ATC (Cayman) Ltd (‘ATC’) Applicant v Rothschild Trust Cayman Ltd (‘Rothschild’) Respondent
| Jurisdiction | Cayman Islands |
| Judge | Hon. Anthony Smellie |
| Judgment Date | 12 November 2010 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | Cause FSD 45/2009ASCJ |
| Date | 12 November 2010 |
The Hon. Chief Justice
I have before me for resolution what are essentially questions of entitlement to costs, arising from circumstances surrounding the transfer of trust assets upon the removal of one trustee and its replacement by a successor trustee. The circumstances also give rise to the wider question of what is the right of an outgoing trustee to an indemnity for its liabilities (including its costs), where the indemnity is to be provided by the successor trustee.
The Applicant successor trustee (‘ATC’), commenced this action by way of Originating Summons (‘OS’) on 11 August 2005. As originally commenced, the OS sought the determination of legal issues relating to the scope of the rights of indemnity and protection due to the Respondent (‘Rothschild’), as the outgoingtrustee of the two trusts — the Makar Trust and the Nomad Trust (‘the Trusts’). Rothschild ceased to be a trustee on 5th August 2005 when ATC became sole trustee in its place.
The OS was issued by ATC some six days after Rothschild was replaced as trustee and when it had emerged that Rothschild would be asserting a possessory lien over the assets of the Trusts, unless and until ATC provided Rothschild with an acceptable expressed indemnity against any actual or contingent liabilities with which Rothschild might be confronted in relation to its role as former trustee. Among the possible contingent liabilities then of live concern to Rothschild, were possible tax liabilities, under United States law; which might have accrued to Rothschild personally because of steps taken by Rothschild while Trustee, to restate the Trusts and appoint their assets to new trusts, the consequence of erroneous United States tax advice.
This concern of Rothschild's is said to have become exacerbated by the fact that, in the midst of negotiations about the proper extent and form of Rothschild's indemnity, the settlor of the Trusts and ATC threatened that they would commence other hostile proceedings against Rothschild for breach of trust arising from Rothschild's refusal to hand over the Trust assets. In the event, such hostile proceedings were not commenced until 11th October 2009 by writ, well after the transfer of the assets (save for a retained sum of $439,000, which is one of the subjects of the present application; ‘the retained sum’). The Writ Action therefore seeks damages from Rothschild arising from the earlier allegedly improper retention of assets. The Writ Action was later widened to include claims for breach of trust, grounded on the further allegations that Rothschild had failed to keep proper records and accounts of its trusteeship of the Trusts.
While the Writ Action was not instituted until much later — as mentioned in October 2009 — Rothschild now points to the threat of it in August 2005 as then having given additional currency to its concerns to secure what it reasonably regarded as the indemnity and lien to which it was entitled.
Similarly, until resolved by order of the Court on 12th July 2005 on an application at the instance of the settlor — relying on principles of In Re Hasting-Bass [1975] Ch. 25 ([1975] Ch. 25— the erroneous tax advice which led to the restatement of the Trusts and the appointment of their assets into new trusts, continued to be of concern to Rothschild and is now said to have lent justification to its insistence at that time, upon its specified form of indemnity. The decision on the Hasting-Bass proceedings is reported at 2004–05 CILR 485.
It is against that background (to be expanded upon by examination in detail below) that Rothschild says that the present and remaining issues on the OS relating to costs and now being pressed by ATC, should be resolved. Rothschild says that when viewed objectively against the background, its own conduct was reasonable throughout and so its costs incurred in pressing for the indemnity and lien to which it was entitled, including the costs of these OS proceedings, are recoverable. ATC argues to the contrary and seeks the resolution of the following issues which remain to be resolved in the OS, in its favour:
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(i) That the funds held by Walkers (Rothschild's local lawyers at that time) pursuant to the Order of this Court on 21 December 2005, be transferred intheir entirety to ATC forthwith. This is the aforesaid retained sum of $439,000 which by that Order of the Court, it was approved (with the consent of ATC) that Rothschild might retain to secure its claim for disputed costs incurred which, up until that date of 21 December 2005, Rothschild accepted could be met in that way. ATC says that Rothschild no longer has any reasonable basis for keeping the retained sum and specifically, can have no claim to it in respect of Rothschild's costs, such costs having been only unreasonably and unjustifiably incurred by Rothschild in the first place, by dint of its improper insistence upon an express indemnity from ATC and upon a lien over the assets.
Rothschild's case is that it was, and remains, entitled to the retained sum to reimburse or remunerate it in respect of work and expenses which it properly undertook or incurred by virtue of its trusteeship in respect of the following matters:
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(a) $23,780 for Rothschild's unpaid management fees;
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(b) $103,396 for Rothschild's extraordinary fees of the separateHasting-Bass Application issued by the settlor against Rothschild;
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(c) $212,897 for Rothschild's extraordinary fees incurred during the removal and its hand over of its trusteeship down to December 2005; and
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(d) $100,000 as incurred by Rothschild in legal fees in connection with its removal and the hand over of its trusteeship down to December 2005.
Rothschild says that as the result of the continuing OS proceedings, it has incurred further substantial legal and administrative costs since December 2005. That the retained sum represents only amounts which, as at 21 December 2005 it had incurred. It is also likely to incur legal fees and other expenses in the Writ Action if it proceeds.
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(ii) That Rothschild provides all documents relating to the Trusts which have not yet been provided.
ATC has discerned from the documents which have been provided by Rothschild that there must be other documents which have not been provided. ATC therefore seeks this order on the basis that Rothschild has an ongoing obligation as the predecessor Trustee to provide full disclosure of all trust documents. Rothschild claims to have already made full disclosure and that in doing so up until 26 February 2008, had made reasonable efforts to comply with ATC's requests for further documents. Whether this order that ATC seeks would be appropriate, depends on what can be made of the evidence relating to this issue. As there will be dispute about the evidence, the resolution of the disclosure issue is clearly better left to the Writ Action. It would follow that any costs incurred or to be incurred in relation to it should also be left to the Writ Action.
Accordingly, having heard from both sides at the beginning of the hearing, during the hearing on the 31st March 2010 I directed, in relation to this issue, as follows:
‘If and to the extent that there were costs incurred between September 2005 and August 2009 (when the OS was amended to reintroduce claims for production of books and records) referable to such claims and to which ATC should be entitled (on behalf of the Trusts) as against Rothschild (as predecessor trustee); such costs should be claimed in the writ action where the question of breach of duty of disclosure (among others) is to be litigated.’
In light of those directions, I do not intend to deal any further with this head of claim now under the OS.
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(iii) That Rothschild accounts to ATC for all amounts that it has paid itself by way of fees and expenses and all amounts paid to its legal counsel from time to time throughout its tenure as Trustee. If it is impossible for Rothschild to do this then Rothschild should provide sworn evidence of this from someone with firsthand knowledge of the facts.
Here too ATC asserts, against the background of acrimony and distrust, that Rothschild's unreasonable behaviour justifies an enquiry of this kind and that as the former Trustee, Rothschild is obliged to comply.
However, in light of Rothschild's assertion that it has already provided an account to the best of its ability, if ATC wishes to dispute that position, in my view ATC should do so in the context of the Writ Action. I therefore do not propose to deal further with the issue here other than to re-affirm Rothschild's obligations to comply with the Order of 21 December 2005.
In other words, in light of the Order already made in these proceedings on 21 December 2005 (see chronology below), I will simply re-affirm that Order here.
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(iv) That Rothschild pays ATC's costs of the OS proceedings on the indemnity basis. This issue will be resolved now in the way the issue of costs of applications of the nature of the OS are usually resolved — that is: on the merits and to follow the event of the outcome of the OS as that can be determined having regard to all the circumstances.
It follows from the foregoing, that in order to resolve the two remaining issues on the OS relating to costs (that is: (i) and (iv) above), I must consider the competing views as to the validity and reasonableness of Rothschild's insistence upon an indemnity and lien to its satisfaction, against the background of the prevailing circumstances at the relevant times.
This approach will imply that if Rothschild is found to have been justified then it cannot be condemned in the costs of having sought to advance its...
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