CIBC Bank and Trust Company (Cayman) Ltd v T
| Jurisdiction | Cayman Islands |
| Judge | Chief Justice Anthony Smellie |
| Judgment Date | 16 July 2021 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 237 of 2020 (ASCJ) |
In the Matter of Section 104 of the Trusts Act (2021 Revision)
Hon. Chief Justice Anthony Smellie
CAUSE NO. FSD 237 of 2020 (ASCJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Trusts established pursuant to the Special Trusts—Alternative Regime of Part VIII of the Trusts Act — application to reform the Trusts cy-prés on the ground of obsolescence of the manner of their execution — applicable principles.
Shân Warnock Smith QC, instructed by Rachael Reynolds and Anthony Partridge of Ogier, for the Plaintiff.
Bernadette Carey and Christopher Duncan of Carey Olsen for the First Defendant.
HEARD: In Chambers
On 29 October 2020, I granted certain orders which had the effect of reforming two trusts which are established in the Cayman Islands, in keeping with section 104 of the Trusts Act. A confidentiality order had earlier been granted on 19 October 2020 for the anonymization of the proceedings, the Court having been satisfied that the preservation of confidentiality, about the identity of beneficiaries and the affairs of the trusts, was necessary to ensure the proper administration of justice in the proceedings 1. Upon granting the orders on 29 October, I promised to provide written reasons as soon as time allowed. I now do so, notwithstanding the regrettable but unavoidable delay.
The orders were granted upon the Plaintiff's application, brought by Originating Summons pursuant to section 104 of the Trusts Act in its capacity as trustee of two Cayman Islands STAR trusts, which I will refer to as the “A. R. Trust” and the “Ta trust” (together “the Trusts”). As their titles suggest, the Trusts are both governed by the provisions of Part VIII of the Trusts Act (2021 Revision), STAR being an acronym for “Special Trusts — Alternative Regime”, the heading of Part VIII. Such “special trusts” differ from ordinary trusts in various ways as will become apparent below. Of particular significance, is the disapplication by section 104 (2) of the jurisdiction vested in the Court under section 72 of the Trusts Act which, in the case of ordinary trusts permits the Court, in certain circumstances described in section 72, to consent to variations of trust. 2. Instead, in the case of a STAR trust, as will become apparent below, the relevant power to effect changes in circumstances such as those which arose here, is vested directly in the Court, as set out in section 104 itself.
The reason for the Plaintiff's application to the Court, and the grounds on which it is made, are the same for both trusts. In summary it is that, as a result of the decision of the primary beneficiary the First Defendant, T (the “First Defendant” or “T”), to relocate to the United States, in the words of section 104 (1) (c):
“… the execution of the [Trusts] in accordance with [their] terms,” has become “(c) obsolete in that, by reason of changed circumstances, it fails to achieve the general intent of the [Trusts]”.
In such circumstances section 104 (1) goes on to provide that:
“the trustee shall, unless the trust is reformed pursuant to its own terms, apply to the court to reform the trust cy-près …”
No attempt has been made by the Plaintiff to reform the Trusts pursuant to their own terms because, for the reasons examined below, it is not considered that the Trustee has such a power. The Enforcers have a power given under the Trust to reform “the Purposes” of the Trusts but, for the reasons also examined below, it was thought probable that the power could not be exercised to achieve the desired result. In any event, because T is himself an Enforcer, the exercise of such power would, in the present case, defeat the very object that the reformation is intended to achieve, namely the mitigation of United States tax which, on the advice of reputable United States tax lawyers, would otherwise likely accrue upon T's relocation to the United States. Accordingly, the Plaintiff, as sole trustee of the Trusts, applied to the court to reform the Trusts cyprès.
The way in which the Plaintiff asks the Court to reform the Trusts is referred to in more detail below. In summary, it is to insert a new power into each Trust to enable the Plaintiff to transfer, or “decant”, the assets of the Trusts to new trusts or to T directly, thereby leading to a substantial mitigation of United States tax which would otherwise arise.
The background comes from affidavit evidence filed by an officer of the Plaintiff in support of the Application and is in summary, as follows:
The Trusts were established by T's father, (“Dr T” or “the Settlor”) on 30 July 2010. Dr T passed away in 2013. Dr T was also the husband of the Second Defendant, Madam S (the “Second Defendant” or “Madam S”).
Dr T worked in the petroleum and minerals industries and had accumulated a great deal of wealth during his lifetime. Madam S was Dr T's second wife and T was the only child of their marriage. There are three children of Dr T's first marriage.
Dr T established the Trusts for the benefit of himself, Madam S and T and any children T might have (“remoter beneficiaries”). T is 33 years old, unmarried and as yet, has no children. Dr T's children from his first marriage already benefitted from another Cayman Islands trust (the “V Trust”) managed by another reputable Cayman Islands corporate trustee.
Initially T was also a trustee of the Trusts but he resigned as trustee on 28 May 2013. Since then the Plaintiff has been the sole trustee. Dr T appointed the Plaintiff as trustee of the Trusts because he wished the Trusts and the V Trust to have different trustees.
T was aged 23 when the Trusts were established, and 26 when his father died. T left his country of birth to attend school and university in the United Kingdom and has not returned to reside there since. At the time the Trusts were established, it was not anticipated that he might wish to relocate to the United States but as already noted and of crucial importance now, this has since changed. The Trusts were established on the basis of his and Madam S's situation at the time and the Plaintiff's evidence is that Dr T chose to establish the Trusts in this jurisdiction because he was seeking “political and economic stability, adherence to the rule of law and the fact that Cayman is a tax neutral jurisdiction”. T was at that time (as he is now) living in the United Kingdom and he and Madam S have maintained residences in the United Kingdom, France, Switzerland and in the country of his birth.
T began to consider moving to the United States in mid-2018. He intends to relocate there partly for business reasons. He is highly educated with advanced degrees in the physical sciences. However, in order to be able to compete in the technology sector as he intends, or at least in the part of it that interests him, T believes that he needs to be in the United States, particularly in Silicon Valley.
In preparation for his move to the United States, T engaged his United States tax attorneys, McDermott, Will & Emery LLP (“MWE”) to provide immigration advice to inform not only his decision but also that of the Plaintiff qua trustee, in response to T's intended relocation. MWE have advised the Plaintiff that T's relocation to the United States would have serious adverse tax consequences for him unless steps are taken to mitigate them. MWE have explained this in a memorandum of advice dated October 8, 2020 (“Tax Memorandum”) which was presented to the Court. MWE have advised on, among other things, the United States income, estate, gift and generation-skipping transfer tax laws that will negatively affect T and his descendants if the Trusts are not reformed. MWE have also set out in the Tax Memorandum certain steps which could be taken in relation to the Trusts to achieve the desired mitigation. The Plaintiff is sympathetic to these aims and seeks orders under section 104 to assist T, while bearing in mind at the same time, the interests of the other beneficiaries.
In this regard it should be noted that upon an aspect of this application by the Plaintiff pursuant to Grand Court Rules Order 15 rule 13(1)(b), I made an order appointing T to represent the interests of the remoter beneficiaries. This was plainly justified on the basis that T and any children he might have, would share the same interests and so it would also be in their interests to reform the Trusts for the reasons given. The same reasoning would apply to the charitable organizations and any other beneficiaries, as all would remain objects of the purposes under the new trust structures suggested in the MWE Tax Memorandum and would obviously also benefit from a more tax efficient structure.
In anticipation of the present issues being resolved satisfactorily, including as a result of this application to the Court, T had applied under the United States Immigration Investor Program for the issuance of the requisite visa and approval was expected imminently. This gave urgency to the completion of the application in anticipation of his relocation to the United States on 1 January 2021, in keeping with the related immigration deadlines and the need for the Plaintiff to reform the Trusts before his relocation.
The A. R. Trust is governed by a trust deed dated 30 July 2010 (the “A. R. Deed”) and a number of supplemental documents. It was established by Dr T, as donor, with the Plaintiff and T as trustees, although, as mentioned above, the Plaintiff is now the sole trustee.
The Ta Trust is governed by a trust deed which is also dated 30 July 2010 (the “Ta Deed”) as well as a number of supplemental documents. Like the A. R. Trust, the Ta Trust was established by Dr T as donor, with the Plaintiff and T as...
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