Schroder Cayman Bank and Trust Company Ltd Plaintiff v Schroder Trust Ag Defendant
| Jurisdiction | Cayman Islands |
| Judge | The Hon. Anthony Smellie |
| Judgment Date | 09 March 2015 |
| Judgment citation (vLex) | [2015] CIGC J0903-1 |
| Docket Number | FSD NO, 122 OF 2014 ASCJ |
| Court | Grand Court (Cayman Islands) |
| Date | 09 March 2015 |
The Hon. Anthony Smellie, CHIEF JUSTICE
IN CHAMBERS
Fifteen years ago, on 28th January 2000, Boyer Allan Investment Management Limited1 (‘Boyer Allan’), a United Kingdom company, established, irrevocably, the Boyer Allan Investment Management Ltd. Employee Benefit Trust in this jurisdiction (the ‘Cayman Trust’).
The Plaintiff and the Defendant (an affiliate of the Plaintiffs based in Switzerland) were appointed as the original trustees (‘the Trustees’ or ‘the Plaintiff” or ‘theDefendant’, as the context might require). The Cayman Trust was established for the benefit of a class of beneficiaries defined in clause 2.1 of the trust deed as ‘the Employees and the wives, husbands, widows, widowers and children or step-children and remoter issue, of the Employees Boyer Allan made an initial contribution to the Cayman Trust in the sum of £23,196,191 and subsequent much smaller cash contributions. These funds were loaned to an underlying trust investment company, B.A. Offshore Company Ltd., (a Cayman Islands Company) for investment purposes, the shares in which were held by the Cayman Trust.
Clause 2,4 of the Cayman Trust deed defined ‘Employee’ as ‘any person who is or has at any time after the making of [the Cayman Trust] been a bona fide employee (whether full-time or part-time) of [Boyer Allan]’.
Clause 4 conferred the following specific powers on the Trustees:
‘4.1 Power of appointment
The Trustees may appoint that they hold the whole or any part or parts of the Trust Fund for the benefit of any of the Beneficiaries on such terms as the Trustees think fit.
4.2.1. The Trustees may by deed declare that they hold any Trust Property on trust to transfer it to trustees of a Qualifying Settlement; to hold on the terms of that settlement, freed and released from the terms of this Settlement’.
Clause 4.2.1. contained an important limitation on the Trustees' power to transfer trust property to a new settlement described as a ‘Qualifying Settlement’.
Clause 4.2.2. defined a ‘Qualifying Settlement’ as ‘any settlement, wherever established, under which every Person who may benefit is (or would if living be) a Beneficiaty of this Settlement’,
Thus, as appears from this wording, the Trustees can only exercise the Clause 4.2 power to transfer trust property to the trustee of a new settlement if the beneficial class of the new settlement consists entirely of those who are beneficiaries under the Cayman Trust.
Fundamental concerns have arisen about the purported exercise of this power and pursuant to section 48 of the Trusts Law (2011 Revision)2, the Plaintiff makes this application for the following relief from this Court:
-
(a) a declaration that three appointments out of the Cayman Trust, each dated 5th April 2011 (‘the Appointments’) executed by the Plaintiff and Defendant as the Trustees of the Cayman Trust are void and of no effect; alternatively
-
(b) an order setting aside the Appointments (and each of them) on the grounds of mistake;
-
(c) such further relief or other relief as the court shall consider appropriate; and
-
(d) an order making provisions for the costs of this application.
In the exercise of any of their dispositive powers, the Trustees are bound to have regard primarily to what is described in the trust deed at Clause 6 as ‘the contribution made or likely to be made by such Employee to the prosperity of the Company’ and in so doing, the Trustees are entitled to ‘consult with, and to rely upon the representations made by the Board (of Boyer Allan) as to any Employee's contribution.’
In considering whether or not to exercise these powers of appointment3, the Plaintiff sought advice from the English firm of solicitors, Thomas Eggar, concerning the taxation of employee benefit trusts and pursuant to this advice, appointments out of the Cayman Trust were made.
The background is explained by Mr. Gordon Findlay Matthew, Chairman of the Plaintiff and Chief Executive Officer of the Defendant.
Mr. Matthew explains that in or about late 2010 or early 2011, it came to his attention that a draft Finance Bill 2011 had been published by which Her Majesty's Revenue and Customs (‘HMRC’) in England, were planning new rules in relation to the taxation of employee benefit trusts (‘EBT’), like the Cayman Trust. It was proposed that these rules would come into lull effect from 5th April 2011.
He therefore approached a Mr. Quarmby at Thomas Eggar for his advice on what this might mean for the EBTs of which the Plaintiff and Defendant were trustees; one of which was the Cayman Trust.
By an email dated 11 February 2011, Mr. Quarmby advised Mr. Matthew that given that the changes were to come into effect in less than two (2) months' time, steps needed to be taken immediately to mitigate the effects of the proposed changes.
He advised that from 5 April 2011, all distributions from an EBT to employee beneficiaries, regardless of the residence or domicile of the employee, would be taxed in full as an employment tax charge and would be subject to National Insurance Contributions.
Mr. Quarmby advised that there were two ways in which distributions could be made in a tax efficient manner from an EBT prior to 5th April 2011, the second of which was by way of transfer out of an EBT to an employee financed retirement benefit scheme (an ‘EFRBS’).
After considering this advice, Mr. Matthew sent Mr. Quarmby a copy of the Cayman Trust deed and asked for his advice especially in relation to it. Mr. Quarmby replied by email on 16th February 2011 expanding on the suggestion of a transfer of assets; from the Cayman Trust to an EFRBS. Mr. Quarmby had himself sought advice from specialist tax counsel Mr. Barrie Akin of Gray's Inn Tax Chambers about the Cayman Trust and a note of advice from Mr. Akin dated 28 March 2011, confirmed that ‘the Trustee has power to transfer EBT funds to a suitable EFRBS. Clause 4 of the EBT deed contains the relevant power’.
Mr. Akin agreed with the Thomas Eggar analysis that a transfer or appointment from the Cayman Trust to an EFRBS would achieve the required result and repeated the advice earlier given, that no documents be executed until after the final form of legislation was released on 31 March 2011.
Boyer Allan itself had been earlier assessed by HMRC as liable to a charge to tax arising from its original contribution of capital to the Cayman Trust4.
As to Boyer Allan and that charge to tax, Counsel advised that an indemnity could be given from the Cayman Trust to Boyer Allan in respect of any payment eventually found due by Boyer Allan to HMRC in relation to the initial contribution.
Once the legislation was published in its final form on 31 March 2011, Thomas Eggar provided the Trustees with a full report of their advice dated 3 April 2011. The advice outlined the various options available to the Trustees and confirmed the initial advice that a transfer from the Cayman Trust to an EFRBS would mitigate the effects of the new legislation. Thomas Eggar also confirmed that‘the Trustees of the Boyer Allan EBT do have power to transfer to an EFRBS
Thomas Eggar highlighted, at paragraphs 38 to 43 of their advice, what they regarded as the principal risks in the transfer into an EFRBS, among them being the risk that HMRC would regard the EFRBS as a ‘family trust’ rather than a retirement benefit scheme. The main disadvantage in this approach by HMRC would be that the EFRBS would be subject to U.K. Inheritance Tax (‘IHT’). However, advised by Thomas Eggar, this risk would be mitigated by the Cayman Trust continuing to exist in tandem with each EFRBS.
At paragraph 44, Thomas Eggar emphasized that‘it is essential that a physical transfer of the assets as well as execution of the relevant documents occurs on or before 5 April 201IT They also reiterated the risk that there might be further changes to the legislation before Royal Assent in July/August 2011 and which could result in the transfer of assets not achieving the expected benefits. However, in the end, no such changes were in fact made.
The beneficiaries of the Cayman Trust were each informed of the Thomas Eggar advice and encouraged to seek their own advice, which they did.
Some beneficiary employees — Messrs. Richard Whittall, Guy Commaille, Alexander Griffin and Roger Dunby-Jones — elected to have their prospective entitlements paid to them in cash either before 5th April 2011 or over the three years following.
However, other employees — Messrs. Jonathan Boyer, Nicholas Allan and Andrew Tay — elected to have their prospective shares appointed out to single member EFRBS. In keeping with the advice received by the Trustees from Thomas Eggar, the appointments were made of shares in the underlying company, B.A. Offshore Ltd., rather than in cash. The Cayman Trust continued to hold cash5 and was to remain in existence for as long as the EFRBSs were in place.
On the basis of the Thomas Eggar advice, the documents were prepared and executed on 5 April 2011, effecting the transfer of assets from the Cayman Trust to the three separate EFRBSs. Copies of the revocable deeds of appointment and indemnity and the Trustees' resolutions as drafted by Thomas Eggar and signed and executed by the parties in relation to the transfers to each single member EFRBS, are exhibited to Mr. Matthew's first affidavit, as are copies of the declarations of trust dated 5 April 2011 in relation to each EFRBS, each of which is declared to be governed by the laws of Jersey, with the Plaintiff and Defendant as co-tiustees.
The exercise of the powers of transfer and...
To continue reading
Request your trial