Re Ta-Ming Wang Trust

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 12 April 2010
• Court: Grand Court (Cayman Islands)
• Date: 12 April 2010

Grand Court, Financial Services Division

(Smellie, C.J.)

IN THE MATTER OF THE TA-MING WANG TRUST

TA-MING WANG and KUO-YING SHANG

and

CIBC BANK AND TRUST COMPANY (CAYMAN) LIMITED and T.M. WANG LIMITED

C. Russell and Ms. R. Reynolds for the plaintiffs;

K.J. Farrow, Q.C. for the defendants.

Cases cited:

(1) A v. Rothschild Trust Cayman Ltd., 2004–05 CILR 485, applied.

(2) Barclays Pte. Bank & Trust (Cayman) Ltd. v. Chamberlain, Grand Ct., Cause No. 475 of 2004, unreported, referred to.

(3) Hastings-Bass, In re, Hastings v. Inland Rev. Commrs., [1975] Ch. 25; [1974] 2 W.L.R. 904; [1974] 2 All E.R. 193, applied.

(4) Hunter v. Senate Support Servs. Ltd., [2005] 1 BCLC 175; [2004] EWHC 1085 (Ch), applied.

(5) Pitt v. Holt, [2010] 1 W.L.R. 1199; [2010] 2 All E.R. 774; [2010] W.T.L.R. 269; (2010), 12 I.T.E.L.R. 807; [2010] EWHC 45 (Ch), applied.

(6) Sieff v. Fox, [2005] 1 W.L.R. 3811; [2005] 3 All E.R. 693; [2005] EWHC 1312 (Ch), dicta of Lloyd, L.J. applied.

Legislation construed:

Trusts Law (2009 Revision), s.48: The relevant terms of this section are set out at para. 15.

Companies-directors-exercise of discretion-directors” decisions subject to Hastings-Bass principle since owe fiduciary duties to company-court may declare decision void if clearly had different effect than intended because of reliance on incorrect advice-no setting aside if no evidence as to factors taken into account by directors-Hastings-Bass principle requires decision to be attributable to fiduciary alone, e.g. not to include decisions of mere nominee directors

The plaintiffs sought to set aside the declaration of a dividend and the receipt of the dividend into a trust.

The first plaintiff was a beneficiary under a trust set up to minimize his tax liability upon immigration to Canada by taking advantage of a five-year ‘tax holiday,’ whereby any dividend paid to the trust within that period would not attract Canadian tax. The trust was established between the second plaintiff (as settlor) and the first defendant, CIBC, who, as the original trustee, owned all the common shares in the second defendant company. CIBC erroneously believed that the tax holiday would end on May 6th, 2001-in fact, it had come to an end on March 15th, 2001. On April 25th, 2001, it procured the declaration of a dividend by the company, which it received into the assets of the trust. Since the tax holiday had ended by this time, the entirety of the dividend was subject to Canadian tax. Had CIBC realized that the tax holiday had ended, it would have procured a payment by way of a distribution in the company”s winding up, with the result that a much smaller sum would have been subject to Canadian tax.

The plaintiff sought to set aside the company”s declaration of the dividend and CIBC”s decision to procure the dividend and receive it into the trust”s assets. It submitted that (a) CIBC”s decision should be set aside under the Hastings-Bass principle since it was based on an erroneous view of the fiscal consequences; (b) since the company”s declaration of the dividend was procured by CIBC, and the directors of the company were

officers of CIBC”s subsidiaries and effectively CIBC”s nominees, the declaration should be viewed as part of the same transaction and thus also set aside; and (c) if the company”s declaration were viewed as distinct from CIBC”s actions, it should nonetheless be declared void for the same reasons.

The court considered whether the Hastings-Bass principle applied to the actions of the company”s directors.

Held, giving judgment in part for the plaintiffs:

(1) CIBC”s decision to procure the declaration of the dividend and to receive it into the assets of the trust of which it was trustee would be declared void ab initio. The Hastings-Bass principle, which guided the court”s exercise of its statutory powers under the Trusts Law (2009 Revision), s.48, allowed the court to interfere with trustees” exercise of discretion if it were clear that the effect of the exercise was different from that intended because of a failure to take into account relevant considerations, or a taking into account of irrelevant ones. In making its decision, CIBC took into account incorrect advice as to the expiry date of the Canadian tax holiday, with the consequence that a considerably larger amount of money was assessed for Canadian tax than would otherwise have been. Since CIBC made an erroneous decision with detrimental consequences for its trust, that decision was liable to be set aside (paras. 15–17).

(2) However, the declaration and payment of the dividend by the second defendant company would not be viewed as part of the same transaction as CIBC”s decision. Although the directors of the second defendant were effectively CIBC”s nominees, there was a legal obligation on company directors to act independently on behalf of their company. Moreover, the decisions of directors who were mere nominees could not be set aside under the Hastings-Bass principle, which required that the decision in question be attributable to the fiduciary decision-maker and to no-one else (para. 23).

(3) Further, the declaration of the dividend by the company”s directors would not be set aside. The Hastings-Bass principle could in theory apply to the decisions of company directors, on the basis that the fiduciary duties owed by directors were akin to those owed by trustees to their beneficiaries, and the principle could apply to any exercise of a fiduciary power by a person in a fiduciary position. However, there was no evidence of what factors the directors took into consideration, and no basis on which the court could assume that the directors had the interests of the trust or its beneficiaries in mind when making their decision. Rather, the only reasonable inference that could be drawn was that they were simply acting in the interest of the company itself, on the instructions of the first defendant, which owned all of the common shares. There was therefore no basis on which the court could apply the Hastings-Bass principle to the decision of the directors (paras. 19–24).

1 SMELLIE, C.J.: The first plaintiff, Ta-Ming Wang (‘TMW’), and members of his family were the beneficiaries under a trust known as the Ta-Ming Wang Trust (‘the trust’), which was established by a settlement dated May 2nd, 1996 made between his mother as settlor and the first defendant (‘CIBC’) as the original trustee. The second plaintiff is TMW”s wife, Kuo-Ying Shiang (‘KYS’), and is the present trustee of the trust. The second defendant (‘the company’) was struck off the Register of Companies as part of the trust migration process described below, but has now been restored to the register for the purposes of this application.

2 The plaintiffs are seeking to set aside the declaration of a dividend made by the company and procured by CIBC, which owned all the common shares in the company as trustee of the trust. The ground on which the plaintiffs seek this relief is that CIBC, in deciding to procure payment of the dividend and to accept payment of it, and/or the directors of the company at the instance of CIBC, in...