Lloyds Bank Intl (Cayman) Ltd v Byleven Corporation

• Jurisdiction: Cayman Islands
• Judge: (Schofield, J.)
• Judgment Date: 20 October 1995
• Court: Grand Court (Cayman Islands)
• Date: 20 October 1995

Grand Court

(Schofield, J.)

LLOYDS BANK INTERNATIONAL (CAYMAN) LIMITED

and

BYLEVEN CORPORATION S.A.

LLOYDS BANK INTERNATIONAL (CAYMAN) LIMITED

and

UNYLEVEN CORPORATION S.A.

N.J. Patten, Q.C. and E.J. Bergstrom for the plaintiff;

T. Mowschenson, Q.C. and A.J.E. Foster for the defendants;

M. Briggs, Q.C. and C.G. Quin for the Fernandez family;

W. Helfrecht, Crown Counsel, for the Attorney General.

Cases cited:

(1) Alsop Wilkinson v. Neary, [1995] 1 All E.R. 431, considered.

(2) Beddoe, In re, Downes v. Cottam, [1893] 1 Ch. 547; (1892), 62 L.J. Ch. 233, dictum of Bowen, L.J. followed.

(3) Dallaway, In re, [1982] 1 W.L.R. 756; [1982] 3 All E.R. 118.

(4) Eaton, In re, Shaw v. Midland Bank Exor. & Trustee Co. Ltd., [1964] 1 W.L.R. 1269; [1964] 3 All E.R. 229n, dictum of Wilberforce J. followed.

(5) Evans, In reWLR, [1986] 1 W.L.R. 101; sub nom. Evans v. Evans, [1985] 3 All E.R. 289, considered.

(6) Ideal Bedding Co. Ltd. v. Holland, [1907] 2 Ch. 157; (1907), 76 L.J. Ch. 441.

(7) Lemos, In re, 1992–93 CILR 291, followed.

(8) Merry v. Pownall, [1898] 1 Ch. 306; (1898), 67 L.J. Ch. 162.

Trusts-powers and duties of trustees-application for directions-trustee seeking directions whether to take active part in litigation to give full and frank account of strengths and weaknesses of litigation-may report to court in confidence when opposing party is beneficiary-trust protector also entitled to report in confidence if sufficient identity of interest

Trusts-costs-indemnity from trust fund-court has discretion to grant trustee indemnity from trust fund to defend trust-appropriate when clear attack on trust and trustee has duty not to neglect interests of potential beneficiaries who cannot otherwise be protected

The plaintiff trustee applied, inter alia, for directions as to whether it should actively defend proceedings in New York and an order that it and the defendant trust protectors be indemnified in respect of costs incurred in those proceedings should it do so.

The plaintiff was the trustee of the Unyleven and Byleven Trusts and the defendant corporations were their respective trust protectors. The settlor, Fernandez, established the trusts on the advice of his investment adviser, Rubin, and Berlin, an international tax lawyer. Prior to their establishment, Fernandez”s assets were contained in the Sabrina Trust, the beneficiaries of which were his children and grandchildren, and the Fernandez Foundation, the beneficiaries of which were friends and relatives of Fernandez together with certain charities.

The trust protector of the Unyleven Trust had general powers of appointment in respect of the funds. Under the Byleven Trust, Fernandez”s children had the right to draw funds 5, 25 and 35 years after its formation and its protector only had power to amend the trust in favour of the beneficiaries. The shares in both trust protectors were held entirely by Berlin, Rubin and one other person. Fernandez”s will left a small proportion of his estate to a charitable foundation and the remainder to his wife and children. After his death, the administrators of his estate, acting on behalf of Fernandez”s family, brought proceedings in New York against the trustee, Rubin and Berlin seeking, inter alia, to have the shareholders of both trust protectors removed and to have 50% of the

Unyleven Trust assets distributed in accordance with Fernandez”s will, alleging that Rubin and Berlin had improperly influenced Fernandez to change the nature of the trusts on which his assets were held with the intention of acquiring control of those assets and effectively disinheriting the Fernandez family.

The trustee consequently applied in the present proceedings for directions as to whether it should actively defend the New York proceedings and the Fernandez family were brought into that application. The trust protectors sought to submit to the court, in confidence, an opinion of the merits of the New York proceedings and the Fernandez family objected to the court”s seeing that opinion unless they too were permitted access to it.

The trustee submitted that (a) the court should consider the opinion submitted by the trust protectors without granting the Fernandez family access to it because there was identity of interest between the trust protectors and the trustee and had the trustee submitted the opinion, it would have been entitled to do so confidentially; (b) it should be authorized to defend the New York proceedings and be indemnified from the trust funds for the costs of doing so, because it had a duty to protect beneficiaries and potential beneficiaries under the trusts; and (c) since it could not effectively defend the proceedings without the assistance of the trust protectors, which had no assets, they too should be indemnified from the trust funds.

The Fernandez family submitted, inter alia, that (a) since the trust protectors, rather than the trustee, had submitted the opinion, they had no right to do so in confidence; and (b) the trustee was only entitled to an indemnity if it assumed a passive role in the proceedings and that its duty was to remain neutral as between competing claims to the subject-matter of the trusts.

The Attorney General submitted that since the interests of the trust protectors were closely linked with those of the trustee, the court should recognize the importance of their role in the only practical way possible by indemnifying them from the trust funds.

Held, authorizing the trustee to defend the trusts with the assistance of the trust protectors, and ordering that the trustee and trust protectors be indemnified from the trust funds for the costs of doing so:

(1) A trustee seeking directions from the court concerning whether to take an active part in litigation was obliged to give the court a full and frank account of the strengths and weaknesses of that litigation, and where an opposing party in that litigation was also a beneficiary, was entitled to give such an account in confidence. In this case, although the opinion on the merits of the New York proceedings had been presented by the trust protectors, there was sufficient identity of interest between them and the trustee to justify the court”s treating the opinion as confidential and considering it while denying the Fernandez family access to it (page 524, line 40 – page 525, line 3; page 525, lines 19–23).

(2) The trustee was not obliged to remain neutral in the New York proceedings, although the question of whether to allow it access to the trust funds in order to defend the trusts was a matter for the court”s discretion and depended on the facts of the case. However, the trustee was entitled to an indemnity in respect of expenses properly incurred for the benefit of the trusts. Since the proceedings were clearly an attack on those trusts and the trustee had a duty not to neglect the interests of potential beneficiaries who would not otherwise be protected, this was an appropriate case in which to authorize the trustee to defend those proceedings and grant it an indemnity from the trust funds for the cost of doing so. Moreover, since the trustee could only effectively defend those proceedings by identifying its defence with that of the trust protectors, which had no assets, and since the power to authorize a trustee to give support to persons jointly defending a trust fund was not limited to supporting persons who were themselves entitled to an indemnity, the trustee would be authorized to co-operate with the trust protectors and they too would be indemnified from the trust funds (page 528, lines 28–31;page 529, lines 3–33;page 529, line 42 – page 530, line 8).

SCHOFIELD, J.: By order of this court dated July 20th, 1995 these
40	two originating summonses, seeking Beddoe orders, were heard together.
The plaintiff in both cases is the trustee of the Unyleven Trust and the
Byleven Trust which were settled by Joseph Fernandez on August 8th,
1980 and March 19th, 1981 respectively. The protector of the Unyleven
Trust is Unyleven Corporation S.A. (‘Unyleven’) and the Protector of the
45	Byleven Trust is Byleven Corporation S.A. (‘Byleven’). They are the

defendants to these summonses. Joseph Fernandez, the settlor (‘the
deceased’), died on September 19th, 1992. The ancillary executor and the
ancillary administrator of the deceased”s estate (‘the administrators of
the deceased”s estate’) have petitioned the Surrogate”s Court of the State
5	of New York and I shall consider later the purport of those proceedings. I
shall refer to those proceedings throughout this judgment as ‘the New
York proceedings.’ I should comment at this stage that the principal
beneficiaries of a will executed by the settlor are his estranged wife and
their children. There can be no doubt that any action taken by the
10	administrators of the deceased”s estate is for the benefit of these
beneficiaries (to whom I shall refer as ‘the Fernandez family’) and they
have been brought in to this application. The trustee is a respondent to the
New York proceedings and has entered a conditional appearance in them
so as to preserve its right to contest jurisdiction.
15	Other respondents in the New York proceedings are Frank Camps-
Campins, Alan S. Berlin and Harold M. Rubin, who are officers and
shareholders of Unyleven and Byleven. Also brought in to the New York
proceedings as respondents are Curtis, Mallet-Prevost, Colt & Mosle, a
New York law firm of which Berlin is a member, and Prudential Securities
20	Inc., of which Rubin is the Senior Vice-President of Investments. The
trustee seeks directions on whether it should actively defend the New York
proceedings and if so in what manner and, if it does so, seeks an order that
it should be indemnified for the costs involved out of the two funds

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