Coutts (Cayman) Ltd v Lemos

JurisdictionCayman Islands
CourtCourt of Appeal (Cayman Islands)
Judge(Zacca, P., Taylor and Mottley, JJ.A.)
Judgment Date17 July 2006
Date17 July 2006
Court of Appeal

(Zacca, P., Taylor and Mottley, JJ.A.)


M.T.F. Briggs, Q.C. and D. Blayley for the appellant;

A. Steinfeld, Q.C. and J. Stephens for the respondents.

Cases cited:

(1) Armitage v. Nurse, [1998] Ch. 241; [1997] 2 All E.R. 705, applied.

(2) Att. Gen. v. Farrell, [1931] K.B. 81, considered.

(3) Att. Gen. v. HeywoodELR(1887), 19 Q.B.D. 326, considered.

(4) Gartside v. Inland Rev. Commrs., [1968] A.C. 553; [1968] 1 All E.R. 121, considered.

(5) Johns v. Johns, [2004] 3 NZLR 202, not followed.

(6) Leedale (Inspector of Taxes) v. Lewis, [1982] 1 W.L.R. 1319; [1982] 3 All E.R. 808, considered.

(7) Paragon Fin. PLC v. D.B. Thakerar & Co., [1999] 1 All E.R. 400; (1999), 142 Sol. Jo. 20, referred to.

Legislation construed:

Limitation Law (1996 Revision), s.27(3): The relevant terms of this sub-section are set out at para. 11.

Trusts-beneficiaries-discretionary beneficiaries-limitation period in Limitation Law, s.27(3) inapplicable to discretionary beneficiaries until acquire present beneficial interest in trust property-interest in management or distribution of property insufficient to bring within time-barred class-no differentiation intended between discretionary beneficiary and beneficiary with fixed future interest

The respondents, who were discretionary beneficiaries under a trust, brought an action in the Grand Court against the appellant trustees for breach of trust.

The beneficiaries sought to amend their statement of claim so as to make allegations of intentional or wilful breach of duty. The Grand Court found that the new claims arose out of substantially the same facts as those originally pleaded and, under the Grand Court Rules, O.20, r.5(5), the amendment could therefore be permitted even if its effect would be to create a new cause of action and any applicable limitation period had expired, so long as the court thought it was just to do so. The proceedings are reported at 2004–05 CILR 317.

The trustees appealed against the leave to amend, and the Court of Appeal agreed to consider, as a preliminary issue, whether the plaintiffs, in their capacity as ‘discretionary beneficiaries’ or ‘objects of a discretionary trust or power,’ were subject to the now-expired six-year limitation period for breach of trust imposed by s.27(3) of the Limitation Law (1996 Revision).

The trustees submitted that (a) the most recent case law on an identical provision in New Zealand had held that the limitation should run against the beneficiaries as, from the time they became discretionary beneficiaries, their interest had ‘fallen into possession’ within the meaning of the provision; and (b) changes in the wording between the first English limitation provision, which referred to time running when the interest of the beneficiary ‘shall be an interest in possession,’ and the additional introduction into the Cayman Limitation Law (1996 Revision) of the idea that limitation would not run against a ‘beneficiary entitled to a future

interest in the trust property until the interest fell into possession,’ suggested that the legislature had changed the law so that limitation periods were only suspended as against future beneficiaries, and not discretionary beneficiaries.

The beneficiaries submitted in reply that they were free to bring an action despite the expiry of the six-year limitation period as (a) the English authorities on identical limitation provisions had held that discretionary beneficiaries were not intended to be part of the class of beneficiaries subject to the limitation period as they did not have a ‘present interest in possession’ in the assets of the trust, and as they had no guaranteed interest in the trust it would be unreasonable to force them to incur the expense of litigation before they felt it necessary to protect their interests; the New Zealand court had failed to understand the real reasoning behind this decision and so it ought not to be applied; and (b) the changes made to the legislation merely simplified the language of the provision, and it was clear that the ‘interest’ to which the Limitation Law referred was a present proprietary beneficial interest in the trust property (which the present beneficiaries did not have) rather than an interest in distribution (which they enjoyed); if the legislature had intended to make such a major change in the operation of the law, it would not have done so merely with a subtle change in language.

Held, permitting the beneficiaries” action to proceed:

(1) The limitation period did not run against the discretionary beneficiaries as they were not within the class of beneficiaries to which s.27(3) of the Limitation Law applied; they did not have a present proprietary beneficial interest in the trust property, but merely a right to be considered by the trustees when they made a distribution. The reasoning behind the English authorities (that discretionary beneficiaries were not intended to be subject to limitation as they should not be forced to incur the expense of litigation within the limitation period with no guarantee of benefit accruing from the trust) was equally applicable in the Cayman Islands. The New Zealand authorities were illogical in that they correctly left beneficiaries with a fixed future interest subject to no limitation period, but discretionary beneficiaries who might never receive under the trust were time-barred (para. 25; para. 28; para. 33).

(2) Moreover, the changes in the legislation did not fundamentally alter the law as it was more likely that the ‘interest’ referred to in the Limitation Law (1996 Revision) was a present proprietary interest in the trust property rather than an interest in the distribution of that property, and in any case such a subtle change in language could not reasonably indicate that it was the intention of the legislature to change the application of the law fundamentally (para. 32).

1 TAYLOR, J.A., delivering the judgment of the court: The defendants in this breach of trust action appeal against the decision of a Grand Court judge granting the plaintiffs leave to amend their statement of claim so as to make various allegations of intentional or wilful breach of duty. The position of the defendant trustees is that the proposed amendments raise a new cause of action by pleading a mental element not involved in the cause of action originally pleaded, and that the new cause of action is time-barred as against the first two plaintiffs, the others being infants or having recently come of age.

2 The defendant trustees contend that if the plaintiffs wish to make these further allegations they ought to be required to do so in a new action which could then be consolidated with the present action for trial, so that limitation issues would be resolved at trial. The consequence of inclusion of the new claims in the present action by amendment is that they are then deemed to have been brought at the date of the original writ, thereby preventing the raising of any limitation defence that might be available if they were brought later in a separate action.

3 The purposes of the trust in question and the history of this protracted litigation need not be gone into for the present purpose; they are described in the decision appealed from and earlier decisions of the Grand Court and this court, as reported, for instance, in Lemos v. Coutts & Co. (Cayman) Ltd. (2003 CILR 381).

The background

4 The Grand Court Judge found that the new claims of intentional or wilful breach of trust arise out of the same or substantially the same facts as those originally pleaded for the purposes of the Grand Court Rules, O.20, r.5(5). It is not clear that the judge was of the view that they raise a

new cause of action; if any new cause must be one arising out of the same or similar facts, it would be unnecessary to resolve the difficult question whether a separate cause of action is raised. The judge below also held that if the facts are new, the running of time would be postponed by s.37(1) and (2) of the Limitation Law (1996 Revision) until the plaintiffs discovered them, or could reasonably have discovered them.

5 Counsel for the respondent plaintiffs no longer seek to support this second ground, conceding that the evidence below was insufficient to establish when the facts could reasonably have been discovered. The Grand Court judge did not resolve the further fundamental issue of whether any limitation could apply to these plaintiffs as persons who, until the trust is wound up, can benefit only through the discretion of the trustees. That issue involves interpretation of s.27(3) of the Limitation Law, which imposes a six-year limitation period but delays the running of time in certain cases until the plaintiff acquires an ‘interest in...

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