An v Barclays Private Bank & Trust (Cayman) Ltd

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

Grand Court

(Smellie, C.J.)

A.N.

and

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

J. Martin, Q.C., T. Lowe, and Mrs. L.D. DaCosta for the plaintiff;

Mrs. S. Warnock-Smith, Q.C. and Ms. S.M. Corbett for the first defendant;

S. Taube, Q.C. and Ms. A.J. Dunsby for the second and third defendants.

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.

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

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, direct or indirect, deriving from the trust

fund.’ There were also provisions for a series of checks and balances between the beneficiaries, the trustee, and the protection committee, intended to reduce the opportunity and need for litigation. Clause 11 of each further provided for the exoneration and indemnification of the trustee and protection committee against all claims except those arising as a result of their own intentional fault or wilful misconduct, and that the trusts should be enforceable by the beneficiaries. Additionally, cl. 19 of the deeds stated that, so far as possible, any provision of the deeds contrary to the governing laws should be deleted, or, so far as possible, construed in accordance with such law.

The plaintiff alleged that the trustee and the protection committee had acted unreasonably in restructuring the company in a manner prejudicial to the interests of herself and the remoter beneficiaries as a whole. As this application itself involved a challenge to the validity of the trust and decisions taken by the trustee and the protection committee, it was unclear whether by the mere initiation of the action she had ceased to be a beneficiary under the trust by the operation of cl. 23. The Grand Court (Henderson, J.) ordered that the questions whether cl. 23 of each trust were valid and/or to what extent and, if they were valid, whether the court had jurisdiction to grant the plaintiff relief from the forfeiture of her interest, be tried as a preliminary issue.

The plaintiff submitted that-

(a) when forfeiture was at stake, it was only proper to construe a clause strictly and restrictively to ensure that it did not offend against the principles argued below;

Repugnancy

(b) the third limb of cl. 23 (causing forfeiture in the event of a beneficiary challenging the validity of decisions taken by the trustee) was repugnant to the whole concept of a trust, i.e. that a trust confers an enforceable benefit on beneficiaries, in that it prevented the plaintiff beneficiary from challenging the validity of decisions of the trustee and protection committee;

(c) moreover, the settlors clearly intended that beneficiaries could enforce the trusts by proceedings against the trustees, because cl. 11 provided that trusts would be enforceable by beneficiaries, and trustees would not be exonerated from claims arising from their own intentional fault or wilful misconduct;

Ouster of the jurisdiction of the courts

(d) the clause was void as purporting to oust the jurisdiction of the courts over the trust, not only on the basis that the jurisdiction of the courts can never wholly be ousted, but also in practice since the mechanisms for dispute resolution provided in the deeds did not offer sufficient protection for the beneficiaries, who would therefore need to resort to the courts;

(e) further, the settlors clearly intended the beneficiaries to have the

right to protect their interests by court action, as they had not used the special STAR regime (Part VIII of the Trusts Law (2001 Revision)), which provided a lawful method of restricting beneficiaries” rights to enforce a trust in court;

Uncertainty

(f) whilst no argument could be advanced that limbs 1 and 2 of cl. 23 were uncertain-the words used were plain enough to convey what should not be contested and what the consequences of a challenge would be-the wording of limb 3 created uncertainty and made that limb invalid; the phrase ‘the decision of the trustee and/or of the protection committee’ was too vague to allow her to tell in advance what, if contested, would result in the forfeiture of her interest;

(g) the word ‘decisions’ was especially unclear as, for reasons of ouster and the intentions of the settlor outlined above, it could not refer to all decisions regardless of whether they were made in good faith, and therefore it was uncertain which decisions were referred to by cl. 23;

(h) in any case, the focus on ‘decisions’ was misleading, as the decisions of trustees in discretionary trusts were not normally what were open to question, but rather their actions following those decisions; the same was largely true of decisions of the protection committee;

(i) moreover, in order to be valid, limb 3 would need not only to conform to the usual standard of certainty, but also to satisfy the more stringent test, applicable in the case of conditions subsequent to the vesting of an interest in wills-requiring that a beneficiary should be able to know, with certainty, what...