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

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 10 April 2000
• Court: Grand Court (Cayman Islands)
• Date: 10 April 2000

Grand Court

(Smellie, C.J.)

AL-IBRAHEEM

and

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

L.F.R. Cohen, Q.C. and W.J. Helfrecht for the plaintiff;

K.J. Farrow for the trustee;

Ms. S.J. Collins for the guardian ad litem.

Cases cited:

(1) Birks v. Micklethwait(1864), 34 L.J. Ch. 362; 13 L.T. 31.

(2) -Buckton, In re, Buckton v. Buckton, [1907] 2 Ch. 406; (1907), 76 L.J. Ch. 584, followed.

(3) -Holding & Management Ltd. v. Property Holding & Inv. Trust PLC, [1989] 1 W.L.R. 1313; [1990] 1 All E.R. 938, applied.

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

(5) -Turner v. HancockELR(1882), 20 Ch. D. 303; 51 L.J. Ch. 517, dicta of Jessel, M.R. applied.

Trusts-costs-indemnity from trust fund-beneficiary entitled to costs of successful challenge to trust amendment based on settlor”s incapacity if brought for benefit of trust as a whole

Trusts-costs-indemnity from trust fund-trustee not entitled by pre-emptive order to costs of defending challenge to trust amendment unless reasonably and properly incurred-court may order investigation into trustee”s conduct of litigation before deciding costs issue

Attorneys-at-Law-personal liability-wasted costs-punitive order possible for payment of own client”s and/or other parties” costs of litigation unnecessarily incurred due to attorney”s professional misconduct

The plaintiff applied for an order for the costs of her successful challenge to an amendment to a family trust to be paid from the trust fund.

The settlor, the second defendant, established a Cayman trust for the benefit of his children including the plaintiff. An amendment was made giving each of the settlor”s daughters a single opportunity to elect for a distribution to her of a specified sum, and substituting for his children the settlor”s new wife, as sole beneficiary under the trust after his death. All the daughters save the plaintiff exercised their right to the distribution under the amendment.

The plaintiff applied by originating summons for the general administration of the trust to be placed under the supervision of the court. She alleged that her father was mentally incapacitated when the relevant amendment was made, and that certain distributions of capital made under it were therefore invalid. The proceedings were conducted as administration proceedings. The trustee resisted the plaintiff”s allegations at all stages of the proceedings. The court made a pre-emptive costs order in favour of the trustee for its reasonably and properly incurred costs on an indemnity basis.

The settlor”s incapacity was later recognized by the appointment of a guardian by a court of probate in the United States.

In the course of the proceedings it came to the attention of the trustees that the amendment to the trust had never been notarized as was required for its proper execution under the terms of the trust. The trustee then arranged for the deed of amendment to be notarized, more than three years after its original execution, but this was subsequently found by the court to have been an invalid attempt to cure the defect in the deed. The power of amendment had been invalidly exercised and could not now be remedied, given the settlor”s incapacity (see 1999 CILR 436).

Evidence later came to the attention of the court to the effect that the trustee and its former attorneys had had notice of the settlor”s incapacity at an early stage in the proceedings.

The costs of the determination of the notarization issue alone were substantial, and the overall cost to the plaintiff of challenging the amendment exceeded the value of the entire trust fund. The plaintiff offered to give an undertaking to meet the settlor”s living expenses for two years in exchange for the payment to her of the entire remaining funds in the trust. The trustee opposed this on the ground that, given the insolvency of the trust, it would be an unlawful preference of the plaintiff”s costs over other liabilities of the trust, including its own costs and expenses.

Held, making the following order:

(1) The plaintiff was entitled to her costs on an indemnity basis from the trust fund, since she had instituted the proceedings for the benefit of the trust and its beneficiaries. The proceedings had properly been conducted as administration proceedings and were not hostile to the trust or the trustee. Indeed, an attempt by the plaintiff to turn them into contentious proceedings by filing points of claim against the trustee had failed. However, the trustee”s objection to the payment of the plaintiff”s costs in full without further inquiry was well founded. Instead, by way of interim order, the plaintiff would be paid the sum by which her costs exceeded the moneys which she had offered to set aside for the settlor, and the balance of her claim for costs would be taxed. The remainder of the trust fund was to be preserved until further order, save for monthly payments out to the settlor”s guardian ad litem for his living expenses (page 92, lines 27–36; page 93, line 27 – page 94, line 7).

(2) The trustee was entitled to its costs only to the extent that they were shown to have been reasonably and properly incurred. Accordingly, the court had power at this stage to review the allegations that substantial costs had been unreasonably and improperly incurred, first in resisting the challenge to the settlor”s incapacity, and secondly in seeking to prefer the interests of the settlor”s wife over those of the plaintiff and her sisters by the notarization of the defective deed and later contesting the validity of that notarization in litigation. An investigation into these matters would be ordered, and would include an inquiry as to whether the trustee was entitled to its costs under the trust deed itself, independently of the court”s order (page 94, lines 10–45).

(3) Furthermore, since the trustee”s former attorneys were also implicated by the evidence in the unnecessary delay and waste of costs, an inquiry into their conduct of the litigation would also be ordered. The court had a summary jurisdiction to order the payment by an attorney guilty of professional misconduct of the costs of its own client and/or those of other parties to the proceedings, as a form of disciplinary action and to compensate those who had wasted costs as a result. Such an order was warranted where gross neglect of duty had occurred (page 95, line 2 – page 96, line 23).

35	SMELLIE, C.J.: These proceedings were instituted by the plaintiff in
autumn 1996. She is one of four daughters of the second defendant, who
is the settlor of the Corduroy Trust.
From the inception of these proceedings the plaintiff alleged that her
father had become mentally incapacitated some years before and that the
40	trustee should no longer be making distributions of income or capital
directly to him, as he could no longer manage his affairs. She sought an
administration order, inviting the court to inquire into the validity of the
second amendment to the trust deed and distributions made under it. The
second amendment was made by the settlor also at a time after she
45	claimed he had lost capacity.

From the outset the trustee, even while acknowledging that as a

beneficiary of the trust the plaintiff

...