Al-Ibraheem v Bank of Butterfield International (Cayman) Ltd et Al
| Jurisdiction | Cayman Islands |
| Judge | Smellie, C.J. |
| Judgment Date | 06 December 2000 |
| Court | Grand Court (Cayman Islands) |
| Date | 06 December 2000 |
Smellie, J.
Grand Court
Attorney-at-law
Trusts - Powers and duties of trustees — Application for directions — Duty to give full and frank disclosure of relevant information whether surrendering discretion to court or merely seeking court's approval of exercise of power — Costs wasted in litigation may not be recovered because of failure to disclose information.
L.F.R. Cohen, Q.C. for the plaintiff.
K.J. Farrow for the trustee.
J. Sher, Q.C. and A. Arthur for Maples & Calder.
Notice to Maples & Calder pursuant to Myers v. Elman
These proceedings were instituted by the plaintiff in September, 1996 seeking the administration by the Court of the Corduroy Trust, which had been settled by her father. She relied, inter alia, upon the ground that her father had become incapacitated and was incapacitated at the time he purported to effect the second amendment to the trust in July, 1996. The trustees had been administering the trust on the basis of the validity of the second amendment.
On 27th April, 2000 a notice was issued to Maples & Calder (“M&C”) on the Court's own motion to show cause why they should not be ordered to pay the whole or some part of the costs of these proceedings on the grounds that they have been guilty of misconduct within the meaning of Myers v. Elman (4).
M&C later applied for discharge of the notice (which had been issued ex parte) on a full inter partes hearing (reported at 2000 CILR 277) on 17th-21st August, 2000, when it was determined that the notice should stand.
During the course of proceedings over the last two days, I heard M&C's explanations offered by their counsel, Mr. Sher, Q.C., and had regard to the evidence they filed in the proceedings in response to the notice. This was not, however, a fully contested hearing of the notice, as it had been brought to my attention shortly after the commencement that the parties, including M&C, wished to enter into compromise negotiations with a view to settling all possible claims between them, including any claims for wasted costs. The Myers v. Elman (4) jurisdiction being primarily compensatory in objective, I allowed the negotiations to proceed upon the understanding that M&C's explanation would be forth-coming in any event. That explanation was given by way of the responses mentioned above.
I indicated last evening in giving my initial view of the explanations offered by Mr. Sher that I was prepared to accept those explanations as to the three main issues identified in the notice to M&C and then directed the discharge of the notice. Given the public interest in the outcome of any proceedings of this kind, I thought I should issue these formal reasons in elucidation of that decision.
As for the letter of 12th September, 1996 in which it was wrongly stated by M&C that “the trustee had seen no evidence of incapacity,” I can now accept that inaccurate though that statement was, there was no intention to mislead. As was more fully explained in the reasons delivered on 8th August, 2000, the issue whether the grantor had capacity to take decisions in respect of the complex affairs of the trust was the central issue in the case. Quite apart from the fact that the circumstances suggest no motive in M&C for seeking to mislead, it is now apparent from all the evidence in the case that the authors of the letter of 12th September (it seems more than one attorney at M&C) were genuinely, at the time of writing, focused upon the issue of the grantor's capacity as at the time of the second amendment only. Although in hindsight that was too narrow a view to be taken of the issue of the grantor's capacity, it was, I accept, the issue which they intended to address in the impugned sentence in the letter. It was the unfortunate but, I accept, unintended result that the sentence carried the ambiguity that the trustee had seen no evidence of incapacity whatsoever.
It is now asserted that Mr. Timms (the partner from M&C having conduct of this litigation on behalf of the trustee) sought to set the record straight on this issue on at least one occasion before the Court in February, 1997. The record shows that he interjected during the course of submissions then to say that he wished to explain that the statement in the letter of 12th September related only to the time of the second amendment.
This carefully phrased statement did not convey to the Court or the parties the true position. The somewhat abstruse message which that explanation might have conveyed, namely, that the trustee had indeed seen evidence of incapacity at other times, was, it is now apparent, not appreciated by anyone at the time; certainly not by the Court. While it seems this was the message which Mr. Timms sought to convey in his interjection to the Court, it is to be regretted that the implicit admission that the trustee had indeed seen evidence of incapacity at other times was not made clear.
There was an ongoing failure throughout the proceedings to disclose the positive evidence of incapacity which M&C were aware the trustee had in its records. This was evidence which we now know was referred to in a draft affidavit prepared by Mr. Timms for Mr. Forster (an officer of the trustee) intended to be filed in the proceedings. In this regard I conclude I can now also accept the explanations for the failure to file that affidavit.
In particular, I can now accept that Mr. Timms would have genuinely perceived a dilemma over not obtaining the grantor's consent to the disclosure of the personal medical information which the draft affidavit contained. This I accept having regard to the circumstances which developed; in particular, the fact that the grantor was then apparently capable of instructing Hunter & Hunter to act on his behalf in these proceedings, and that firm's insistence that he was competent to give instructions.
I accept that in those circumstances there would have been a genuine question in Mr. Timms's mind over the nature of his disclosure obligations and, moreover, concerns about the effect which the disclosure of the affidavit at that time would have had upon the litigation which threatened to embroil and consume the trust fund.
I must observe, however, that in the same way that the issues over the trust Company Prudence Inc. (i.e. the alleged unauthorized withdrawals by Mrs. Shellie Blume from its account with Wells Fargo Bank) were discussed on behalf of the trustee by Mr. Timms with the Court in private, so too could the draft affidavit have been discussed and directions sought from the Court. I accept none the less that it was within the bounds of the reasonable exercise of professional judgment for Mr. Timms not to have disclosed the affidavit at the earlier stages in the proceedings, as it was a matter of professional judgment whether the trustee should seek the directions of the Court or continue to exercise its own discretion while the grantor appeared to have capacity. This does not, however, amount to the Court's approval of the approach taken.
In prefacing his explanations, Mr. Sher urged me not to examine M&C's, and in particular Mr. Timms's conduct, against the background of the knowledge now available with the benefit of hindsight. None the less, it is apparent from all the information now available that on the preponderance of the evidence, the grantor was medically regarded as incompetent to manage his affairs from as early as some time in 1992. The first amendment to his trust was purportedly effected by him in 1993, and the second amendment (by which the contingent beneficial entitlements were radically changed) in July, 1996.
I must note, however, that not all the medical evidence of his condition was available to the trustee by the time of the preparation of Mr. Forster's draft affidavit. The evidence then available indicated in favour of as well as against capacity. It is also now apparent that rightly or wrongly, on advice from M&C, the trustee also had in mind that if the second amendment had been executed by the grantor during “a lucid interval,” it should be regarded as valid.
The evidence also indicates that at different times over the period of the three years leading up to the second amendment, the grantor had expressed in apparently firm and clear terms to different persons his intention to effect it. By reference to that background and to a recent decision of the English High Court, Public Trustee v. Cooper (5), Mr. Sher urged me to accept that it was within the bounds of proper professional judgment for M&C to advise that the trustee had no positive obligation at any material stage of the proceedings to disclose the information in its possession in respect of the grantor's capacity. This is the draft affidavit which came not to be disclosed.
He submitted that as the proceedings were not proceedings in which the trustee had surrendered its discretion to the Court but were instead hostile proceedings instituted by the plaintiff, the trustee was entitled to await the appropriate time for giving discovery and that that time had not yet come in the proceedings. It was therefore within the trustee's discretion, on the advice of M&C, not to disclose the information which they had to the Court without the grantor's consent, a discretion they exercised being mindful in particular of the escalation in the litigation which would likely result from disclosure.
Mr. Sher further submitted that in participating throughout in these proceedings and in seeking and obtaining the several directions which they obtained from the Court, the trustees did not surrender their discretion to the Court but instead merely sought and obtained the blessing of the Court in the exercise...
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