Re S Trust

• Jurisdiction: Cayman Islands
• Judge: (Schofield, J.)
• Judgment Date: 22 January 1993
• Date: 22 January 1993
• Court: Grand Court (Cayman Islands)

Grand Court

(Schofield, J.)

IN THE MATTER OF S TRUST

R. Walker, Q.C. and A. Foster for the plaintiff;

R.D. Alberga, Q.C. and Mrs. E. Maierhoffer for the guardian ad litem;

J. McDonnell, Q.C. and A. Jones for the trustee.

Cases cited:

(1) Gulbenkian”s Settlements, In re, [1970] A.C. 508; [1968] 3 All E.R. 785, dicta of Lord Upjohn applied.

(2) Norfolk”s (Duke of) Settlement Trusts, In re, [1982] Ch. 61; [1981] 3 All E.R. 220, dicta of Fox, L.J. considered.

(3) Orwell”s Will Trusts, In re, [1982] 1 W.L.R. 1337; [1982] 3 All E.R. 177, dicta of Vinelott J. applied.

(4) Prenn v. Simmonds, [1971] 1 W.L.R. 1381; [1971] 3 All E.R. 237.

(5) Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen, [1976] 1 W.L.R. 989; [1976] 3 All E.R. 570, dicta of Lord Wilberforce applied.

Trusts-charging clauses-interpretation-intention of donor-court not restricted to considering circumstances known only to donor-to consider language used, factual background known to both parties at or before agreement, genesis and aims of transaction by applying test of reasonable man

Trusts-charging clauses-interpretation-to be construed strictly and to protect beneficiaries” interests-contra proferentem rule applicable that charging clauses to be construed more strongly against draftsman, e.g. trust company

The beneficiary of a trust applied for a declaration that the fee paying arrangements agreed by the trustee company with the settlor remained in force after the settlor”s death.

The settlor, an accountant, was to his knowledge seriously ill when negotiations on the framing of the trust began and was terminally ill by the date the trust deed and fee agreement were executed. The trust was intended to manage the assets of the settlor after his death in a way that was not possible under the law of his own domicile.

The fee agreement was drafted separately and expressly stated, inter alia, that it would remain in force for three years with annual renewals thereafter taking account of inflation. It also provided that the same basis for agreeing and charging fees would continue during the duration of the trust. This document was signed by the settlor and the trust company”s representative, also an accountant, and was dated the same day as the trust deed. The officers of the company were not aware that the settlor was ill and he died soon after the creation of the trust. The company was then committed to greater responsibilities under the trust and wished to charge for its services on an ordinary scale allowing for considerably higher fees.

The plaintiff, a beneficiary under the trust, sought a declaration that the fee agreement remained in force after the settlor”s death. He accepted that the trustee was to be paid for all the extra work involved in administering the trust but he submitted that (a) its fees should be in accordance with the terms of the fee agreement, as the agreement clearly covered the eventuality of the settlor”s death; and (b) in construing the documents, the court could not apply the test appropriate to a commercial contract since a trustee”s right to remuneration was not based on contract; the proper test was to consider facts and material circumstances known to the settlor alone when he created the trust.

The trust company submitted that (a) there were two phases for the

operation of the trust deed and fee agreement together-Phase 1 commencing when they were executed to continue until the settlor died or revoked or amended the trust, and Phase 2 commencing on the settlor”s death or on revocation or amendment of the trust; and (b) the fee agreement was effective during Phase 1 only.

Held, giving judgment for the plaintiff:

(1) In construing the documents the court must adopt a common sense approach and ascribe some reasonable meaning to the intention of the parties derived from the language used and from the surrounding circumstances which were relevant to the transaction. The relevant evidence was not restricted to circumstances known only to the settlor but consisted of the factual background known to both parties at or before the date of the agreement, including evidence of the genesis and aims of the transaction, (i.e. what reasonable persons would have had in mind in the situation of the parties). Since the trust company”s representative and the settlor were both experienced professionals, it was reasonable to assume that (a) they would each have objectively considered the consequences of the early death of the settlor (even if he had not known he was terminally ill) and made arrangements to take account of this eventuality; and (b) if the trust company had intended the agreement to come to an end on the settlor”s death, an express clause to that effect would have been inserted into the agreement. As it was, there was no provision which could be construed as limiting the agreement to the duration of the settlor”s life; on the contrary, it stated specifically that the basic agreement would run for the duration of the trust and included terms for its review and renewal. Furthermore, it was unlikely that the settlor, fully aware that he was terminally ill, would have taken thetrouble to draw up a separate agreement to cover these arrangements, in the expectation that his family would have to negotiate new arrangements upon his death. Neither the text of the fee agreement or the trust deed, nor the surrounding circumstances, supported this conclusion (page 273, line 33 – page 274, line 31; page 276, lines 15–19;page 278, line 1 – page 279, line 10).

(2) By taking into account the circumstances known to both parties to the agreement, it did not mean that the court regarded the fee agreement as a commercial contract or that it intended to detract from the other rules regarding the construction of trustee charging clauses. On the contrary, the court was observing the legal principle of construing such clauses strictly and, in this respect, would be careful to protect the interests of beneficiaries against claims by trustees. A further rule of construction which operated to the prejudice of the trust company and which was to be applied only in cases of ambiguity where other rules of construction failed was the contra proferentem rule: an instrument should be construed more strongly against the maker thereof. For these reasons the court would hold that the fee agreement remained in force in the terms in which it was drafted and give judgment for the plaintiff (page 279, lines 11–36).

SCHOFIELD, J.: The drafting of the ‘S Trust’ (as I shall call it
15	in an attempt to preserve the anonymity of the settlor and the
beneficiaries) has given rise to a number of difficulties of
construction. I have already made orders on one summons issued
by a beneficiary and a cross-summons issued by the trustee. I am
now asked by the same beneficiary to make further orders
20	restricted to one portion of an originating summons filed on June
24th, 1992, and amended on October 15th, 1992. The defendants
to this summons are the trustee and the infant beneficiaries who
appear through their guardian ad litem.
The trust deed is dated January 18th, 1989, and on the same
25	day the settlor entered into a fee agreement with Cititrust
(Cayman) Ltd. which is named in the trust deed as the original
trustee. The settlor was a 59-year-old man in business in a
substantial way. He had a wife who was over 20 years his junior
and three children. All drafts of the trust deed were prepared by
30	officers of Cititrust, its Swiss affiliate called Confidas or, in the
case of the trust deed, by their Cayman attorneys. They were the
subject of prolonged negotiation between the settlor and a Mr.
Whitehouse of Confidas. Both men were accountants. The settlor
was advised throughout by his London solicitors, but it is
35	uncertain whether he received any advice in respect of the fee
agreement. The settlor was to his knowledge seriously ill when
negotiations on the trust began and was terminally ill by the date
the trust deed and fee agreement were executed. The officers of
Cititrust and Confidas were not aware of his illness. The settlor
40	died on February 28th, 1989. All these facts have been agreed
between the parties for the purposes of this hearing, but the

relevance or admissibility of some of the facts recited is disputed
in relation to the construction of the documents. My views in that
regard will become apparent as I examine the arguments.
The purpose of this hearing is to determine on a true
5	construction of the trust deed and the fee agreement and in the
events which have happened (a) whether the fee agreement
terminated on the settlor”s death or remains in force, and (b)
what remuneration Cititrust is entitled to charge since the
settlor”s death.
10	That part of the trust deed which is relevant to this summons is
para. 1 of Schedule IV to the deed. It reads:
Schedule IV
Remuneration, Indemnity and Protection of trustees
15

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