ATC (Cayman) Ltd v Rothschild Trust Cayman Ltd
| Jurisdiction | Cayman Islands |
| Judge | (Smellie, C.J.) |
| Judgment Date | 13 December 2005 |
| Court | Grand Court (Cayman Islands) |
| Date | 13 December 2005 |
(Smellie, C.J.)
J.R. McDonough and M.P. Crinis for the plaintiff;
S.J. Collins for the defendant.
(1) Allen-Meyrick”s Will Trusts, In re, [1966] 1 All E.R. 740; [1966] 1 WLR 499, distinguished.
(2) Chief Commr. of Stamp Duties v. BuckleUNK(1998), 72 ALJR 242, referred to.
(3) Gibson”s Settlement Trusts, In re, [1981] 1 All E.R. 233; [1981] Ch. 179, distinguished.
(4) Gourju”s Will Trusts, In re, [1942] 2 All E.R. 605; [1943] Ch. 24, distinguished.
(5) Griffith, Re, [1904] 1 Ch. 807, referred to.
(6) Oceanic Steam Nav. Co. v. SutherberryELR(1880), 16 Ch. D. 236, distinguished.
(7) Octavo Inv. Pty. Ltd. v. KnightUNK(1979), 144 C.L.R. 360, referred to.
(8) Palmer v. LockeELR(1880), 15 Ch. D.294, distinguished.
(9) Peel, In re, [1936] Ch. 161, distinguished.
(10) T Trust, In re, 2000 CILR 24, distinguished.
Trusts-powers and duties of trustees-power to fetter discretion-incoming trustees may fetter future discretion by undertaking to reserve portion of trust fund to indemnify outgoing trustees where expressly provided for in the trust deeds
The plaintiff company sought construction of the deeds of the Makar and Nomad trusts.
ATC (Cayman) Ltd. (‘ATC’) had succeeded Rothschild Trust Cayman Ltd. (‘Rothschild’) as trustee of the Makar and Nomad trusts which were governed by Cayman law. Rothschild refused to relinquish the trust assets to ATC until ATC could guarantee them indemnity against any claims they may face as outgoing trustee. ATC offered to provide this indemnity by undertaking to retain a certain sum of money (calculated with regard to a reasonable estimate of the liabilities Rothschild may incur) in the fund for a specified period, as on a reasonable interpretation of clause 6.19 of the trust deeds, this appeared to be expressly within the trustees” power. Rothschild were warned by their lawyers that such an arrangement may not be legally valid, and therefore might not be upheld, allowing ATC or their successors to distribute the entirety of the trust fund as they saw fit at any time.
ATC submitted that (a) it was legally valid for a trustee to restrict itself in such a way where it was expressly provided for in the trust deeds; and (b) on a reasonable construction of the provisions of the trust deeds, clause 6.19 gave them the express power to withhold a certain amount of the fund to provide indemnity to previous trustees.
Rothschild submitted in reply that (a) it is a long-standing principle in the law that a discretionary trustee cannot act in a way which will fetter its discretion as to the use of the trust fund at any point in the future, and that by promising to reserve funds to provide Rothschild”s indemnity,
ATC would be restricting themselves from using those assets for the administration of the fund for the period specified; and (b) whilst it accepted that the trust deed sought to allow ATC to provide indemnity through restricting the distribution of funds, it was not accepted that the creator of the trust could empower a discretionary trustee to take such measures even by express provision.
Held, giving judgment for the plaintiff:
(1) Whilst it was generally accepted in trusts law that a trustee could not fetter his own discretion with regard to the trust property, the exercise of a power expressly provided for in the trust deeds, with the bona fide intention to meet obligations owed to a former trustee, was not to be regarded as an improper or impermissible fetter upon future exercise by the trustee of its discretionary dispositive powers under the trust (paras. 24–27).
(2) On a true construction of clause 6.19 of the trust deeds it was clear that the creator had intended to provide the trustees with the power to fetter their own discretion in order to facilitate the transfer of trust property between administrators. Therefore, if ATC provided an undertaking to retain a reasonable amount of the fund for a specified length of time as it had suggested, it would be upheld by the court. ATC was invited to apply to the court at a later date under s.48 of the Trust Law for specific directions for the giving of the undertaking (paras. 16–18, para. 26).
1 SMELLIE, C.J.: ATC has succeeded Rothschild as trustee of the Makar and Nomad Trusts, two trusts governed by the laws of...
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