Re Cotorro Trust

• Jurisdiction: Cayman Islands
• Judge: (Smellie, J.)
• Judgment Date: 17 January 1997
• Court: Grand Court (Cayman Islands)
• Date: 17 January 1997

Grand Court

(Smellie, J.)

IN RE COTORRO TRUST

G.F. Ritchie for the plaintiff;

J. Mowbray, Q.C., J. Appleyard and N.R.F.C. Timms for the first and second defendants;

L. Tucker for the fourth defendant (acting by his guardian ad litem);

T. Etherton, Q.C. and W.J. Helfrecht for the fifth defendant;

A.J.E. Foster for the sixth defendant;

The third defendant did not appear and was not represented.

Cases cited:

(1) -Abrahams” Will Trusts, In re, Caplan v. Abrahams, [1969] 1 Ch. 463; [1967] 2 All E.R. 1175.

(2) -Beatty”s Will Trusts, In re, Hinves v. Brooke, [1990] 1 W.L.R. 1503; [1990] 3 All E.R. 844.

(3) -Buckton, In re, Buckton v. Buckton, [1907] 2 Ch. 406, applied.

(4) -Cayman Islands News Bureau Ltd. v. Cohen, 1986–87 CILR 370, applied.

(5) -Diplock, In re, Wintle v. Diplock, [1940] Ch. 988.

(6) -Douglas-Menzies v. Umphelby, [1908] A.C. 224.

(7) -Holder v. Holder, [1968] Ch. 353; [1968] 1 All E.R. 665, followed.

(8) -Lemos v. Coutts & Co. (Cayman) Ltd., 1992–93 CILR 460, dicta of Kerr J.A. applied.

(9) -McDonald v. Horn, [1995] 1 All E.R. 961; [1995] I.C.R. 685, followed.

(10) -Ojjeh Trust, In re, 1994–95 CILR 118.

(11) -Parkinson (Sir Lindsay) & Co. Ltd. Settlement Trusts, In re, Bishop v. Smith, [1965] 1 W.L.R. 372; [1965] 1 All E.R. 609n, observations of Buckley J. applied.

(12) -Pitman v. Crum Ewing, [1911] A.C. 217.

(13) -Simon Engineering PLC v. Butte Mining (No. 2), [1996] 1 Lloyd”s Rep. 91.

(14) -Société Commerciale de Réassurance v. Eras Intl. Ltd. (No. 2)UNK, [1995] 2 All E.R. 278; sub nom. The Eras EIL Actions, [1995] 1 Lloyd”s Rep. 64.

(15) -Société Nationale Indus. Aérospatiale v. Lee Kui Jak, [1987] A.C. 871; [1987] 3 All E.R. 510, dicta of Lord Goff applied.

Legislation construed:

Grand Court Rules, 1995, O.28, r.4(5):

‘The Court may at any stage of the proceedings order that any affidavit, or any particulars of claim, defence or other matter stated in any affidavit, shall stand as pleadings or that points of claim, defence or reply be delivered and stand as pleadings.’

O. 28, r.8(1): ‘Where, in the case of a cause or matter begun by originating summons, it appears to the Court at any stage of the proceedings that the proceedings should for any reason be continued as if the cause or matter had been begun by writ, it may order the proceedings to continue as if the cause or matter had been so begun and may, in particular, order that any affidavits shall stand as pleadings, with or without liberty to any of the parties thereto to apply for particulars thereof.’

O.33, r.3: ‘The Court may order any question or issue arising in a cause or matter, whether of fact or law or partly of fact and partly of law, and whether raised by the pleadings or otherwise, to be tried before, at or after the trial of the cause or matter, and may give directions as to the manner in which the question or issue shall be stated.’

Civil Procedure-originating summons-appropriateness of procedure-appropriate to decide construction issues in trust dispute arising from agreed facts-no order under Grand Court Rules, 1995, O.28, r.8(1) for contentious proceedings to continue as if commenced by writ when no fraud or breach of trust alleged

Trusts-beneficiaries-rights-right to costs-beneficiary raising pre-liminary issues adopted by all parties in proceedings commenced by trustee under Trusts Law (Revised), s.45 may recover costs of summons and pre-emptive costs if (a) trustee also justified in raising issues; (b) beneficiaries to share equally in restoration or depletion of trust fund; (c) most cost-effective means of funding proceedings; and (d) likely in any event to be awarded by trial judge

Trusts-beneficiaries-rights-right to costs-beneficiary not entitled to indemnity from trust fund for costs of trial of preliminary issues in proceedings under Trusts Law (Revised), s.45 if rulings on substantive issues may impose liability for breach of trust and consequent costs against him

Trusts-beneficiaries-disentitlement to claim-may not retain benefit from distribution made under amended trust instrument whilst challenging validity of trust or amendment-irrelevant whether beneficiary makes election in knowledge of legal consequences at time of receipt of benefit

Conflict of Laws-parallel foreign proceedings-stay of foreign proceedings-injunction prohibiting party from pursuing foreign action if (a) Cayman Islands forum conveniens; and also (b) parallel proceedings begun here first; (c) no evidential basis for allegations in foreign action; (d) foreign litigation system likely to cause delay and injustice to defendant; or (e) foreign proceedings otherwise vexatious or oppressive

The parties to proceedings relating to the construction and administration of a family trust applied for various interlocutory orders.

The plaintiff trustee commenced proceedings by originating summons under the Trusts Law (Revised), s.45 following allegations by the third defendant, a contingent beneficiary of the trust, that the trust itself and/or amendments to it were invalid and that the trust”s management committee (which included the first defendant) had acted fraudulently in making

distributions totalling 50% of the trust capital to the second defendant who had formerly been entitled to income only.

The third defendant also commenced an action for damages in Florida alleging self-dealing, fraud, conspiracy and breach of fiduciary duty against the first and second defendants. They obtained ex parte an interim injunction in the Grand Court restraining her from prosecuting proceedings in Florida or elsewhere, with liberty to apply, on the basis that the proceedings in the United States were vexatious and oppressive. In response, the third defendant informed the court that she intended to take no further part in the Cayman proceedings.

The fourth and fifth defendants, both sons of the third defendant, raised by summonses issues relating to the construction of amendments to the trust deed and the validity of distributions made under them, for the court”s determination as preliminary issues. The fourth defendant, as a minor, was represented by a guardian ad litem appointed by the court, whose costs were ordered to be paid out of the trust fund.

The parties applied, inter alia, for the following orders: (a) The plaintiff and the first and second defendants applied under O.28, r.8 of the Grand Court Rules for the proceedings to continue as if commenced by writ; (b) The first, second and sixth defendants applied for (i) a declaration that the third defendant should be prohibited from claiming any further benefit from distributions of capital (in the form of family shares) which had been made to her under amendments to the trust deed, or any remedy based on allegations that the amendments were ineffective; (ii) a final injunction to prevent her from pursuing proceedings against them in Florida; and (iii) an order for their costs so far in the proceedings to be paid out of the trust fund or alternatively by the third defendant; and (c) The fifth defendant applied for his costs so far in the proceedings and future costs of the trial of the preliminary issues to be met out of the trust.

The trustee and the first and second defendants submitted that (a) since the issues raised in the fourth and fifth defendants” summonses were hostile to the trustee and to other beneficiaries and were grounded in the allegations of breach of trust and mismanagement of funds made by the third defendant, the proceedings were clearly contentious and should be continued as if commenced by writ; (b) alternatively, the fourth and fifth defendants should file points of claim setting out the allegations which they wished to make concerning the amendments to the trust deed and distributions under them, so as to give the trustee the opportunity to assess precisely what charges were levelled against it; (c) the fifth defendant should not be permitted to claim the costs of challenging the trust and its administration from the trust fund, since he was in effect making a claim against other beneficiaries of the trust and thereby abusing the procedure of the trustee”s application by originating summons under s.45; the first, second and sixth defendants submitted that (d) if the fifth defendant were awarded his costs, so too should they be awarded theirs, since they were obliged to be parties to proceedings

which they had not commenced; (e) the third defendant was estopped from claiming any further benefit from the distributions of capital which had been effected pursuant to amendments to the trust deed or any remedy based upon her allegations that those amendments were ineffective, since she had retained valuable shares distributed to her under those amendments whilst challenging their validity both in the Cayman Islands and in Florida; (f) it was not necessary for this purpose for them to prove that the third defendant had elected to receive the shares in full knowledge of the legal consequences of her acceptance, but only that she sought to retain the benefit whilst aware of the facts on which her allegations of breach of trust were founded; (g) since the trust was governed by Cayman law, the Grand Court was the proper forum for the resolution of disputes regarding it and the third defendant would suffer no injustice thereby; and (h) for this reason, and bearing in mind the devices available to the third defendant in the Florida court to prolong litigation and the inequity which might be caused by the contingency fee system and costs awards, the proceedings commenced by the third defendant in Florida were vexatious and oppressive and should not be pursued.

The fourth and fifth defendants submitted that (a) since the matters raised in their summonses were confined to the validity of the amendments to the trust instrument and of the distributions of capital under them, and did not include any wider challenge to the...