Re Golden Trust

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 18 December 2012
• Court: Grand Court (Cayman Islands)
• Date: 18 December 2012

Grand Court, Financial Services Division

(Smellie, C.J.)

IN THE MATTER OF THE GOLDEN TRUST

MEGERISI

and

PROTEC TRUST MANAGEMENT ESTABLISHMENT and PAGET-BROWN TRUST COMPANY LIMITED

E. Davidson, Q.C. and Ms. L. Diggle for the plaintiff;

A. De La Rosa and S. Coleman for the second defendant;

C. Young for Simmons & Simmons.

Cases cited:

(1) Allnutt v. Wilding, [2007] WTLR 941; [2007] EWCA Civ 412, applied.

(2) B. v. Trust Management, 1988–89 CILR N–22, referred to.

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

(4) Butlin”s Settlement Trusts, In re, [1976] Ch. 251; [1976] 2 All E.R. 483, referred to.

(5) Chisholm v. Chisholm, [2011] WTLR 187; [2010] EWHC 2059 (Ch), distinguished.

(6) Hanley v. PearsonELR(1870), 13 Ch. D. 545, referred to.

(7) Joscelyne v. Nissen, [1970] 2 Q.B. 86; [1970] 1 All E.R. 1213, applied.

(8) Megerisi v. Scotiabank Trust (Cayman) Ltd., 2004–05 CILR 456, followed.

(9) Racal Group Servs. Ltd. v. Ashmore, [1995] S.T.C. 1151, considered.

(10) Slocock”s Will Trusts, In re, [1979] 1 All E.R. 358, referred to.

(11) Thomas Bates & Son Ltd. v. Wyndham”s (Lingerie) Ltd., [1981] 1 W.L.R. 505; [1981] 1 All E.R. 1077, applied.

(12) Tottenham Hotspur Football & Athletic Club Ltd. v. Princegrove Publishers Ltd., [1974] 1 W.L.R. 113; [1974] 1 All E.R. 17, applied.

(13) Walker v. Geo. H. Medlicott & Son, [1999] 1 W.L.R. 727; [1999] 1 All E.R. 685; [1999] 1 FLR 1095, applied.

(14) Wills v. Gibbs, [2008] S.T.C. 808; [2007] EWHC 3361 (Ch), considered.

Legislation construed:

Trusts Law (2011 Revision), s.89(2): The relevant terms of this sub-section are set out at para. 22.

s.89(4): The relevant terms of this sub-section are set out at para. 23.

s.90: The relevant terms of this section are set out at para. 25.

Trusts-rectification-incorrect drafting of trust instrument-court may rectify wording to reflect settlor”s intention at time trust created-rectification may arise if words incorrect or give different meaning from that intended, even if due to mistake by legal adviser-may order rectification even if solely for tax advantage and no additional non-fiscal issue exists between parties, so long as has positive effect on parties” rights-court only to rectify if no other convenient remedy available but may not refuse merely because negligence suit available against legal adviser

The plaintiff settlor brought an action to rectify a trust settlement to include property which had not been included in the trust deed as an omission by his solicitors.

After he moved to the United Kingdom, the plaintiff instructed his solicitors to set up a trust whereby certain property was held in another country with the first defendant as trustee. The trust was set up before the date when he would be deemed to become domiciled in the United Kingdom and was designed to avoid inheritance tax. The solicitors failed to include the bulk of the valuable property in the trust document, namely loans which were the principal asset the plaintiff intended to settle. This was due to a failure of communication within the solicitors” firm, through no fault of the plaintiff, and resulted in the failure of the loans being assigned to the first defendant. The plaintiff therefore sought to have the trust rectified to include the property, so that its inclusion in the trust would take effect from before he became liable to pay inheritance tax on it. The trust was originally governed by the law of the Principality of Liechtenstein but, as Liechtenstein law did not allow for rectification of a trust, it was transferred to the Cayman Islands, with the second defendant replacing the first as trustee.

The plaintiff submitted that it did not matter that the issue arose because of an omission rather than an incorrect statement. The defendants did not contest the omission and supported the rectification. The second defendant

submitted that the court was entitled to grant rectification under Cayman law even though there was no ‘non-fiscal issue’ between the parties, and that the English requirement of a non-fiscal issue was based on the policy consideration to prevent a retroactive fiscal benefit which had not been intended at the time of the settlement.

Held, granting the order:

The court would order rectification of the trust documents to include the property originally intended, notwithstanding that the sole purpose of the rectification was for a tax advantage and that it was only required because of the legal adviser”s negligence. It was settled law that rectification was allowed as a discretionary equitable remedy which allowed the court to modify the trust document to the extent which it did not reflect the intentions of the settlor, so long as their true intentions could be evidenced. This could apply to words added to, omitted from or written in the original document, whether they were simply wrong or because they had a different construction to the one which they were believed to have. Rectification was a discretionary remedy which would not be granted if there were another practical or convenient remedy available. This did not include the potential remedy against the solicitor for negligence because, in a negligence suit, the plaintiff was required to mitigate his losses and this would include an attempt to rectify the trust document. Moreover, it did not matter that the rectification was solely for gaining a tax advantage or that the rectification was only necessary because the plaintiff had relied on negligent advice from his legal advisers, so long as the case for rectification was still clear. Although the English courts required there to be an additional non-fiscal issue between the parties before rectification could be granted, this was in deference to HMRC”s fiscal policies, with the aim of preventing rectification where the only purpose was to obtain a new financial benefit not intended at the time the trust was created. Because the court in the Cayman Islands did not need to consider HMRC”s fiscal policies, this would not fetter its discretion to grant rectification. It would therefore grant rectification even where the sole purpose was to avoid an unfavourable tax consequence and there was no clearly identifiable issue being contested between the parties-although the rectification must still be carried out with the purpose of changing the trust to reflect the settlor”s actual intention at the time of its creation and should have some positive effect on the parties” rights (para. 25; paras. 30–34; paras. 38–42).

1 SMELLIE, C.J.: This is an application by the plaintiff, Mr. Abubaker Megerisi, to rectify a voluntary settlement made by him on March 31st, 1994, and known as the Golden Trust. The settlement was originally constituted under the laws of the Principality of Liechtenstein, which thus became the initial forum for its administration. However, the concerns leading to the need for its rectification having come to light and, primarily for the reason that the laws of Liechtenstein do not allow for rectification (as to which legal expert evidence has been made available to this court), the proper law of the settlement was changed to the laws of the Cayman Islands. This was done in keeping with enabling provisions within the settlement deed, and the Cayman Islands became the new forum for its administration. This effectively took place when the second defendant was appointed as trustee, replacing the first defendant (a Liechtenstein entity) on October 31st, 2011. The second defendant is incorporated in and carries on business in the Cayman Islands, and is the sole current trustee.

2 The settlement is a discretionary settlement in favour of the plaintiff (‘the settlor’) and his immediate family, with power (not exercised to date) to add beneficiaries, and with an ultimate gift to charity if no beneficiary is living or in existence at the expiry of the trust period.

Background

3 The error which it is sought to correct by way of rectification lies in the omission from the settlement, when the deed was originally subscribed, of the very corpus of the trust. The error resulted in the omission of an assignment to the first defendant (as original trustee) of an asset, namely loans totalling £7,950,000 and US$5,434,617, the principal asset which the settlor avers he intended to settle. The circumstances of the omission-arising from a mistaken belief on the settlor”s part, the result in turn of an omission on the part of his lawyers in the preparation of the deed of settlement-are relied upon by the settlor now as basis for the grant of equitable discretionary relief of rectification.

4 Thus, the case is unusual (though not unique) in that the error which it is sought to correct is one of omission, rather than an error to be found in either the expressed beneficial or administrative provisions of the settlement as it stands. This unusual feature is, however, described by counsel as being without significance because-

(a) the legal principles applicable to the rectification of voluntary settlements in general apply to this case exactly as to any other; and

(b) the applicability of those principles is now established in the Cayman Islands (as well as in the United Kingdom). This, in the context of the Cayman Islands, could hardly be more pointedly illustrated in this case than by the earlier case of Megerisi v. Scotiabank Trust (Cayman) Ltd. (8). That was the case in which rectification of a settlement was granted on the application of the brother of the settlor, in circumstances of a like omission of assignment of assets by way of settlement upon a Cayman trust, resulting from the mistaken belief that they were included in the settlement. There, too, the omission was that of the lawyers who drafted the settlement deed, the same lawyers responsible for the present deed.

5 The difference in the factual circumstances between this...