Re Circle Trust
| Jurisdiction | Cayman Islands |
| Judge | (Sanderson, Ag. J.) |
| Judgment Date | 25 May 2007 |
| Court | Grand Court (Cayman Islands) |
| Date | 25 May 2007 |
(Sanderson, Ag. J.)
N.R.F.C. Timms and Ms. Z. Robertson for the plaintiff;
A. Fletcher, Q.C. and S.J. Barrie for the first, third and fourth defendants;
T. Lowe and Ms. C.J. Bridges-Giglioli for the second defendant;
G. Giglioli for the fifth defendant;
Ms. S. Warnock-Smith, Q.C. and Ms. M. Crinis for the sixth defendant.
(1) Edge v. Pensions Ombudsman, [2000] Ch. 602; [1999] 4 All E.R. 546, referred to.
(2) Ingram v. Inland Rev. Commrs., [2000] 1 A.C. 293; [1999] 1 All E.R. 297; [1999] STC 37; [1999] L. & T.R. 85; [1998] BTC 8047; [1998] EGCS 181; (1998), 96 (3) L.S. Gaz. 32, followed.
(3) Oakes v. Stamp Duties Commr. (N.S.W.), [1954] A.C. 57; [1953] 2 All E.R. 1563; [1953] T.R. 453; (1953), 47 R. & I.T. 141, considered.
(4) Public Trustee v. Cooper, [2001] 1 W.T.L.R. 901, referred to.
(5) Von Knieriem v. Bermuda Trust Co. Ltd.(1994), Bermuda Supreme Ct., July 13th, 1994, unreported, referred to.
(6) Z Trust, In re, 1997 CILR 248, referred to.
Trusts-beneficiaries-disclaimer of interest-beneficiary”s disclaimer by deed revocable, unless otherwise stated in trust deed or deed of disclaimer-beneficiary who revokes disclaimer of interest not barred from being renamed as beneficiary
Trust-trust protector-remuneration-trust protector may be paid reasonable salary for managing companies owned by trust, even though member of class excluded from receiving benefit from trust-salary is corporate expense, not ‘benefit’ for purpose of clause barring receipt of trust income or within meaning of legislation imposing tax on retained benefits
The plaintiff applied for directions following an attempt by the sixth defendant to remove it as the trustee of the Circle Trust and to appoint the fourth defendant.
The sixth defendant, F, was the settlor of a trust for the benefit of his wife (the first defendant) and their four children (the second to fifth defendants). The first, third and fourth defendants appointed F as protector, who then attempted to remove the plaintiff as trustee and appoint the fourth defendant, T. As the terms of the trust prevented a beneficiary from acting as a trustee, T disclaimed his interest by deed. Following objections from the second and fifth defendants to the plaintiff”s removal as trustee, T by another deed purported to revoke his disclaimer and the plaintiff was reappointed. T sought to become a beneficiary again but the second and fifth defendants alleged that he was barred from doing so since, under cl. 3(b) of the trust deed, his original disclaimer was not revocable. The trustee applied to the court to decide the issue, and the court was also asked to determine whether F could participate in forthcoming proceedings concerning operating companies owned by the trustee and whether he was entitled, as protector, to be paid for managing those companies.
The second and fifth defendants submitted that (a) the exclusion of the word ‘revocable’ from cl. 3(b) contrasted with other clauses expressly stating a trustee”s powers to be ‘revocable or irrevocable’ and indicated
that the draftsman intended a disclaimer of interest under this clause to be irrevocable with the consequence that T could not become a beneficiary again; (b) in any event, it would be an improper exercise of the trustee”s discretion to rename T as a beneficiary, since he was conspiring with F to recover the trust assets; (c) F”s powers and duties as protector did not require him to participate in further proceedings concerning the trust”s operating companies and would unnecessarily increase costs; and (d) F should not be paid for managing the companies because, as a named member of an excluded class, he was not entitled, under cl. 33(a) of the trust deed, to receive a benefit from the trust fund.
The first, third, fourth and sixth defendants submitted in reply that (a) cl. 3(b) provided that a beneficiary could disclaim his interest to such extent as specified in his deed of disclaimer, and furthermore, had the draftsman intended such a deed to be irrevocable, he would have stated so clearly; (b) the trustee had full knowledge of the parties” disputes and would give due consideration to all the relevant facts in deciding whether to reinstate T as a beneficiary; (c) F should participate in the forthcoming proceedings in order to discharge his function properly as protector and furthermore, his knowledge of the trust companies would be helpful to the court; and (d) since an employee”s salary was a corporate expense, F was not receiving a benefit from the trust, within the meaning of the trust deed or under Hong Kong tax legislation.
Held, making the following ruling:
(1) The fourth defendant was entitled to make a revocable disclaimer of his interest in the trust and could, therefore, become a beneficiary again once he had revoked his disclaimer. The most obvious construction of cl. 3(b) was that a beneficiary could disclaim any or all of his interest in the trust to the extent that he specified in his deed of disclaimer. This interpretation gave the words their plain and ordinary meaning, made sense in the context of the trust document as a whole and did not conflict with other clauses (paras. 19–20).
(2) Furthermore, it would not be an improper exercise of the trustee”s discretion to rename the fourth defendant as a beneficiary. The court was satisfied that the trustee had been provided with all the information necessary for it to make an informed decision, it had considered all the relevant matters and its decision was one that a reasonable trustee could make (paras. 24–25; para. 27).
(3) However, the sixth defendant had no legal right to participate in the forthcoming proceedings to determine what should happen to the trust”s operating companies, since this was a dispute between the beneficiaries and there were no issues concerning his powers, rights or duties as trust protector. The court had, however, a discretion to hear his submissions, but any legal costs associated with his attendance, or of counsel on his behalf, would not have to be paid by the trust (paras. 34–35; para. 38).
(4) The sixth defendant was, however, entitled to be paid for his work
as managing director of the operating companies. The salary he received as an employee was a company expense and did not amount to income from the trust fund nor a reservation of assets in his favour since, while he was responsible for running the operating companies, he was not a shareholder and had no control over them. In reaching this conclusion, the court had borne in mind that the purpose of cl. 33(a) of the trust deed, in barring members of the excluded class from receiving benefits from the trust fund, was to prevent the trust being subject to estate duty in Hong Kong. Provided it was reasonable, F”s remuneration did not offend the purpose of the tax legislation and would have no effect on the trust”s assets or income (para. 43; para. 46; para. 48; para. 51).
1 SANDERSON, Ag. J.: There are five issues before the court for determination:
(i) On October 12th, 2004, one of the beneficiaries of the Circle Trust, Terence Fung (the fourth defendant), signed a deed, which stated in part: ‘The Disclaimor hereby revocably disclaims all his interest in the Trust.’ Terence Fung has since revoked this disclaimer of interest and seeks to be a beneficiary again. Is he entitled to revoke his disclaimer of interest?
(ii) If Terence Fung”s disclaimer of his interest is not revocable, then alternatively is it void, and if void, has Terence Fung remained a beneficiary throughout?
(iii) If the deed of disclaimer is neither revocable nor void, and therefore Terence is not a beneficiary, is it a proper exercise of power for the trustee to rename him as a beneficiary pursuant to the terms of the trust deed?
(iv) Is Mr. Fung Sr. (the sixth defendant), as protector...
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Re Circle Trust
...third and fourth defendants succeeded in their bid to prevent the companies being sold, and also to appeal against a ruling (reported at 2007 CILR 225) that the sixth defendant, the trust protector, was entitled to remuneration for managing the operating companies. The first to fifth defend......