Re Shiu Pak Nin

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

Grand Court, Financial Services Division

(Cresswell, J.)

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

C.D. McKie, Q.C. and Ms. L. Kuehl for the trustee;

K. Farrow, Q.C. as amicus curiae.

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, referred to.

(23) Sydall v. Castings Ltd., [1967] 1 Q.B. 302; [1966] 3 W.L.R. 1126; [1966] 3 All E.R. 770, referred to.

(24) Taylor, In re, [1961] 1 W.L.R. 9; [1961] 1 All E.R. 55, applied.

(25) Watson-Morgan v. Grant, 1990–91 CILR 81, referred to.

Legislation construed:

Status of Children Law 2003, s.3(3): The relevant terms of this sub-section are set out at para. 101.

s.6: The relevant terms of this section are set out at para. 172.

s.7: The relevant terms of this section are set out at para. 172.

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

A trustee applied to the court for certain declarations and directions regarding a proposed exercise of its powers.

The settlor, a Hong Kong resident, was alleged to be the father of 14 children by 6 different women who had been born in either Hong Kong or China. The settlor was purportedly married to at least one of these women (L) in both Hong Kong and China, with whom he had lived in Hong Kong. The birth certificate of one of the children born to L (Y) did not list the settlor as the father, but it did give a father with the same surname and a name which Y alleged was the settlor”s alias. The settlor was also alleged to have cohabited with at least one of the other women and to have altered the birth certificates of two children (F and C) born to a third woman to ensure that they correctly identified him as their father. The only evidence of any marriage, however, was a marriage certificate from Hong Kong which stated that the settlor was married to L and that they had gone through a ‘form of marriage’ in China-although all of the settlor”s children with L had been born before the date of the Hong Kong wedding and the legal status of the Chinese marriage was uncertain.

On March 10th, 1998, in Hong Kong, the settlor executed a trust deed which created a discretionary trust for the benefit of himself; his ‘issue’;

and, should any of his issue have died, their issue. This trust was governed by Cayman law and included a power of appointment and a power of addition, which allowed the trustee to add, inter alia, any individual as a beneficiary to the trust, provided that he or she was not a member of the excluded class. The settlor also executed a number of other documents on the same day, including a trustee memorandum. This stated that the settlor wished the trust fund to be distributed to his children, or, if deceased, their children; contained a list of his 11 surviving children and, in place of one child who had predeceased him, 2 of his grandchildren (‘the named individuals’). It also included the shares which he wished them to receive and stated that if any of the named individuals died before the fund was distributed, their share should be distributed per stirpes to any of that person”s issue. The settlor further executed a fixed trust for the benefit of the named individuals. The discretionary trust deed was subject to a challenge in the Hong Kong courts on the grounds that, inter alia, the trustee had been under undue influence or that his dementia had meant that he had not had the mental capacity to understand the deed at the time of the execution. The challenge was dismissed on procedural grounds-with the result that none of the parties could allege that the trust was invalid (although this did not extend to the trustee memorandum). The settlor was subsequently subjected to a number of psychological tests which determined that he was still capable of making simple decisions, that he loved his children equally and that (although he wished to alter the terms of the trust in case he predeceased his wife) he wished his children to receive his assets after his death.

After the settlor”s death, the trustee wished to distribute the funds according to the trustee memorandum. It was uncertain, however, which of the named individuals were legitimate children and, further, whether the settlor”s illegitimate children qualified as his ‘issue.’ It therefore proposed to exercise the power of addition to add the named individuals (and their children) as beneficiaries to the trust and then to distribute the funds in the shares indicated in the memorandum. The trustee applied to the court for its sanction of this decision and, as no beneficiaries or potential beneficiaries were represented by Cayman attorneys, the court requested that an amicus curiae be appointed.

The definition of ‘issue’

The trustee submitted that the trust deed should be interpreted in the same way as other legal instruments, i.e. that it had the meaning which it would convey to a reasonable person with all of the background knowledge (excluding any evidence of the settlor”s subjective intention) reasonably available to the settlor at the time it was executed. The word ‘issue’ should therefore be interpreted in light of the entire document and the factual matrix behind it. The trustee further submitted that (a) the trustee memorandum, being analogous to a letter of wishes, was evidence of the trustee”s subjective intention rather than an objective piece of evidence and, as there was no allegation of fraud and rectification was not sought, it could not therefore form part of the factual matrix; (b) the fixed trust deed

was part of the factual matrix, but did not show whether ‘issue’ in the discretionary trust included all of the named individuals, or whether the illegitimate children were only intended to benefit under the fixed trust; and (c) the factual matrix included the judicial meaning of ‘issue’ at the time the deed had been executed, even if the settlor had not had knowledge of it. Although modern legislation stated that ‘issue’ included illegitimate children, the common law definition (which restricted ‘issue’ to children born in wedlock or subsequently legitimized) had applied when the trust had been executed. As there was nothing in the factual matrix or the trust deed itself which rebutted the judicial meaning, and the consequence of applying it was not inherently absurd or unreasonable, it was legitimate to interpret the word ‘issue’ as only including legitimate issue. The trustee recognized, however, that there was nothing to indicate that the settlor had not intended the plain ordinary meaning of ‘issue’ (i.e. with no requirement of legitimacy) to apply.

The amicus curiae submitted that expressions describing familial relationships (including ‘issue’ and ‘child’) were legal terms of art and that there was a prima facie rule at common law that they...