Re Shiu Pak Nin

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Cresswell, J.)
• Judgment Date: 11 February 2014
• Date: 11 February 2014

IN THE MATTER OF SHIU PAK NIN and HSBC INTERNATIONAL TRUSTEE LIMITED

(Cresswell, J.)

Grand Court, Financial Services Division

Trusts-interpretation-principles-court to ascertain meaning settlor intended document to convey in light of factual matrix at time of execution-factual matrix includes word”s natural and ordinary meaning; overall purpose of and other provisions in document; facts known or assumed by settlor at time of execution; common sense; and judicial definition of legal terms of art-court to ignore subjective evidence of settlor”s intentions, even if included in trustee memorandum executed at same time as trust deed

Trusts-powers and duties of trustees-settlor”s wishes-appropriate for trustee to consider settlor”s wishes when exercising power-may exercise power in accordance with settlor”s wishes even if would not otherwise make same decision-may derive evidence of settlor”s wishes from trustee memorandum if executed at same time as trust deed and clear that settlor understood its contents

Held, making the declarations requested:

(1) The court was entitled to approve the trustee”s decisions without requiring it to surrender its discretion. There were four possible situations in which the court would be called upon to adjudicate on a trustee”s decision: (a) when it was uncertain whether a proposed action was within the trustee”s power; (b) when the proposed usage was a proper exercise of the trustee”s power (i.e. there was no doubt as to the extent of the power or the path proposed) but the trustee wished the court to bless the exercise of its discretion because of the momentous nature of the decision; in this situation, the discretion to act remained with the trustee; (c) when the trustee surrendered its discretion to the court because the trustee could not itself execute it (e.g. because of a genuine conflict of interest); in this instance, the court would exercise its own discretion; and (d) when the trustee had already acted, but its action was claimed to be an improper use of the power. In the present case, there was no real doubt as to the nature of the trustee”s powers, or how it wished to exercise them; the application was clearly for the court”s blessing of a momentous decision and so had to be within category (b). The court would therefore consider whether the disposition was within the scope of the power and whether the proposed transaction was for the benefit of the beneficiaries or the trust estate. In doing so, it would not consider whether it would have chosen to exercise the power, but rather whether the decision made by the trustee was rational and honest (in the sense that the power was exercised in accordance with the purpose for which it had been conferred by the settlor) (paras. 133–138; para. 185; para. 210).

The definition of ‘issue’

(2) The trust deed”s use of the word ‘issue’ was restricted to the settlor”s legitimate issue. The trust deed (as with other unilateral documents, such as a will or a patent) would be interpreted using similar principles to those used to interpret a commercial contract for the purpose of finding the settlor”s intention, which would be determined in light of the factual matrix at the time that the document was executed. The court would therefore identify the meaning of the words used in the context of their natural and ordinary meaning, the overall purpose of the document, any other provisions in the documents, the facts known or assumed by the

settlor at the time that the document was executed and common sense-although the court would ignore any subjective evidence of the settlor”s intentions. The factual matrix must also include the judicial definition of legal terms of art. Although the Status of Children Law 2003 had removed the common law definition of ‘issue,’ this did not have retrospective effect. The definition of ‘issue,’ when the deed was executed in 1998, was therefore that, in the absence of any contrary indication, ‘issue’ did not apply to children born out of wedlock. The relevant context within the trust deed itself did not indicate that the settlor intended to deviate from the common law definition and the court would not find that the trustee memorandum was capable of showing that the settlor must have intended otherwise (para. 187; paras. 200–205).

Whether the named individuals were ‘issue’

(3) The trustee was entitled to take the position that the settlor”s only legitimate issue were those born of L. An individual who claimed to be a member of a class must establish that this was the case. Formal evidence was not required but the individual must have provided evidence to the trustee to allow it to adjudicate upon the claim. Although the evidence of the settlor”s marriage to L was of limited evidential value, this-and the fact that L and the settlor had cohabited for an extended period of time-was sufficient for a reasonable trustee to determine that they had been married. The trustee was therefore entitled to find that L”s children (including Y) were the settlor”s legitimate issue. The other named individuals, however, had failed to show that they were legitimate issue, either because they had not demonstrated that the settlor had been married to or had cohabited with their mothers or because they had not demonstrated that, under the relevant law, such an arrangement was sufficient to legitimize them. Particularly, whilst F and C had produced evidence to show that the settlor had accepted that he was their father, they had failed to show that this qualified as recognition of legitimate paternity under Hong Kong law (paras. 170–175; paras. 212–215).

The power of addition

(4) The trustee was entitled to consider the trustee memorandum when determining how to exercise its powers. The settlor had chosen to create a trust for a particular reason. As his wishes were therefore a relevant factor to be taken into account when the trustee was considering whether to exercise a power, it was not inappropriate for it to make a decision because the settlor wished it to do so, even if the trustee would not have made that same decision itself. The trustee memorandum had been executed at the same time as the trust deed and, although the settlor had been in the early stages of dementia, it was clear that he had understood its contents and that it accurately reflected his wishes. Further, the power of addition allowed the trustee to add any individual as a beneficiary of the trust and was a valid power which did not offend any rule against delegation, or the rule requiring certainty. The trustee could, therefore, properly form the view that its proposed exercise of the power of addition

was within the intended scope or object of that power (paras. 188–189; para. 222).

The power of appointment

(5) There was no justification for waiting to make a distribution. The settlor had clearly intended that the beneficiaries of the trust be his direct children and, as these individuals were now elderly and two had already died, any undue delay would risk this becoming impossible and would make the trustee”s work in distributing the assets more difficult. Further, as carrying out a kin inquiry would be disproportionately expensive and might not produce much more information than was currently available, there could be no benefit to delaying the distribution. Exercising the power of appointment, after having first exercised the power of addition, therefore gave effect to the settlor”s wishes and could not be a fraud on the power (paras. 194–195; para. 236).

Cases cited:

(1) B, In re, 1999 CILR 460, referred to.

(2) Bamgbose v. Daniel, [1955] A.C. 107; [1954] 3 W.L.R. 561; [1954] 3 All E.R. 263, referred to.

(3) Bank of Credit & Comm. Intl. S.A. v. Ali (No. 1), [2002] 1 A.C. 251; [2001] 2 W.L.R. 735; [2001] 1 All E.R. 961; [2001] I.C.R. 337; [2001] UKHL 8, referred to.

(4) Beatty, In re, Hinves v. Brooke, [1990] 1 W.L.R. 1503; [1990] 3 All E.R. 844, applied.

(5) Blausten v. Inland Rev. Commrs., [1971] 1 W.L.R. 1696; [1971] 3 All E.R. 1085, referred to.

(6) Briggs v. Integritas Trust Management Ltd., 1988–89 CILR 456, referred to.

(7) Chartbrook Ltd. v. Persimmon Homes Ltd., [2009] 1 A.C. 1101; [2009] 3 W.L.R. 267; [2009] 4 All E.R. 677; [2010] 1 All E.R. (Comm) 365; [2009] Bus. L.R. 1200; [2010] 1 P. & C.R. 9; [2009] UKHL 38, referred to.

(8) Dorin v. DorinELR(1875), L.R. 7 H.L. 568, referred to.

(9) Ebanks (R.) v. Llewelyn, 2003 CILR N[3], referred to.

(10) Hay”s Settlement Trusts, In re, [1982] 1 W.L.R. 202; [1981] 3 All E.R. 786, referred to.

(11) Hill v. CrookELR(1873), L.R. 6 H.L. 265, referred to.

(12) Investors” Compensation Scheme Ltd. v. West Bromwich Bldg. Socy., [1998] 1 W.L.R. 896; [1998] 1 All E.R. 98; [1998] 1 BCLC 531; [1997] CLC 1243, followed.

(13) Lemos v. Coutts & Co. (Cayman) Ltd., 2003 CILR 381; further proceedings, 2004–05 CILR 77, considered.

(14) Mahadervan v. Mahadervan, [1964] P. 233; [1963] 2 W.L.R. 271; [1962] 3 All E.R. 1108, applied.

(15) Manisty”s Settlement, In re, Manisty v. Manisty, [1974] Ch. 17; [1973] 2 All E.R. 1203, referred to.

(16) Marley v. Rawlings, [2014] 2 W.L.R. 213; [2014] 1 All E.R. 807; [2014] 2 FLR 555; [2014] W.T.L.R. 299; [2014] UKSC 2, applied.

(17) Pearce, In re, [1914] 1 Ch. 254; [1911–13] All E.R. Rep. 1067, referred to.

(18) Public Trustee v. Cooper, [2001] 1 W.T.L.R. 901, applied.

(19) RHB Trust Co. Ltd. v. Butlin, 1992–93 CILR 219, considered.

(20) Schmidt v. Rosewood Trust Ltd., 2001–03 MLR 511; [2003] 2 A.C. 709; [2003] 2 W.L.R. 1442; [2003] 3 All E.R. 76; [2003] Pens. L.R. 145; [2003] W.T.L.R. 565; [2003] UKPC 26, followed.

(21) Schuler (L.) A.G. v. Wickman Machine Tool Sales Ltd., [1974] A.C. 235; [1973] 2 W.L.R. 683; [1973] 2 All E.R. 39; [1973] 2 Lloyd”s Rep. 53, referred to.

(22) Sunport Shipping Ltd. v. Tryg-Baltica Intl. (UK) Ltd., [2003] 1 All E.R. (Comm) 586; [2003] 1 Lloyd”s Rep. 138; [2003] 1 CLC 772...