Maples and Calder (Cayman) LLP, Trustee; A Settlement Made by Deed Dated December 27Th, 2017; The Trusts Act (2021 Revision)

• Jurisdiction: Cayman Islands
• Judge: (Kawaley, J.)
• Judgment Date: 27 July 2021
• Court: Grand Court (Cayman Islands)

IN THE MATTER OF MAPLES AND CALDER (CAYMAN) LLP, TRUSTEE

IN THE MATTER OF A SETTLEMENT MADE BY DEED DATED DECEMBER 27TH, 2017

IN THE MATTER OF THE TRUSTS ACT (2021 REVISION)

(Kawaley, J.)

Grand Court (Cayman Islands)

Trusts — powers and duties of trustees — application for directions — trustee permitted, if served, to intervene in English proceedings challenging trust — trustee uniquely equipped to defend validity of trust, which raised point of statutory interpretation of Cayman trust instrument

	Held, ruling as follows:

	(1) The trustee should be permitted to intervene in the English proceedings if served. Two considerations justified departing from the usual rule. The significance of the fact that the family defendants lacked resources was somewhat diminished by reason of the fact that the position was already that their costs were being funded from the trust assets without objection from the English plaintiffs. A more exceptional and pivotal consideration was that the trustee was uniquely equipped to defend the validity limb of the proposed claims. That raised a point of statutory interpretation on a trust instrument prepared by a leading purveyor of trust administration services. The construction and application of s.14 of the Trusts Act potentially had implications for countless other trusts which might have similar protector provisions. The family defendants who were accused of impropriety were not best suited to assist whatever court was adjudicating the validity of the trust issue to resolve questions of Cayman legislative policy in a fair and objective manner. Nor were those defendants best placed to advance the jurisdictional challenge which the trustee should make in the first place. The trustee, beyond its general duty to protect the trust assets, had an independent professional interest in how an instrument it (or another member of its group) had presumably drafted was construed under the law of the administration forum. Having decided that the trustee should be able to intervene to challenge the jurisdiction of the English court over the proposed validity claims, it made no sense to adopt a different stance to the avoidance claims it was also proposed to assert against the trustee. However it was premature to approve the trustee both challenging the jurisdiction of the English court and defending the proposed claims on their merits. The jurisdiction challenge was all that it was appropriate to approve at this stage (paras. 26–28).

	(2) The trustee should be permitted to commence Cayman proceedings in relation to the validity issue. The validity issue raised the sort of Cayman Islands legislative and public policy issues which should naturally and normally be adjudicated in this forum. Although this forum was not by statute the exclusive adjudication forum, the trustee had indicated that it would contend that the trust deed contained an exclusive jurisdiction clause in challenging the jurisdiction of the English court. However, as at July14th, 2021, proceedings against the trustee had merely been threatened, not yet commenced. The threatened claim did not appear to be seriously arguable. The present court was best equipped to determine the issue more expeditiously and economically than any overseas court applying Cayman law. The same considerations did not apply in relation to the avoidance claims. Even assuming that Cayman law must ultimately be applied to them, those claims were fact-centric and did not obviously engage any local public policy concerns. No sufficiently cogent basis existed for permitting the trustee to pre-emptively commence proceedings in this regard before this court at this stage (paras. 29–30).

	(3) The trustee should be permitted to indemnify itself out of the trust assets. The fact that the English plaintiffs had accepted (in the context of the WFO they obtained in the English proceedings) the principle of the family defendants’ costs of those proceedings being funded by the trust was dispositive as to the trustee’s corresponding position. The trustee’s counsel accepted that there should be no duplication of effort and fairly contended that the trustee was more likely to conduct its defence of these claims in a proportionate manner. The most important point was that it had been accepted that the beneficiaries lacked the resources to be able to independently fund the defence of whatever claims might be brought against the trustee in England. Equally important was that the merits of the case for the trustee pursuing the validity claim here appeared strong while the case for challenging the jurisdiction of the English court in respect of the threatened claims seemed to have reasonable prospects of success. There was no risk that the litigation costs would exhaust the trust fund which the English plaintiffs contended should be available to enforce against should they succeed in their claims in the English proceedings. Making what was analogous to a pre-emptive costs order flowed logically from the conclusion that it was appropriate for the trustee to challenge the jurisdiction of the English court, and that it was appropriate for the trustee to initiate proceedings in relation to the validity issue here. The result was, in overall terms, practical and fair (paras. 31–34).

	(4) The court set out legal principles governing applications by trustees to defend proceedings against a trust at the trust fund’s expense. Where third party claims potentially threatened recovery of the entirety of a trust fund, the correct procedure was to give notice of the Beddoe proceedings to the third party claimant and to offer to serve redacted copies of the evidence. The trustee could continue to administer the trust despite the extant claims about the terms of the trust. Where a trustee was faced with an adverse claim by a third party, the starting point was that the trustee should adopt a neutral stance and allow the claim to be defended by the adult beneficiaries. However, the court had power in exceptional circumstances to make a Beddoe order permitting the trustee to defend proceedings and to do so at the expense of the trust fund. In the Beddoe context, although granting what was analogous to a pre-emptive costs order should ordinarily only occur when the Beddoe judge was satisfied that the trial judge would be bound toindemnify the trustee at the end of the contentious litigation, that did not mean that there were no circumstances in which it would be appropriate for the court to do so. The court must also consider what was practical and fair. A balancing exercise might be necessary to determine a trustee’s stance in relation to contentious litigation where there were no other available sources for funding the defence (paras. 10–16).

	(5) The legislative scheme implicitly reflected a public policy imperative for this court, whenever invited to do so, to determine questions relating to the validity of trusts which involved the construction of sui generis questions of Cayman statutory law. Apart from the general consideration that this would ordinarily be the natural forum for claims against trustees who were resident and administering trusts here, it seemed self-evident that this court would normally be the appropriate court to develop Cayman trusts law. Not only would there be no need for expert evidence to be adduced, but this court could draw on its experience of similar distinctive trust instruments and its well documented and longstanding appreciation of the public interest requirement to balance the local interests of professional service providers with the international interests of third party creditors contending that a trust had been improperly founded in violation of their rights (paras. 24–25).

Cases cited:

(1)	Alsop Wilkinson v. Neary, [1996] 1 W.L.R. 1220; [1995] 1 All E.R. 431, considered.

(2)	Dallaway, Re, [1982] 1 W.L.R. 756; [1982] 3 All E.R. 118, referred to.

(3)	Hall, In re, 1994–95 CILR 456, referred to.

(4)	Holden, In re (1887), 20 Q.B.D. 43, referred to.

(5)	Ideal Bedding Co. Ltd. v. Holland, [1907] 2 Ch. 157, referred to.

(6)	Kea Invs. Ltd. v. Watson, [2020] EWHC 472 (Ch), referred to.

(7)	National Anti-Vivisection Socy. Ltd. v. Duddington; The Times, November 23rd, 1989, referred to.

(8)	STG Valmet Trustees Ltd. v. Brennan, 1999–00 Gib LR 211; (1998), 4 ITELR 337, referred to.

(9)	Stingray Trust, In re, Cause no. FSD 248 of 2017, Grand Ct., December 21st, 2020, unreported, referred to.

(10)	Trustee L v. Att. Gen., [2015] SC (Bda) 41 Com, considered.

(11)	Trustee N v. Att. Gen., [2015] SC (Bda) 50 Com, considered.

Legislation construed:

Grand Court Rules, O.85, r.2(2): The relevant terms of this subrule are set out at para. 18.

Trusts Act (2021 Revision), s.13(1): The relevant terms of this subsection are set out at para. 18.

s.14: The relevant terms of this section are set out at para. 19.

s.48: The relevant terms of this section are set out at para. 17.

s.89: The relevant terms of this section are set out at para. 20.

s.90: The relevant terms of this section are set out at para. 21.

	The trustee sought relief under s.48 of the Trusts Act (2021 Revision).

	The trust was a Cayman Islands STAR trust settled for the benefit of the settlor and his family in 2017. In 2019, a worldwide freezing order was granted against four of the beneficiaries (“the family defendants”) in English proceedings. The WFO was replaced by undertakings by the family defendants. The family defendants’ costs of the English proceedings were being funded from the trust. The claims against the family defendants exceeded the estimated value of the trust assets. The family defendants defended the claims and the settlor filed a substantial counterclaim.

	Draft amended particulars of claim in the English proceedings asserted the following principal proposed claims against the trustee: (a) on a true construction...