An Application Under Section 48 of the Trusts Act (2021 Revision) and HSBC Trustee (C.I.) Ltd as Trustee of the H Settlement
| Jurisdiction | Cayman Islands |
| Judgment Date | 15 December 2022 |
| Docket Number | CAUSE NO. FSD 130 OF 2021 (ASCJ) |
| Court | Grand Court (Cayman Islands) |
CAUSE NO. FSD 130 OF 2021 (ASCJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Trustee's application for the “blessing of the Court of its momentous decision to distribute its assets and dissolve the Trust — review of applicable case law — factors for consideration .
Hector Robinson KC with Janaki Tampi, and David Ramsaran of Mourants for HSBC Trustee (C.I. Limited
Tom Lowe KC with John Harris of Nelsons for the other parties
By this application, HSBC Trustee (C.I.) Limited (the Trustee), acting as trustee of H Trust (the Trust), seeks the court's blessing of its decision, made pursuant to its powers under the Trust, to make a final distribution of the Trust assets (the Proposed Final Distribution). The intention is to benefit the settlors' family and preferred charities, who are either current beneficiaries or whom the Trustee intends to add as beneficiaries of the Trust. The application seeks to invoke the court's inherent jurisdiction in equity to supervise trustees as well as its concurrent jurisdiction under section 48 of the Trusts Act (2021 Revision) and Order 85, rule 7, Grand Court Rules (2022 Consolidation).
The application was supported mainly by three affidavits of Mr Peter J Stent, senior trust manager of the Trustee, sworn respectively on 12 July 2021 ( Stent 1), 31 January 2022 ( Stent 2) and 19 April 2022 ( Stent 3). These affidavits set out the details of the background to the Trust, the relevant history prior to and leading up to the Trustee making the decision to make this final distribution of the trust assets and to wind up the Trust, the Trustee's decision making process and details of the Trustee's decision.
On 4 August 2021, I made orders for preservation of the confidentiality of the proceedings and gave directions as to the persons to be served with notice of the proceedings. This judgment has been anonymised pursuant to that order to protect the identity of the Trust, the settlors, the individual beneficiaries and the intended beneficiaries. The essential reason for that order were concerns for the personal security of beneficiaries in their places of residence should their access to wealth become publicised.
The Trust was established by a deed of trust executed on 26 May 2006 (the Trust Deed) between HSBC International Trustee Limited (the Original Trustee) and the settlors, Mexican residents, SI and his wife, S2. The Original Trustee was replaced as trustee by HSBC Trustee (Guernsey) Limited ( HTGL) on 17 November 2009, which was in turn replaced as trustee by the current Trustee on 30 June 2014.
The Trust's assets comprise shares in two Bahamian companies — H Corp, which holds an investment portfolio comprising cash, equities and fixed income securities; and VI, which owns a residential apartment in Miami, Florida.
The Trust Deed created two classes of beneficiaries: “Discretionary Lifetime Beneficiaries” and (ii) “Discretionary Beneficiaries”. The Discretionary Lifetime Beneficiaries are defined to be the persons for whose benefit, the trustee of the Trust held the capital and income of the trust fund until the date of the death of the last surviving settlor, defined in the Trust Deed as the “Division Date”. The Discretionary Beneficiaries are defined as the persons for whose benefit, the trustee holds the trust fund from the Division Date. The Division Date was 16 September 2017, being the date of death of SI, who had been predeceased by S2.
Pursuant to clause 6.1(b) of the Trust Deed, the settlors (or settlor) who “are from time to time living and not Incapacitated” had the reserved power, by written instrument, to add to the class of Discretionary Lifetime Beneficiaries. Further, by clause 6.1(c), the settlors ‘living and not Incapacitated’ had the power, by written instrument, to declare that members of the class of Discretionary Lifetime Beneficiaries specified in the instrument be excluded from benefit under the Trust.
The Trust Deed identifies the Discretionary Beneficiaries as the settlors, and their only two children, DB2 and DB1. During the lifetimes of the settlors, generous distributions were made from the Trust to the settlors themselves and to DB2 and DB1.
By a deed of addition dated 17 August 2015, acting pursuant to a letter of request signed by SI, then the sole surviving settlor, the Trustee added six individuals to the class of Discretionary Beneficiaries. Three of these persons were relatives of the settlors. One was a business associate of the settlors and the other two were the widows of former business associates of the settlors. Following a further written request signed by SI dated 13 May 2015, the Trustee made significant distributions to each of the persons added to the class of Discretionary Beneficiaries pursuant to the deed of addition dated 17 August 2015.
The Trust Deed identifies the Discretionary Beneficiaries, and consequently the beneficiaries of the Trust following the death of the settlors, as: DB1, DB2, DB3, DB4, DB5, DB6, DB7, DB8, DB9, DB10, Eishel Nuestro Hogar Murio (“Eishel”) (a charitable entity), and OSE Mexico (another charitable entity).
Under paragraph 1(c) of Schedule IV to the Trust Deed, the trustee for the time being has the power by instrument to declare that persons or objects be excluded from the class of Discretionary Beneficiaries. Following a written request signed by SI and dated 13 May 2015, the Trustee by deed of exclusion dated 14 August 2017, removed DB11, DB8 and DB10 from the class of Discretionary Beneficiaries.
Three of the Discretionary Beneficiaries named in Schedule IV having died, namely DB3, DB9 and DB10, the class of Discretionary Beneficiaries at the time of the hearing before me comprised: DB2, DB1, DB3, DB4, Eishel and OSE Mexico. DB2 and DB1 are the settlors' only two children. DB3 and DB4 are nephews of the settlors on S2's side of the family. Eishel and OSE Mexico are the charitable entities on whom the settlors had conferred benefits during their lifetimes.
The settlors made six letters of wishes between 26 May 2006, the date the Trust was established, and 16 September 2017, the date of S1's death. The first five letters of wishes pre-date the death of S2 on 23 October 2014 and were each signed by the settlors jointly. The last letter of wishes, dated 9 April 2015 (the 2005 letter of wishes), was signed by SI solely, after the death of S2, his wife.
The letters of wishes signed jointly by the settlors consistently expressed the settlors' wish that the following distributions should be made from the Trust after their death:
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(a) distributions of US$1 million to each of DB3 and DB10;
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(b) distributions of US$500,000 to each of DB4, DB8 and DB11;
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(c) a distribution of US$200,000 to DB7 and, following his death on 14 June 2014, to his wife;
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(d) in all but one letter of wishes, distributions of either US$500,000 or US$1 million to DB12 (now deceased);
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(e) in all but one letter of wishes, distributions of US$500,000 to each of Eishel and OSE Mexico;
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(f) in all but two letters of wishes, distributions to or for the benefit of the settlors' grandchildren, namely NDB1, NDB4, NDB6, NDB3 and NDB2, none of whom were beneficiaries of the trust, in amounts collectively between US$1.3 million and US$3 million; and
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(g) for the balance of the Trust assets to be distributed to and/or for the benefit of DB2 and DB1.
The 2015 letter of wishes states that that SI wished that following his death, the Trust fund should be distributed as follows:
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(a) US$500,000 to the NDB5;
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(b) US$1.7m into ‘The Grandchildren's Trust’, for the benefit of the settlors' grandchildren; and
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(c) for the balance to be set aside in trusts for the benefit of DB2 and DB1.
The 2015 letter of wishes may therefore be distinguished from the earlier letters of wishes in that the 2015 letter of wishes, among other factors:
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(a) was executed by SI solely and not by the settlors jointly (as S2 had died on 23 October 2014);
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(b) proposed, for the first time, a distribution to NDB5 (which is not at present a Discretionary Beneficiary of the Trust); and
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(c) did not propose any distributions to DB4, DB3, Eishel or OSE Mexico.
Following the death of the last surviving settlor, DB2 and DB1 in 2017 commenced proceedings against the Trustee in which they alleged breach of trust on the part of the Trustee on the basis of allegations that SI, the last surviving settlor, had lost mental capacity from mid-2014 to the date of his death in 2017; that the Trustee was aware, or ought to have been aware of S1's lack of mental incapacity; that all acts carried out, powers exercised and all directions, instruments and letters of wishes issued by SI to the Trustee during that period were invalid, with the purported result that the powers exercised by the Trustee pursuant to those instructions, directions and letters of wishes were liable to be set aside.
The powers exercised by the Trustee during the period of S1's alleged incapacity include: the execution of a deed of addition, pursuant to which the Trustee added a number of persons to the class of Discretionary Lifetime Beneficiaries; significant distributions made to each of the beneficiaries added pursuant to the deed of addition; and a deed of exclusion pursuant to which the Trustee removed and excluded as beneficiaries those persons who were added as beneficiaries and to whom the Trustee had made distributions. The 2015 letter of wishes was also issued during this period.
DB1 and DB2 sought in the prior proceedings, among other relief, orders...
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