Re the Y Trust NO. 1

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: (Smellie, C.J.)
• Judgment Date: 19 January 2016
• Date: 19 January 2016

IN THE MATTER OF THE Y TRUST NO. 1

(Smellie, C.J.)

Grand Court, Financial Services Division

Trusts—powers and duties of trustees—right to retire—if deed of settlement states that trustee may retire by giving notice to co-trustees, right to retire as opposed to power of retirement granted—right to retire imposes no fiduciary duty—consent of trust protector unnecessary—power of retirement to be exercised in best interests of beneficiaries

Trusts—powers and duties of trustees—right to retire—trustees granted statutory power to retire by Trusts Law (2011 Revision), s.8(1) with consent of co-trustees and any person entitled to appoint trustees—statutory power may be expressly or impliedly excluded by terms of trust—no implied exclusion if terms of trust give power to trustees to retire without consent

Trusts—rectification—discretion of court—court to consider delay and laches when determining whether to grant order for rectification—mere delay not sufficient to bar claim—necessary to demonstrate that rectification inequitable, e.g. due to conduct amounting to waiver—waiver only established if shown that plaintiff fully aware that right to rectify will be abandoned

Trusts—rectification—incorrect drafting of trust instrument—if rectification of deed of settlement sought in order to validate subsequent deed of retirement, court to be satisfied settlor”s intentions not expressed in deed of settlement as result of mistake, and that rectification will give effect to those intentions—deed of settlement not to be rectified even if contrary to settlor”s intentions if deed of retirement in any event invalid, as rectification not effective remedy

Held, granting the order validating the deed of retirement:

(1) The deed of settlement would not be rectified to state that Fern was the trust protector. For a document to be rectified, the court was to be satisfied that there had been a mistake as a result of which the document did not give effect to its maker”s intentions, and it was necessary to establish that rectification would give effect to those intentions. Though the deed of settlement was contrary to the intentions of the settlor and the

original beneficiaries on the basis that they had intended Fern to be appointed as protector (as indicated by the simultaneous execution in December 1982 of the deed of settlement and the deed appointing Fern as protector), the deed of settlement would not be rectified as rectification would not be an effective remedy. Fern”s consent had not been given to the 1984 deed of retirement; without its consent, rectification of the deed of settlement would be futile as it would not render the deed of retirement valid. The court would not apply the presumption of due execution and assume that the deed of retirement satisfied the relevant formalities as the failure to obtain Fern”s consent to the retirement of trustees in 1990 and 1991 indicated that no such consent was sought in 1984, particularly as its consent was sought in order to appoint trustees. In addition, the outcome sought by the plaintiffs had in any event been achieved as the deed of retirement had been declared valid on the basis that the protector”s consent was not necessary (paras. 53–55; paras. 57–59; paras. 74–75; paras. 79–80; paras. 86–87; paras. 99–103).

(2) The claim for rectification was not, however, precluded by laches or delay. As rectification was a discretionary remedy, the court had to consider delay when determining whether to grant the remedy. Mere delay was not sufficient to bar a claim as it was necessary to demonstrate that rectification would be inequitable, for example due to conduct on the part of the plaintiffs amounting to waiver; waiver would, however, only be established if it were demonstrated that the plaintiffs had been fully aware that they were abandoning their rights, and, as rectification was sought in the interests of all present and future beneficiaries of the trust, it could not be said that they had intended to discard the rights of all beneficiaries of the trust to seek rectification (paras. 61–68; para. 71).

(3) The 1984 deed of retirement was valid as the deed of settlement conferred a unilateral right (as opposed to a fiduciary power) on the trustees to retire on notice being given to their co-trustees, and it had not therefore been necessary for Fern to consent to their retirement. A right to retire imposed no fiduciary duty on trustees, and therefore the consent of a trust protector was not required in order to exercise it; a power of retirement, on the other hand, was to be exercised in the best interests of the beneficiaries of the trust (paras. 106–109; paras. 111–112; paras. 114–115).

(4) The 1984 deed of retirement also satisfied s.8 of the Trusts Law (1976 Revision) (the equivalent of s.8(1) of the present 2011 Revision), which enabled trustees to retire with the consent of co-trustees and any other person empowered to appoint trustees; the deed of retirement was therefore valid without the need for Fern”s consent, as the terms of the trust did not exclude the statutory power of retirement or subject the exercise of the statutory power to the consent of the trust protector. The statutory power of retirement was not excluded by the deed of settlement by virtue of s.110(2) of the Trusts Law (2011 Revision) (previously s.83(2) of the 1976 Revision), as the terms of the deed indicated that the

trustees had all powers conferred by the deed itself or statute, and did not appear to expressly or impliedly exclude the statutory power to retire. Further, the deed of settlement and the statutory power to retire were not inconsistent as the deed stipulated that the trustees might retire without the consent of the trustees while s.8 stipulated that such consent was necessary; while both powers were therefore mutually exclusive, this was no indication that the deed was impliedly inconsistent with the statute (paras. 116–122; paras. 129–132; paras. 137–138).

(5) As the deed of retirement was valid on the basis either that it constituted an exercise of the statutory power to retire or that the trust protector”s consent was not required, it was not necessary to consider whether consent had been given to the deed by Y Trust Inc. (the trust”s settlor) acting as protector. Nevertheless, Fern had clearly been intended to act as the trust”s protector, and therefore the court would not impute consent to the trustees” retirement to Y Trust Inc. Further, it appeared that Y Trust Inc. had approved the deed in its capacity as settlor, and its consent could not be equated with the consent given by a trust protector acting in a fiduciary capacity (para. 139; paras. 141–144).

(6) The court would approve the retirement of the plaintiff trustees and the appointment of the private trust companies in their place. The appointment of two private trust companies to represent Fiona and Frederick, though unusual, would ensure that their diverse interests were duly considered and would also allow proper management of the trust”s high-risk assets. Further, individuals would be more prepared to act as directors of the private trust companies rather than as individual trustees since the latter were more likely to be found personally liable for mismanagement of the trust”s affairs. In addition, the proposed private trust companies provided an appropriate means of allowing greater control of the trust by Fiona and Frederick (paras. 150–153; paras. 156–158; para. 160).

Cases cited:

(1) AB Jnr. v. MB, 2013 (1) CILR 1, referred to.

(2) B v. Trust Management, Grand Ct., March 10th, 1988, unreported (noted at 1988–1989 CILR N–22), considered.

(3) Beale v. Kyte, [1907] 1 Ch. 564, referred to.

(4) Cecil v. LangdonELR(1884), 28 Ch. D. 1, applied.

(5) Circle Trust, In re, 2006 CILR 323, referred to.

(6) Davis v. Richards & Wallington Indus. Ltd., [1990] 1 W.L.R. 1511; [1991] 2 All E.R. 563; [1990] Pens. L.R. 141, considered.

(7) Epona Trustees Ltd., Re, [2009] W.T.L.R. 87, referred to.

(8) Gibson v. DoegENR(1857), 2 Hurl. & N. 615; 153 E.R. 253, followed.

(9) Golden Trust, In re, 2012 (2) CILR 355, followed.

(10) Harris v. KnightELR(1890), 15 P.D. 170, followed.

(11) IFM Corporate Trustees v. Helliwell, [2015]JRC160, Jersey Royal Ct., July 31st, 2015, unreported, referred to.

(12) Inland Rev. Commrs. v. Bernstein, [1961] Ch. 399; [1961] 2 W.L.R. 143; [1961] 1 All E.R. 320, applied.

(13) Lindsay Petroleum Co. v. HurdELR(1874) L.R. 5 P.C. 221, considered.

(14) Megerisi v. Scotiabank Trust (Cayman) Ltd., 2004–05 CILR 456, referred to.

(15) Nwakobi v. Nzekwu, [1964] 1 W.L.R. 1019, followed.

(16) Weld v. Petre, [1929] 1 Ch. 33, followed.

(17) Wilkinson v. ParryENR(1828), 4 Russ. 272; 38 E.R. 808, referred to.

Legislation construed:

Trusts Law (2011 Revision), s.8(1): The relevant terms of this sub-section are set out at para. 116.

s.110(2): The relevant terms of this sub-section are set out at para. 121.

The plaintiff trustees sought orders rectifying a deed of settlement and validating a deed of retirement.

The trust was established by a deed of settlement in December 1982; a deed of exclusion was subsequently executed stipulating that the trust was for the benefit of ‘Matthew’ and his descendants. The deed of settlement stated that the settlor, ‘Y Trust Inc.’ (which was controlled by Matthew”s mother, ‘FDS’), was to be the trust”s protector; a deed of appointment

executed on the same day, however, appointed ‘Fern’ (a company controlled by Matthew) as protector. In 1984, a deed of retirement was executed by which two trustees purported to retire.

In 2012, Matthew”s children, ‘Fiona’ and ‘Frederick,’ the beneficiaries of the trust after his death, indicated that they wished to appoint two private trust companies as trustees in place of the plaintiffs. It was subsequently discovered by Fiona”s attorneys that the appointment of Fern as protector was invalid...