Q Trusts, Re ; The Q Trusts

• Jurisdiction: Cayman Islands
• Judge: (Sanderson, J.)
• Judgment Date: 30 November 2001
• Court: Grand Court (Cayman Islands)
• Date: 30 November 2001

Grand Court

(Sanderson, J.)

IN THE MATTER OF THE Q TRUSTS

L.A. Tucker and C.D. McKie for the plaintiff;

E.W. Hamilton, Q.C. and Ms. S.J. Collins for the first and second defendants;

Miss J. Jackson, Q.C., and J.R. McDonough for the third, fourth, fifth and sixth defendants;

K.J. Farrow for the seventh defendant;

N.P. Le Poidevin and G. Giglioli for the eighth defendant.

Cases cited:

(1) Al Ibraheem v. Bank of Butterfield Intl. (Cayman) Ltd., 2000 CILR 507, applied.

(2) Baden”s Deed Trusts (No. 2), In re, Baden v. Smith, [1973] Ch. 9; [1972] 2 All E.R. 1304, applied.

(3) Brook”s Settlement, In re, Brook v. Brook, [1968] 1 W.L.R. 1661; [1968] 3 All E.R. 416, dicta of Stamp J. applied.

(4) Cotorro Trust, In re, Grand Ct., May 1996, unreported; further proceedings, 1997 CILR 1, applied.

(5) Crawshay, In re, Hore-Ruthven v. Public Trustee, [1948] Ch. 123; [1948] 1 All E.R. 107.

(6) D”Abbadie v. BizoinIR(1871), I.R. 5 Eq. 205, applied.

(7) Edge v. Pensions Ombudsman, [2000] Ch. 602; [1999] 4 All E.R. 546, applied.

(8) Hastings-Bass, In re, Hastings v. Inland Rev. Commrs., [1975] Ch. 25; [1974] 2 All E.R. 193, applied.

(9) Hay”s Settlement Trusts, In re, Greig v. McGregor, [1982] 1 W.L.R. 202; [1981] 3 All E.R. 786, applied.

(10) Lorenz”s Settlement, ReENR(1860), 1 Dr. & Sm. 401; 62 E.R. 433, not followed.

(11) Manisty”s Settlement, In re, Manisty v. Manisty, [1974] Ch. 17; [1973] 2 All E.R. 1203, dicta of Templeman J. applied.

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

(13) Mockett”s Will, ReENR(1860), John. 628; 70 E.R. 571, not followed.

(14) Public Trustee v. Cooper, [2001] 1 W.L.R. 901, applied.

(15) Rabaiotti 1989 Settlement, In re, 2000 JLR 173; [2000] W.T.L.R. 953, applied.

(16) Salmon v. GibbsENRENR (1849), 3 De G. & Sm. 343; 64 E.R. 508; sub nom. Salmon v. Gibbes, 18 L.J. Ch. 177.

(17) Simpson”s Marriage Settlement, In re, Chadderton v. Simpson, [1952] Ch. 412; [1952] 1 All E.R. 963, considered.

(18) Wellesley (Lady) v. Mornington (Earl)ENR(1855), 2 K. & J. 143; 1 Jur. (N.S.) 1202.

Legislation construed:

Trusts Law (2001 Revision) (Law 6 of 1967, revised 2001), s.48: The relevant terms of this section are set out at para. 20.

Trusts-powers and duties of trustees-fraud on power-exercise of trust power void if done (i) to benefit non-object directly or indirectly, (ii) for corrupt purpose, or (iii) for purpose outside scope of power, e.g. purpose not intended by settlor

Trusts-powers and duties of trustees-fraud on power-court may approve proposed transfer of assets to new trusts even if proposals made to comply with condition of settlement of foreign litigation-no fraud on power by trustees if primary motivation and effect is benefit to existing and potential beneficiaries

Trusts-powers and duties of trustees-surrender of powers to court-no surrender of discretion by trustees seeking court”s approval of proposed exercise of powers if no doubt as to nature of powers or intended use

Trusts-powers and duties of trustees-application for directions-court may, under Trusts Law (2001 Revision), s.48, approve trustees” proposals raising issues of construction to be decided on uncontested facts-directions binding on all parties if all present and given opportunity to argue legal issues

The plaintiff trustees applied for directions, seeking the court”s approval of a resettlement of trust capital.

The plaintiffs were the trustees of two trusts established for the benefit of the settlor”s grandchildren. The trustees had wide discretionary powers enabling them, inter alia, to apply income and capital, transfer capital to other trusts, alter the class of beneficiaries and vary the terms of the trusts. With the approval of the settlor and his two adult children and other minor beneficiaries (the first to seventh defendants), the trustee sought the court”s

approval of a scheme whereby (i) the two adult beneficiaries would each receive an advance of capital, (ii) a further sum would be settled on two new Hong Kong trusts for the benefit of educational and medical institutions, and (iii) the balance would be paid into two new Cayman trusts (the trustees of which would have narrower discretionary powers) for the benefit of the adult beneficiaries” minor offspring and other descendants.

The assets of the existing trusts had previously been settled on two other trusts which were the subject of litigation in Hong Kong. It was a condition of an agreed settlement of that litigation that the Grand Court should grant the directions sought in these proceedings, failing which the assets would revert to the original settlors.

The settlor”s estranged wife, the eighth defendant, opposed the proposed scheme, representing unnamed potential beneficiaries under the existing trusts who would receive nothing if the proposal were approved and implemented.

She submitted that (a) the exercise by the trustees of their powers in the manner proposed-to ‘buy off’ a challenge to the trusts, to favour charities nominated by the settlor and to promote the interests of the minor beneficiaries under new trusts-would be a fraud on the powers, which could be exercised only for the purpose for which they had been conferred, namely, benefiting the beneficiaries at the trustees” discretion; (b) the trustees would have to surrender their discretion to the court to obtain the protection of an order approving the scheme, and the court should in the circumstances decline to exercise that discretion as proposed; and (c) the trustees should, in any event, have initiated proceedings by writ, since the court could not, in the context of proceedings brought under s.48 of the Trusts Law (2001 Revision), give directions that would be binding on all parties before it.

The plaintiff and first to seventh defendants submitted in reply that (a) the trustees would be acting within their powers in implementing the proposed scheme, having considered the benefits of achieving a settlement and the merits of the new trusts, and found them to be in the interests of the current beneficiaries; (b) the trustees merely sought the court”s approval of the exercise of their discretion, and did not surrender that discretion to the court, since there was no conflict of interest or disagreement between them to necessitate doing so; and (c) the court was at liberty to give directions which were binding on the parties before it under s.48, since the factual affidavit evidence before it was uncontentious and the legal arguments put forward by each side on the construction issues would not have been better presented by a writ action.

Held, giving directions as requested:

(1) Fraud by a trustee on a trust power or by the donee of a special power could be committed in three ways, namely the exercise of the power (i) to benefit someone who was not an object of the power or on the understanding that a non-object would be benefited thereby, (ii) for a corrupt purpose, or (iii) for a purpose outside the scope of the power (in

the case of a trust power, a purpose not intended by the settlor). In each case the exercise of the power would be void. Trustees were obliged to exercise their fiduciary powers for the benefit of existing or potential beneficiaries, and had a broad discretion in doing so. They were required to consider from time to time whether to exercise their powers, to give proper consideration to relevant matters and disregard irrelevant ones before doing so, and to exercise them personally and in a sensible and responsible manner (para. 6; paras. 12–13).

(2) There would be no fraud on the trust powers, in the sense of acting outside their scope, by the trustees” implementing the proposed resettlement in this case. The court was satisfied that they had examined, independently of the litigation settlement, the merits of the proposed charitable and family trusts to be established. Furthermore, the aim of achieving a settlement was in itself a desirable one in the interests of the existing beneficiaries. It would have been wrong for the trustees to ignore the possibility of settlement. The fact that the proposals would also benefit others did not alter their primary purpose and the motivation behind them (paras. 14–16).

(3) The trustees had not automatically surrendered their discretion to the court by asking for its approval of the proposed exercise of their powers. The trustees were not in doubt as to the nature of their powers and knew how they wished to exercise them but sought the court”s confirmation that this was a proper exercise of their powers, in view of the importance of the decision for the future of the trust. It was appropriate that they had done so (paras...