Megerisi v Scotiabank Trust (Cayman) Ltd

• Jurisdiction: Cayman Islands
• Judge: (Anderson, Ag. J.)
• Judgment Date: 08 July 2005
• Court: Grand Court (Cayman Islands)
• Date: 08 July 2005

Grand Court

(Anderson, Ag. J.)

MEGERISI

and

SCOTIABANK TRUST (CAYMAN) LIMITED and PROTEC TRUST MANAGEMENT ESTABLISHMENT

E.A. Davidson, Q.C. and K.J. Farrow for the plaintiff;

R.D. Alberga, Q.C. for the second defendant;

The first defendant did not appear and was not represented.

Cases cited:

(1) B. v. Trust Management, 1988–89 CILR N–22, applied.

(2) Briggs v. Integritas Trust Management (Cayman) Ltd., 1988–89 CILR 456, applied.

(3) Butlin”s Settlement Trusts, In re, [1976] Ch. 251; [1976] 2 All E.R. 483, dicta of Brightman J. applied.

(4) Hanley v. PearsonELR(1879), 13 Ch. D. 545, referred to.

(5) Joscelyne v. Nissen, [1970] 2 Q.B. 86; [1970] 1 All E.R. 1213, dictum of Russell, L.J. applied.

Trusts-rectification-discretion of court-court has discretion to allow rectification of draftsman”s mistake in wording of trust if fails to implement settlor”s intention-extends to rectification not only of beneficial and administrative provisions but also of corpus of trust when all intended assets of trust omitted-proof of mistake by original trustee not necessary-tax advantage accruing from rectification not bar

Trusts-rectification-incorrect drafting of trust instrument-if no other convenient remedy available, court may rectify mistake in trust instrument caused by incorrect drafting by legal adviser failing to give effect to settlor”s intentions-extends to correcting omission of all intended assets of trust

Trusts-rectification-availability of alternative remedy-court may refuse rectification if convenient alternative remedy available-neither claim by beneficiary or settlor for draftsman”s negligence in preparing defective trust, nor resettlement incurring tax disadvantages is convenient alternative remedy

The plaintiff, as settlor, applied to rectify a voluntary settlement.

The plaintiff was a Libyan national, resident in the United Kingdom. Under the English Inheritance Tax Act 1984 (‘IHT’), he would be deemed domiciled in the United Kingdom as of April 5th, 1994 and his assets would be liable to the tax consequences of that Act unless he divested himself of them before that date. In 1981 it was decided to incorporate a company in the Cayman Islands, Garden Holdings Ltd. (‘Garden’), solely to hold operating subsidiaries, which were funded by the plaintiff, his father and his brother. They made interest-free unsecured loans in equal shares to the subsidiaries through the parent company. A substantial loan portfolio built up in Garden in which each lender had a one-third interest in the repayments due.

When the issue of transferring the plaintiff”s assets out of the United Kingdom arose, the family”s main legal adviser referred the plaintiff to colleagues in the firm, who were to undertake the mechanics of protecting the plaintiff”s assets from the application of the IHT, but he failed to inform them about the loan portfolio. A discretionary trust was set up to

hold the plaintiff”s ‘share of Garden.’ In the absence of knowledge about the plaintiff”s entitlement to loan repayments, the trust document proceeded on the basis that the plaintiff”s share in Garden was one-third of its share capital, which would have amounted to no more than £10, whereas the plaintiff was entitled to repayments of £7.95m. and US$5,434,617.

The plaintiff took for granted that his intentions had been properly carried out and the loans included. The present application therefore sought to rectify the error whereby essentially the entire corpus of the purported trust had been excluded from the assets settled. Neither the first defendant, the original trustee of the discretionary trust, nor the second defendant, the sole successor trustee, opposed the application.

The plaintiff submitted that (a) the legal principles governing the rectification of voluntary trusts were applicable even though the error was not to be found in either the beneficial or administrative provisions of the trust, but rather in the omission of the principal asset which it had been intended to settle; (b) a trust could be rectified even if it were voluntary and proof of mistake on the part of the original trustee was not required; and (c) the tax advantage that the plaintiff would gain was not a bar to rectification when the case for it had otherwise been established.

Held, ordering the rectification sought:

It was appropriate to extend the right to rectification from cases concerning beneficial and administrative provisions to the present situation where the trust as set up mistakenly omitted the very corpus of the trust. Proof of mistake on the part of the original trustee was not necessary and the settlor”s...