An v Barclays Private Bank & Trust (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Smellie, C.J.)
• Judgment Date: 17 July 2006
• Date: 17 July 2006

A.N.

and

BARCLAYS PRIVATE BANK AND TRUST (CAYMAN) LIMITED and SIX OTHERS

(Smellie, C.J.)

Grand Court

Trusts-forfeiture clauses-validity-forfeiture clauses in trusts subject to same rules as govern validity in wills-valid if gift over so not merely in terrorem, sufficiently certain, and not void for public policy reasons e.g. ouster of courts” jurisdiction

Trusts-forfeiture clauses-no-contest clauses-not unconscionable for beneficiary challenging existence of trust or validity of transfers of property to trust to forfeit interest in it-forfeiture by challenge to any decision of trustees valid if interpreted as barring ‘unjustified’ challenges, i.e. frivolous or vexatious, not brought in good faith or without probable cause

Trusts-beneficiaries-discretionary beneficiaries-possess valuable interest capable of protection by court-if forfeiture clause affecting them, to be treated as equivalent to condition subsequent to vesting of testamentary interest and required to conform to high standard of certainty to be valid

Held, making the following ruling:

(1) The established principles governing the use of forfeiture clauses in wills were equally applicable to cl. 23, a forfeiture clause in an inter vivos trust, and under those principles, cl. 23 was valid. There was a gift over to other beneficiaries in the event of the plaintiff”s forfeiture and it was therefore not merely in terrorem. The first two limbs of the clause (causing forfeiture in the event of the beneficiary”s challenge to the validity of the trust or the validity of transfers to it) were sufficiently certain to be valid, and limb 1 was valid on a literal interpretation, as it was not unconscionable for a beneficiary who challenged the very existence of the trust under which she claimed an interest, or the property constituting that trust, to forfeit her interests in it (para. 25; paras. 30–31; para. 34; paras. 90–91).

(2) The third limb of the trust, however, was not valid on a literal reading as it would be unconscionable for the plaintiff to forfeit her interests simply by challenging any action of the trustee, even when he had acted capriciously or in bad faith, and it would be contrary to public policy as an ouster of the jurisdiction of the courts. This was so notwithstanding the detailed provisions for conflict resolution in the deeds of the trusts. It was clearly the intention of the settlors that the beneficiaries should be able to take some action against trustees, as cl. 11 of the deeds envisaged that it would be open to the beneficiaries to enforce the trust against the trustees. Had the settlors not intended that beneficiaries should be able to enforce the trust by proceedings in the usual manner, they could have chosen to create a STAR trust, and their decision not to do so

also indicated that their intentions were otherwise. Furthermore, the settlors had included cl. 19 of the deeds which stated that any provision of the trust deeds which was contrary to Cayman law should, if possible, be construed in accordance with the law. They would also have been aware of the equitable principle that, where two interpretations of an instrument were equally plausible, upon one of which the instrument was valid, whilst upon the other it was invalid, the court should adopt the interpretation which validated the instrument, and that was the principle which would be applied here (paras. 37–38; paras. 59–61; paras. 92–97).

(3) Clause 23 was to be interpreted as reading ‘whosoever unjustifiably contests the validity of this deed and the trust created under it …’ For the purposes of this clause, a justifiable contest would be one which was made bona fide, with probabilis causa litigandi and which was not frivolous or vexatious. It would be insufficient to interpret cl. 23 as triggering forfeiture in all unsuccessful proceedings brought by the beneficiaries, as it would be unconscionable to deter beneficiaries with bona fide complaints from access to the courts through fear of the consequences of losing. It would equally be insufficient to trigger forfeiture only when the beneficiary”s case was frivolous or vexatious because to do so would not go far enough towards protecting the trusts from unnecessary litigation, which was clearly the settlors” aim (para. 61; para. 91; paras. 98–100).

(4) Clause 23 was also required to conform to the more stringent standard of certainty which, in the case of testamentary gifts, applied to conditions subsequent, i.e. conditions which would cause the forfeiture of an already vested interest. Whilst the beneficiaries here lacked a proprietary interest in the trust property, they did have a right to be considered in the exercise of the trustee”s discretion, which was sufficient to make cl. 23 a condition subsequent (para. 40; paras. 44–45; para. 47).

(5) Interpreted literally, cl. 23 would be too uncertain to be valid, as clearly some decisions of the trustee beyond those made ultra vires needed to be challengeable in order to prevent beneficiaries from being deterred from presenting bona fide complaints. However, with the added clarification to cl. 23 outlined above (whereby only unjustifiable challenges would result in forfeiture), the beneficiary could know with certainty the exact action which would bring about the forfeiture of her interests and so cl. 23 was valid (paras. 58–59; para. 100).

(6) As the court had found that the forfeiture clause in this case was equivalent to a condition subsequent, through analogy with the rules governing similar situations in the case of testamentary gifts, it could intervene in equity to grant relief if the plaintiff had not complied with the terms through no fault of her own, even though there was a valid gift over (para. 108; paras. 121–123).

Cases cited:

(1) A v. Rothschild Trust, 2004–05 CILR 485, considered.

(2) Adams v. Adams, [1892] 1 Ch. 369, considered.

(3) Armitage v. Nurse, [1998] Ch. 241; [1997] 2 All E.R. 705, applied.

(4) Blathwayt v. Baron Cawley, [1976] A.C. 397; [1975] 3 All E.R. 625, considered.

(5) Boe v. Alexander(1987), 41 D.L.R. (4th) 520; 15 B.C.L.R. (2d) 106, referred to.

(6) Clarke v. Parker(1812), 19 Ves. 1; 34 E.R. 419, considered.

(7) Clavering v. Ellison(1859), 7 H.L. Cas. 707, applied.

(8) Cooke v. TurnerENR(1846), 15 M. & W. 727; 153 E.R. 1044, considered.

(9) Dashwood v. Lord Bulkeley(1804), 10 Ves. 230; 32 E.R. 832, considered.

(10) Dugdale, In reELR(1883), 38 Ch. D. 176, considered.

(11) Evanturel v. EvanturelELR(1874), L.R. 6 P.C. 1; 1 QLR 74, followed.

(12) Falkland (Lord) v. BertieENR(1692), 2 Vern. 333; 23 E.R. 824, followed.

(13) Fillingham v. Bromley(1823), 1 Turn. & Russ. 530; 37 E.R. 1204, referred to.

(14) Gaynor, In re, [1960] V.R. 640, distinguished.

(15) Gisborne v. GisborneELR(1877), 2 App. Cas. 300, considered.

(16) Hanlon, In re, [1933] Ch. 254, considered.

(17) Hastings Bass decd., In re, [1975] Ch. 25; [1974] 2 All E.R. 193, considered.

(18) Hayward v. AngelENR(1683), 1 Vern. 222; 22 E.R. 814, considered.

(19) Jones v. Earl of SuffolkENR(1780), 1 Bro. Ch. Cas. 527; 28 E.R. 282, referred to.

(20) Kent, ReUNK(1982), 139 D.L.R. (3d) 318, distinguished.

(21) Langston v. Langston(1834), 2 H.L. Cas. 194; 6 E.R. 1128, considered.

(22) Leong v. Chye (Lim Beng), [1955] A.C. 648; [1955] All E.R. 903, applied.

(23) Lloyd v. BrantonENR(1817), 3 Mer. 108; 17 R.R. 33; 36 E.R. 42, considered.

(24) Londonderry”s Settlement, In re, [1965] Ch. 918; [1964] 3 All E.R. 855, considered.

(25) Massy v. Rogers(1883), 11 L.R. Ir. (Ch.) 409, considered.

(26) Nathan v. Leonard, [2002] 1 W.L.R. 827; [2003] 4 All E.R. 198; [2002] W.T.L.R. 1061; [2002] EWHC 1701, distinguished.

(27) Powell v. MorganENR(1688), 2 Vern. 90; 23 E.R. 668, considered.

(28) Raven, In re, [1915] 1 Ch. 673, considered.

(29) Rhodes v. Muswell Hill Land Co.ENR(1861), 29 Beav. 560; 54 E.R. 745, considered.

(30) Saunders v. VautierENR(1841), 1 Cr. & Ph. 240; 4 Beav. 115; 49 E.R. 285, considered.

(31) Scott v. TylerENR(1788), 2 Dick. 712; 2 Br. 431; 29 E.R. 241; 21 E.R. 448; [1775–1802] All E.R. Rep. 237, considered.

(32) Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691; [1973] 1 All E.R. 90, applied.

(33) Sieff v. Fox, [2005] 1 W.L.R. 1312; [2005] 3 All E.R. 693; [2005] EWHC 1312, considered.

(34) Sifton v. Sifton, [1938] A.C. 656; [1938] 3 All E.R. 435, considered.

(35) Simpson v. Vickers(1807), 14 Ves. 341; 33 E.R. 552, followed.

(36) Tuck”s Settlement Trusts, In re, [1978] Ch. 49; [1978] 1 All E.R. 1047, dicta of Denning, M.R. considered.

(37) Whiting”s Settlement, In re, [1905] 1 Ch. 96, followed.

(38) Williams, In re, [1912] 1 Ch. 399, considered.

(39) Wynn, In re, [1952] Ch. 271; [1952] 1 All E.R. 341, considered.

The plaintiff discretionary beneficiary sought a declaration that cl. 23 in the deeds of both the HIJ and KLM Trusts were invalid, and the removal of the incumbent trustee and protection committee of those trusts.

The plaintiff was a beneficiary, together with her siblings, of the HIJ and the KLM Trusts, set up by her father and mother respectively. The main assets of the trusts were shares amounting to 28% of a company founded by the plaintiff”s father; the plaintiff and her two siblings each personally held an additional 16.01% of the company. Each beneficiary was entitled to one-third of the income of the trusts as well as one-third of the capital if still alive at the expiry of the trust periods in 2039. Failing them, their children would be the beneficiaries of their respective shares. In the event that all the provisions to named beneficiaries failed, there was a long-stop provision in favour of charity.

Clause 23 of each of the trusts was a forfeiture clause, which stated that beneficiaries contesting the validity of the trust, transfers of property to the bank, or the decisions of the trustee or protection committee would be ‘excluded from any benefits...