ATC (Cayman) v Rothschild Trust
| Jurisdiction | Cayman Islands |
| Judge | (Smellie, C.J.) |
| Judgment Date | 12 November 2010 |
| Date | 12 November 2010 |
| Court | Grand Court (Cayman Islands) |
(Smellie, C.J.)
Ms. M.P. Crinis and J.R. McDonough for the applicant;
S. Taube, Q.C. and Ms. S.J. Collins for the respondent.
(1) Armitage v. Nurse, [1998] Ch. 241; [1997] 3 W.L.R. 1046; [1997] 2 All E.R. 705; [1997] Pens. L.R. 51; (1997), 74 P. & C.R. D13, dicta of Millett, L.J. applied.
(2) Carafe Trust, In re, 2005 JLR 159, considered.
(3) Dargie, In re, [1954] Ch. 16; [1953] 1 W.L.R. 991; [1953] 2 All E.R. 577, considered.
(4) E Trust, In re, 2008 JLR 360, considered.
(5) Essel Trust, In re, 2008 JLR N[18], considered.
(6) Hastings-Bass, In re, Hastings v. Inland Rev. Commrs., [1975] Ch. 25; [1974] 2 W.L.R. 904; [1974] 2 All E.R. 193, referred to.
(7) Grimthorpe, In re, [1958] Ch. 615; [1958] 1 W.L.R. 381; [1958] 1 All E.R. 765, considered.
(8) Marston Thompson & Evershed plc v. Benn, [2007] WTLR 315, distinguished.
(9) Muir v. City of Glasgow BankELR(1879), 4 App. Cas. 337; [1874–80] All E.R. Rep. 1017, distinguished.
(10) Nike Real Estate Ltd. v. De Bruyne, 2002 CILR 31, referred to.
(11) Practice Direction (Ch. D.: Trustee”s Costs), [1953] 1 W.L.R. 1365; [1953] 2 All E.R. 1159, referred to.
(12) Sagicor Gen. Ins. (Cayman) Ltd. v. Crawford Adjusters (Cayman) Ltd., 2008 CILR 482, referred to.
(13) Spurling”s Will Trusts, In re, Philpot v. Philpot, [1966] 1 W.L.R. 920; [1966] 1 All E.R. 745, dicta of Ungoed-Thomas J. applied.
(14) Turner v. HancockELR(1882), 20 Ch. D. 303; 51 L.J. Ch. 517, dicta of Jessel, M.R. applied.
(15) X v. A, [2000] 1 All E.R. 490; [2000] Env. L.R. 104; [2000] 1 E.G.L.R. 19, referred to.
Trusts-rights of trustees-reimbursement and indemnity-outgoing trustee entitled to retain trust assets (amount calculated promptly and in good faith) to cover actual and contingent personal liabilities incurred acting properly as trustee, until provided with equivalent indemnity by successor-not entitled to personal indemnity from successor greater than value of trust assets at time of transfer-successor trustee not to incur unlimited personal liability to indemnify outgoing trustee by not expressly seeking to limit liability to value of trust assets on transfer
Trusts-costs-indemnity from trust fund-former trustee awarded costs of proceedings against trust seeking indemnity for personal liabilities incurred acting properly as trustee-generally awarded on indemnity basis but curtailed to standard basis if costs incurred improperly, e.g. by insisting on greater indemnity than that to which entitled, even if contractually entitled to rest of costs-trustees generally only required to pay costs of legal proceedings if guilty of bad faith or misconduct
The applicant company sought the construction of the deeds of two trusts.
ATC (Cayman) Ltd. (‘ATC’) had succeeded Rothschild Trust Cayman Ltd. (‘Rothschild’) as trustee of two Cayman trusts. The trust deeds provided that an outgoing trustee had a right to an indemnity from its successor, and also that this right was ‘in addition to’ any right to indemnity under the general law. Rothschild initially asserted a possessory
lien over the trust assets, refusing to relinquish them until ATC guaranteed it indemnity against any actual and contingent liabilities it may have incurred as the former trustee. Rothschild was particularly concerned to avoid liability arising from its restatement of the trusts, undertaken in accordance with US tax advice that had proved to be erroneous. The Grand Court (Smellie, C.J.) declared the restatements invalid and void under the Hastings-Bass principles (in proceedings reported at 2004–05 CILR 485), and Rothschild was awarded its costs of the Hastings-Bass proceedings. ATC proposed a covenant of indemnity limited to the value of the trust assets as they might be from time to time, stating that it was not prepared to be held personally liable. In response, Rothschild proposed an indemnity which was not limited to the value of the trust assets as they might be from time to time, but would instead have made ATC personally liable for the full extent of whatever Rothschild”s liability became, excluding liability for actual fraud, dishonesty or gross negligence. Rothschild insisted that its proposed indemnity was not negotiable. ATC commenced an action by way of originating summons seeking to determine the scope of Rothschild”s right to indemnity, and subsequently offered to provide indemnity by undertaking to retain US$1.5m. in the trust fund for two years. ATC also proposed a floating charge over a portion of the assets for a fixed period. Rothschild rejected the offer, having been warned by its lawyers that such an arrangement might not be legally valid in that it would constitute an unlawful fetter on ATC”s discretion as trustee. Nonetheless, Rothschild agreed to transfer half the trust assets to ATC.
The Grand Court (Smellie, C.J.) ruled that the indemnity and floating charge over US1.5m., as proposed by ATC, would not constitute an unlawful fetter on the trustee”s discretion (in proceedings reported at 2006 CILR 73). Rothschild then offered to transfer the remaining half of the trust assets, less an amount calculated to secure Rothschild”s claim for disputed costs. Subsequently, on December 21st, 2005, the Grand Court (Smellie, C.J.) ordered that the remaining half of the trust assets would be transferred to ATC. With ATC”s consent, the order permitted Rothschild to retain the sum of US$439,000 to secure its claim for disputed costs. Rothschild complied with this order. ATC and Rothschild continued to disagree as to the extent of Rothschild”s duty to disclose documents and provide accounts. In 2009, ATC commenced an action by writ against Rothschild for breach of trust arising from Rothschild”s retention of the trust assets, the action later being widened to include allegations that Rothschild had failed to keep proper records and accounts.
Rothschild sought its costs of the originating summons proceedings concerning the lien and the indemnity. It submitted that it had acted reasonably in rejecting ATC”s offer and insisting on an unlimited personal indemnity, since (a) pursuant to the trust deeds, it was entitled at least to a written form of indemnity from ATC indemnifying it out of the trust fund up to the value of the trust assets at the time of transfer, and ATC”s offer of a covenant limited to indemnifying it out of the trust fund or income
thereof as it may be from time to time was therefore insufficient; (b) it was responding to the threat of hostile litigation from ATC and liability to US tax; (c) a trustee, outgoing or otherwise, had the right to indemnity in respect of personal liabilities incurred in dealing with the trust assets; (d) since an outgoing trustee”s personal liabilities were potentially unlimited, Rothschild”s indemnity should not be limited to the value of the trust assets at the time of their transfer, but should rather extend to a reasonable calculation of its actual and contingent personal liabilities incurred as trustee; and (e) ATC, in failing to seek to limit its liability to Rothschild when taking over as trustee, had incurred a personal liability to Rothschild, as a third party, that was not limited to the value of the trust assets.
It further submitted that it should be entitled to its costs of the originating summons proceedings on the indemnity basis, since (f) it had acted reasonably in rejecting ATC”s offer and insisting on an unlimited personal indemnity, given that there were genuine issues of construction as to the extent of its right to indemnity, as recognized by ATC in bringing the originating summons; (g) even if it had not been reasonable to insist on an unlimited personal indemnity, it was not guilty of misconduct to the extent required for an order of costs to be made against it; (h) it had acted in good faith throughout, as demonstrated by its willingness to relinquish substantial portions of the trust assets; (i) since it had complied with the court order of December 21st, 2005, it should at least be entitled to its costs of the originating summons proceedings as incurred since that date; and (j) a trustee was entitled to recover on the indemnity basis its costs incurred in the course of its duties, including those incurred in successful hostile litigation against the trust.
It also submitted that (k) it had already disclosed all relevant trust documents and provided accounts; (l) issues relating to disclosure and accounting, and the costs thereof, ought to be determined in the writ action; and (m) it would be inappropriate to reconsider the issue of the costs of the Hastings-Bass proceedings, given that it was not alleged at the time of those proceedings that Rothschild had acted unreasonably in relation to them.
ATC submitted in reply that Rothschild had acted unreasonably in rejecting its offer and insisting on an unlimited personal indemnity, since (a) its offer was in accordance with that provided for the trust deeds; (b) although the trust deeds provided that Rothschild”s right to an indemnity was in addition to its general legal rights, a trustee was only entitled under the general law to indemnify itself out of the trust assets, and that entitlement would not become unlimited simply because it was replaced as trustee; and (c) it had not incurred personal liability to Rothschild by failing to seek to limit its liability when taking over as trustee, since Rothschild had notice of the likely limitation of its indemnity to the value of the trust assets in accordance with the terms of the trust deeds and industry norms.
It further submitted that it should be entitled to its costs of the originating summons proceedings, since (d) Rothschild”s conduct in
rejecting its offer and insisting on an unlimited personal indemnity had been so unreasonable as to justify an order of costs against Rothschild...
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