicta of Lord Blackburn referred to.

(7) G.H.Ltd. v. Bould, 1994–95 CILR 361, referred to.

(8) Gwembe Valley Dev. Co. Ltd. v. Koshy (No. 3), [2004] 1 BCLC 131; [2004] WTLR 97; [2003] EWCA Civ 1048, considered.

(9) Habib Bank Ltd. v. Tufail, [2006] 2 P. & C.R. DG14; [2006] EWCA Civ 374, referred to.

(10) Holder v. Holder, [1968] 1 Ch. 353; [1968] 2 W.L.R. 237; [1968] 1 All E.R. 665, considered.

(11) Hurstanger Ltd. v. Wilson, [2007] 1 W.L.R. 2351; [2007] 4 All E.R. 1118; [2007] EWCA Civ 299, considered.

(12) Lindsay Petroleum Co. v. HurdELR(1874), L.R. 5 P.C. 221, considered.

(13) London Loan & Savings Co. v. Brickenden, [1933] SCR 257; on appeal, [1934] 3 DLR 465 considered.

(14) Longstaff v. Birtles, [2002] 1 W.L.R. 470; [2001] EWCA Civ 1219, considered.

(15) Mahoney v. Purnell, [1996] 3 All E.R. 61; [1997] 1 FLR 612; [1997] Fam. Law 169, referred to.

(16) Marley v. Mutual Sec. Merchant Bank & Trust Co. Ltd., [1991] 3 All E.R. 198, referred to.

(17) Munster v. CoxELR(1885), 10 App. Cas. 680, referred to.

(18) Nocton v. Lord Ashburton, [1914] A.C. 932; [1914–15] All E.R. Rep. 45, considered.

(19) O”Sullivan v. Management Agency & Music Ltd., [1985] Q.B. 428; [1984] 3 W.L.R. 448; [1985] 3 All E.R. 351, referred to.

(20) P. & O. Nedlloyd B.V. v. Arab Metals Co., [2007] 1 W.L.R. 2288; [2006] EWCA Civ 1717, considered.

(21) Pauling”s Settlement Trusts, In re, [1964] Ch. 303; [1963] 3 W.L.R. 742; [1963] 1 All E.R. 1, considered.

(22) Pitt v. Holt, [2012] Ch. 132; [2011] 3 W.L.R. 19; [2011] 2 All E.R. 450; [2011] STC 809; [2011] BTC 322; (2011), 13 ITELR 749; [2011] EWCA Civ 197, referred to.

(23) Rama v. Millar, [1996] CLC 186, considered.

(24) Redgrave v. HurdELR(1881), 20 Ch. D. 1, referred to.

(25) Rochdale Canal Co. v. KingENR(1851), 2 Sim. N.S. 78; 61 E.R. 270, referred to.

(26) Swindle v. Harrison, [1997] 4 All E.R. 705; [1997] 2 P.N.L.R. 641, considered.

(27) T Trust, In re, 2000 CILR 11, referred to.

(28) Target Holdings Ltd. v. Redferns, [1996] 1 A.C. 421; [1995] 3 W.L.R. 352; [1995] 3 All E.R. 785, considered.

(29) Thoday v. Thoday, [1964] P. 181; [1964] 2 W.L.R. 371; [1964] 1 All E.R. 341, referred to.

(30) Thompson”s Settlement, In re, [1986] Ch. 99; [1985] 3 W.L.R. 486, referred to.

(31) Tito v. Waddell (No. 2), [1977] Ch. 106; [1977] 2 W.L.R. 496; [1977] 3 All E.R. 129, followed.

(32) Z Trust, In re, 2009 CILR 593, referred to.

Estoppel-estoppel by conduct-acquiescence-at law, party to agreement estopped, or deemed to have acquiesced, if unequivocally leads other party to agreement to believe that intends to affirm impugned transaction and other party acts to its detriment-in equity, may be estopped if unfair to allow him to question or set aside transaction so as to be able to claim equitable compensation for loss arising

Limitation of Actions-laches-availability as defence-mere delay in seeking to enforce claim insufficient to raise laches before expiry of statutory limitation period-available as defence within limitation period if delay unjustifiable and adversely affects position of defendant or others-question then whether equitable to grant claimant remedy sought

Trusts-liabilities of trustees-equitable compensation-liable to pay equitable compensation for breach of fiduciary duty-free-standing obligation not dependent on right to rescind transaction-enforceable even when right to rescind lost

Trusts-no-contest clauses-forfeiture-provision for forfeiture if beneficiary challenges trust prima facie valid if meets test of certainty and complies with public policy requirement of not seeking to preclude challenge on justifiable grounds-trustees estopped from enforcing forfeiture if issue compromised by agreement approved by court

Trusts-powers and duties of trustees-duty to give information to beneficiaries-failure to disclose material financial information to beneficiaries negotiating exit from trust breaches fair-dealing rule-breach justifies award of equitable compensation-no defence that relied on legal advice

The headnote to this case was contributed by Deborah Barker Roye, formerly Assistant Director of Legal Studies at the Cayman Islands Law School.

The plaintiff beneficiaries of a trust brought proceedings against the defendant trustees seeking equitable compensation for their breach of fiduciary duties owed to the plaintiffs.

The AB Trust was settled in 1985 by the settlor, AB Snr. The trust assets comprised the bulk of the settlor”s wealth before his death and included, inter alia, shares in the S Group, which were the principal asset of the trust and were wholly owned by it. The S Group had a number of subsidiary companies including ST Ltd., S France Ltd., SH Ltd. and SAC SA (‘S Art Ltd.’). The assets of the trust were divided into shares and specific numbers of shares were allocated to named beneficiaries. The beneficiaries included the plaintiffs in the present proceedings-the first plaintiff (the minor son of the settlor and the second plaintiff), and the second plaintiff (the third wife of the settlor).

The trust deed contained a ‘no contest clause’ whereby a beneficiary would be deemed to forfeit any interest in the trust were he, inter alia, to contest or attack the validity of the trust or perform any act that would frustrate the dispositive plan contemplated in the trust.

The first to fourth defendants were appointed as trustees of the trust at various times following the settlor”s death in 1991. The fourth defendant was joined in the present proceedings in a representative capacity to represent the interests of the other beneficiaries of the trust.

Shortly after the death of the settlor, the second plaintiff refused to allow access to a valuable art collection owned by the trust, and later defended proceedings taken by the trustees relating to the art collection, claiming, amongst other things, diplomatic immunity. She also arranged for the sale of several items in the art collection, which she subsequently said was a mistake. In 1992, she applied for and obtained the placing of judicial seals on the contents of a property on the basis that it belonged to the settlor”s estate, when in fact it belonged to the trust. The second plaintiff also took steps to obtain court orders to permit raids on companies owned by the trust. In the light of the significant mistrust and animosity that had developed between the trustees and the second plaintiff, negotiations took place between them for the withdrawal of the plaintiffs from the trust in consideration of a financial settlement.

In November 1992, the Grand Court gave the trustees the power to make advances of capital from the trust (‘the 1993 order’). As a condition of advancement to the plaintiffs, there had to be an ‘appropriate valuation’ of the S Group and the various businesses owned by S Group, as well as a valuation of the plaintiffs” shares in the trust. Particulars of such valuation were to be given to the plaintiffs. In the course of the exit negotiations, by a further order of the Grand Court (‘the 1998 order’), valuers were respectively appointed by the trustees and the guardian of the first plaintiff and prepared a joint report on the ‘indicative fair value’ of the S Group and its subsidiaries.

For valuation purposes, an important asset of the S Group was its 60% shareholding in ST Ltd. The respective valuers were unable to agree on the value of the S Group”s 60% shareholding in ST Ltd. The valuers for the trustees valued the 60% stake at $160m. and the valuers for the guardian valued it at $295m.–$330m.

The value of the 60% stake in ST Ltd. became a matter of contention between the plaintiffs and the trustees in the exit negotiations. A further contentious issue was whether a discount should be applied to the valuation of the plaintiff”s shares in the trust to address any disadvantage to other beneficiaries from the fact that the plaintiffs would receive liquid assets when a substantial part of the trust assets were illiquid.

Terms for the exit of the plaintiffs from the trust were eventually agreed (‘the 1999 agreement’). The terms were carried into effect and approved by a further order of the Grand Court (‘the 1999 order’). The 1999 agreement and the 1999 order provided for the trustees to exercise the powers of advancement earlier given to them in the 1993 order and for the trustees to transfer assets representing the value of the plaintiffs” shares to the trustees of a new Guernsey trust settled for the benefit of the plaintiffs and their descendants (‘the Guernsey trust’). The upper valuation of $330m. was applied to the 60% stake in ST Ltd., and a liquidity discount of 17.33% was applied to the value of the plaintiffs” share. This resulted in assets amounting to $173.34m., supposedly representing the values of the plaintiffs” shares in the trust, being transferred to the trustees of the Guernsey trust.

Unknown to the plaintiffs, at the time of the...