Re B Trust

• Jurisdiction: Cayman Islands
• Judge: (Henderson, J.)
• Judgment Date: 09 December 2010
• Court: Grand Court (Cayman Islands)
• Date: 09 December 2010

Grand Court, Financial Services Division

(Henderson, J.)

IN THE MATTER OF THE B TRUST

RBS COUTTS (CAYMAN) LIMITED

and

W and OTHERS

Ms. R. Reynolds for the plaintiff;

W.J. Helfrecht for the first defendant;

C.D. McKie for the third defendant;

The second defendant did not appear and was not represented.

Cases cited:

(1) A v. A, [2007] 2 FLR 467; [2007] EWHC 99 (Fam), applied.

(2) B Trust, In re, 2006 JLR 562, considered.

(3) C v. C (Ancillary Relief: Nuptial Settlement), [2005] Fam. 250; [2005] 2 W.L.R. 241; [2004] 2 FLR 1093; [2004] 2 F.C.R. 721; [2004] EWCA Civ 1030, referred to.

(4) H Trust, In re, 2006 JLR 280, applied.

(5) IMK Family Trust, In re, 2008 JLR 250, considered.

Legislation construed:

Trusts Law (2009 Revision), s.90: The relevant terms of this section are set out at para. 23.

s.91: The relevant terms of this section are set out at para. 23.

s.93: The relevant terms of this section are set out at para. 23.

Family Law-financial provision-foreign matrimonial proceedings-not generally in beneficiaries” interests for Cayman trustee to submit to foreign court in beneficiaries” matrimonial proceedings-if does so, foreign court order based on fair division of assets and not beneficiaries” interests (a) could conflict with duty to carry out trust according to terms; (b) potentially enforceable in Islands without reconsideration by Cayman court-if does not, order not binding in Islands but taken into account by Cayman court when considering comity and beneficiaries” interests

Conflict of Laws-trusts-exercise of trustee”s discretion-trustee not bound to follow guidance from foreign court if not submitted to jurisdiction, although commonly appropriate to do so-if trustee considers following guidance not in beneficiaries” interests, appropriate to disregard

Trusts-powers and duties of trustees-exercise of discretion-trustee not to indicate how may exercise powers in future-would lead to expectation in parties that may later be frustrated if different exercise of powers appropriate

The plaintiff trustee applied for directions in relation to matrimonial proceedings between two of the beneficiaries in Hong Kong.

The respondents, formerly husband and wife, and their three children were beneficiaries of a trust governed by Cayman law. The husband and wife commenced matrimonial and ancillary relief proceedings in Hong Kong. The wife applied in Hong Kong for an order varying the trust in

such a way that shares it held were transferred out to be distributed between the husband and the wife. The Hong Kong court ordered that the trustee be joined as a party on the variation application but the trustee did not submit to the Hong Kong court”s jurisdiction. The oldest of the children applied in Hong Kong to be joined as a party to the variation application.

The trustee applied for directions as to (a) whether it should submit to the jurisdiction of the Hong Kong court; (b) how it should respond to the oldest child”s application to be joined as a party in Hong Kong; and (c) whether it would be appropriate for it to give an indication as to how it might exercise its powers if assets were to be transferred into the trust”s distribution fund.

Held, giving the following directions:

(1) The court would direct the trustee not to submit to the jurisdiction of the Hong Kong court. The trustee”s duty was to carry out the trust according to its terms, unless deviation from those terms was sanctioned by the Cayman court. It would generally not be in the interests of beneficiaries for the trustee to submit to the jurisdiction of a foreign court in matrimonial proceedings in which one or both spouses were beneficiaries under the trust, since doing so could put the trustee in a situation in which its duty as a trustee came into conflict with an obligation to obey a foreign court order. Moreover, if it were to do so, a foreign court order relating to the trust-which would have been made with primary reference to a fair division of matrimonial assets, and not the beneficiaries” interests-would, under the rules of private international law, potentially be enforceable in the Islands without reconsideration by the Cayman court. Conversely, if the trustee were not to submit to the foreign jurisdiction, any foreign order would not be enforceable and, on a subsequent application to the Cayman court to give effect to the variation ordered, the court would have discretion to act in the beneficiaries” best interests. The Cayman court would not ignore a foreign court order, however, as it would often be in the interests of comity and the beneficiaries for it to make an order achieving the variation of a trust ordered by a foreign court. The court would therefore direct that the trustee refrain from submitting to the jurisdiction of the Hong Kong court and take no part in any of the applications (para. 25; para. 31).

(2) Further, if the Hong Kong court were to encourage the trustee to act in a particular way, it would be proper for the trustee to take it into account in considering how best to exercise its discretion in the beneficiaries” interests. It would commonly be appropriate for a trustee to follow guidance from a foreign court, even if it had not submitted to its jurisdiction. However, the trustee would not be bound to follow the guidance, since the foreign court would not have the jurisdiction to direct a particular exercise of such a trustee”s power. If the trustee was of the

view that following the foreign court”s guidance would be unduly prejudicial to the beneficiaries” interests, it would be appropriate for it to decline to do so (paras. 35–36).

(3) Moreover, the court would direct the trustee to refrain from giving any indication as to how it might exercise its powers if assets were to be transferred into the distribution fund. Any such indication would serve no other purpose than to give rise to an expectation in the parties-and possibly the court-as to how the trustee would exercise its discretion. This would create a risk that the trustee would feel obliged to act in accordance with its indication in circumstances in which another course of action would be more appropriate. The trustee would therefore be directed not to give such an indication (paras. 38–39).

1 HENDERSON, J.: The plaintiff, RBS Coutts (Cayman) Ltd. (‘the trustee’) is trustee of the B Trust (the name of the trust and the parties other than the trustee have been anonymized). The B Trust was established in the Cayman Islands as a STAR trust, an acronym for a trust established under Part VIII of the Trusts Law (2009 Revision) which is entitled ‘Special Trusts-Alternative Regime.’ The trustee asks for directions as to whether, and to what extent, it should participate in matrimonial and ancillary relief proceedings in Hong Kong between the two settlors of the trust. They were formerly married. For convenience, I will refer to them, I hope without causing any disrespect, as husband and wife.

2 The wife has now made an application under the relevant Hong Kong matrimonial legislation seeking a variation of the trust, which she characterizes as a nuptial settlement. She has obtained an order in Hong Kong

joining the trustee as a party on this variation application. The threshold question is whether the trustee should submit to the jurisdiction of the Hong Kong court and participate in the wife”s application. The trustee is already a party to that application but has made no voluntary submission to the jurisdiction of the foreign court as yet. There are collateral issues, including the question of disclosure by the trustee.

The B Trust

3 The B Trust was settled by the husband and the wife by deed in 2002. Clause 2(i) of the trust deed provides that the trust is governed by the laws of the Cayman Islands and that the settlors, the trustee and the enforcers are required to submit to the exclusive jurisdiction of the Cayman court. The trustee is domiciled in the Cayman Islands and administers the trust here; it has no presence in Hong Kong. There are five beneficiaries of the trust: the husband, the wife and their three children aged 19, 17 and 12. Under cl. 29 of the trust deed, the husband, the wife and the oldest child are those with standing to enforce the trust provisions. When the other two children reach the age of 18, they too will become enforcers.

4 Clause 5 of the trust deed makes provision for one of the beneficiaries to be the ‘designated beneficiary.’ The designated beneficiary has the privilege of controlling the investment business of ‘controlled companies,’ which are companies directly owned by the trust or owned by another controlled company but not held within the ‘distribution fund’ (see cl. 1(vi)). The distribution fund consists of trust property which has been transferred or credited to it but in relation to which the privileges...