Al-Ibraheem v Bank of Butterfield Intl (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 06 December 2000
• Court: Grand Court (Cayman Islands)
• Date: 06 December 2000

Grand Court

(Smellie, C.J.)

AL-IBRAHEEM

and

BANK OF BUTTERFIELD INTERNATIONAL (CAYMAN) LIMITED, DJEDDAH and BARRIE

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.

Cases cited:

(1) Beddoe, In re, Downes v. Cottam, [1893] 1 Ch. 547; (1892), 62 L.J. Ch. 233; 37 Sol. Jo. 99, dicta of Bowen, L.J. applied.

(2) McPhail v. Doulton, [1971] A.C. 424; [1970] 2 All E.R. 228, considered.

(3) Marley v. Mutual Sec. Merchant Bank & Trust Co. Ltd., [1991] 3 All E.R. 198, considered.

(4) Myers v. Elman, [1940] A.C. 282; [1939] 4 All E.R 484.

(5) Public Trustee v. Cooper, Chancery Division, December 20th, 1999, unreported, dicta of Hart J. applied.

Attorneys-at-Law-obligations to court-advice to trustee-duty to ensure trustee (a) gives full and frank disclosure when seeking court”s directions and (b) seeks directions on litigation when necessary-may be personally liable for costs unreasonably incurred due to trustee”s failure

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-may not recover costs wasted in litigation because failed to disclose information, even if acted on legal advice

The Grand Court issued a notice of inquiry into wasted costs.

The plaintiff brought proceedings challenging the validity of an amendment to a Cayman trust on the grounds of the incapacity of the settlor, her father. The trustee resisted the allegations at all stages. When it was discovered that the deed of amendment had not been notarized, the trustee arranged, on the advice of its attorneys (the respondents) and without informing the court or seeking directions, for the deed to be notarized. The court subsequently found this to have been an invalid attempt to cure the defect in the deed, and the plaintiff obtained a declara-tion that the power of amendment had been invalidly exercised (see 1999 CILR 436).

Evidence later came to the court”s attention that the trustee and the respondents had had notice of the settlor”s incapacity at an early stage in the proceedings, even though the respondents had informed the plaintiff”s attorneys that the trustee had seen no evidence of it. An officer of the trustee had written to the respondents enclosing medical opinions and they had prepared a draft affidavit on the subject, but neither had been disclosed to the plaintiff”s attorneys or the court.

The overall cost to the plaintiff of challenging the amendment exceeded the entire value of the trust fund. In costs proceedings, the court ordered an inquiry of its own initiative into allegations that substantial costs had been unreasonably and improperly incurred by the trustee, first in resisting the challenge to the amendment and, secondly, in seeking to prefer the interests of certain beneficiaries over others by notarizing the defective deed and defending the validity of that notarization in litigation (see 2000 CILR 88). A notice was issued to the trustee to show cause why it should be entitled to its costs from the trust, and a separate notice to the respondents to show cause why they should not pay the wasted costs. The court rejected their application to set aside the notice of inquiry (see 2000 CILR 277).

The hearing on the notices was not held on a contested basis, since the parties began to negotiate the settlement of all claims between them. However, the respondents explained their conduct as follows: (a) their statement in correspondence that the trustee had seen no evidence of the settlor”s incapacity had related to the time when the trust was amended, which was the focus of the correspondence; (b) their representative had sought to correct the ambiguity of the statement before the court but the other parties had failed to appreciate the significance of that correction; (c) they had not filed the draft affidavit because they did not wish to disclose evidence of the settlor”s incapacity without his consent, particularly as the local attorneys instructed to represent him in the proceedings insisted that he was competent; (d) the conflicting evidence available to the trustee as to the settlor”s capacity had been interpreted by it as allowing for the possibility of ‘lucid intervals’ during which the amend-ment might have been made; and (e) they acted on the advice of leading counsel in deciding to obtain the notarization of the amendment without referring the matter to the court.

They submitted that in the context of contested litigation, the trustee had not surrendered its discretion to the court but merely sought the court”s approval of the exercise of its powers and therefore had not been obliged to disclose all relevant information to the court when seeking its directions.

In addition, a draft consent order providing for the resignation of the trustee and the appointment of the plaintiff in its place was presented for the court”s approval.

Held, making the following rulings:

(1) The court accepted the respondents” explanation of their conduct and, without approving of it, recognized that they had been guilty of errors of

judgment in their advice to the trustee, rather than professional misconduct. It was most unfortunate that further efforts had not been made to correct the ambiguity (albeit apparently unintentional) in the trustee”s statement as to the settlor”s capacity. Furthermore, their dilemma as to whether to disclose the draft affidavit was understandable, given the settlor”s own expressed intention to effect the amendment and the conflicting medical evidence then available. Doubts would inevitably have arisen, in the context of the increasingly hostile administration pro-ceedings, as to the proper time to file the affidavit. However, such delicate matters could easily have been discussed with the court in private (page 511, line 12 – page 512, line 27; page 512, line 37 – page 513, line 2; page 515, line 25 – page 516, line 13).

(2) In seeking the court”s directions at various points during the pro-ceedings, the trustee had been obliged to make full and frank dis-closure of all relevant information. This was so whether the matter on which direc-tions were sought was such that the court was giving its approval to the exercise of a trustee”s power, or exercising the trustee”s discretion on its behalf, that discretion having been surrendered to the court (page 517, lines 9–25).

(3) The respondents had also erred in advising the trustee to have the amendment notarized without first seeking directions. Since the validity of the amendment was central to the proceedings, the court should have been informed as soon as the defect came to the trustee”s notice. In view of the evidence of incapacity, the trustee”s actions were not justified by the aim of giving effect to the settlor”s intention. The court almost certainly would not have ordered the notarization. The respondents” judgment may have been influenced by an awareness of the consequences for the trustee and themselves if the plaintiff succeeded. However, since they had sought reputable counsel”s opinion before advising the trustee, their actions fell short of professional misconduct (page 517, line 34 – page 518, line 21; page 518, line 40 – page 519, line 31).

(4) In the light of the court”s findings with regard to the respondents and the compromise agreement now negotiated by the parties, it was unnecessary to require the trustee to comply with the notice to show cause. That notice would be discharged. However, it was doubtful that the trustee would have been able to rely, in its defence, on the fact that it had followed the respondents” advice. It would not have been able to recover from the trust any costs unreasonably or negligently incurred, even though it acted under the guidance of its legal advisers. The court approved the compromise agreement and the draft order for the trustee”s resignation and replacement by the plaintiff, as the proper person to pur-sue claims on behalf of the trust (page 519, line 38 – page 520, line 40).

SMELLIE, C.J.:
Notice to Maples & Calder pursuant to Myers v. Elman
15	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
20	trustees had been administering the trust on the basis of the validity of the
second amendment.
On April 27th, 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
25	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
August 17th–21st, 2000, when it was determined that the notice should
30	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
35	it had been brought to my attention shortly after the commencement that
the parties, including M&C, wished to enter into compromise negoti
ations 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

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