Schroder Cayman Bank and Trust Company Ltd v Schroder Trust AG

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 09 March 2015
• Date: 09 March 2015
• Court: Grand Court (Cayman Islands)

Grand Court, Financial Services Division

(Smellie, C.J.)

SCHRODER CAYMAN BANK AND TRUST COMPANY LIMITED

and

SCHRODER TRUST A.G.

R. Wilson for the plaintiff;

C. Pimentel, R. Lindley and Mrs. S. Tibetts for the defendant.

Cases cited:

(1) Alexander v. AlexanderENR(1755), 2 Ves. Sen. 640; 28 E.R. 408, referred to.

(2) Clore”s Settlement Trusts, In re, [1966] 1 W.L.R. 955; [1966] 2 All E.R. 272, distinguished.

(3) Cohen, In re, [1911] 1 Ch. 37, applied.

(4) Golden Trust, In re, 2012 (2) CILR 355, referred to.

(5) Halstead”s Will Trusts, Re, [1937] 2 All E.R. 570, distinguished.

(6) Harvey v. StraceyENR(1852), 1 Drew. 73; 61 E.R. 379, applied.

(7) Hastings-Bass (Decd.), In re, [1975] Ch. 25; [1974] 2 W.L.R. 904; [1974] 2 All E.R. 193, referred to.

(8) Hepworth, In re, [1936] Ch. 750; [1936] 2 All E.R. 1159, applied.

(9) Kerr”s Trusts, In reELR(1877), 4 Ch. D. 600, referred to.

(10) Kwok Chi Leung Karl v. Estate Duty Commr., [1988] 1 W.L.R 1035, applied.

(11) Pilkington, In re, [1964] A.C. 612; [1962] 3 W.L.R. 1051; [1962] 3 All E.R. 622, distinguished.

(12) Pitt v. Holt, [2013] 2 A.C. 108; [2013] 2 W.L.R. 1200; [2013] 3 All E.R. 429; [2013] UKSC 26, applied.

(13) Sieff v. Fox, [2005] 1 W.L.R. 3811; [2005] 3 All E.R. 693; [2005] EWHC 1312 (Ch), referred to.

(14) Walker v. Geo. H. Medlicolt & Son, [1999] 1 W.L.R. 727; [1999] 1 All E.R. 685; [1999] 1 FLR 1095; [1999] P.N.L.R. 531, referred to.

Legislation construed:

Trusts Law (2011 Revision), s.48:

‘Any trustee or personal representative shall be at liberty, without the institution of suit, to apply to the Court for an opinion, advice or direction on any question respecting the management or administration of the trust money or the assets of any testator or intestate, such application to be served upon, or the hearing thereof to be attended by, all persons interested in such application, or such of them as the Court shall think expedient; and the trustee or personal representative acting upon the opinion, advice or direction given by the Court shall be deemed, so far as regards his own responsibility, to have discharged his duty as such trustee or personal representative in the subject matter of the said application. Provided, that this should not indemnify any trustee or personal representation in respect of any act done in accordance with such opinion, advice or discretion as aforesaid, if such trustee or personal representation should have been guilty of any fraud, wilful concealment or misrepresentation in obtaining such opinion, advice or direction, and the costs of such application as aforesaid should be in the discretion of the Court.’

s.89(2): ‘A term of the trust expressly selecting the laws of the Islands to govern the trust is valid, effective and conclusive regardless of any other circumstances.’

s.90: ‘All questions arising in regard to a trust which is for the time being governed by the laws of the Islands or in regard to any disposition of property upon the trusts thereof . . . are to be determined according to the laws of the Islands . . .’

Trusts (Jersey) Law 1984 (2014 Revision), art. 9: The relevant terms of this paragraph are set out at para. 41.

Trusts-powers and duties of trustees-power of appointment-appointment made to class of beneficiaries wider than stipulated by trust deed void if deed explicitly requires appointments to be made solely for the benefit of stipulated class-if no express requirement then appointments may incidentally benefit non-objects of the trust

Trusts-powers and duties of trustees-power of appointment-appointment by trustee may be set aside for mistake if results from incorrect legal advice (e.g. that appointment not subject to taxation)-court to determine whether mistake caused by incorrect advice (i.e. not mere inadvertence) and resulted in such serious loss that would be unconscionable to allow appointment to stand

The plaintiff sought an order setting aside three appointments made according to a trust deed.

The company established an employee benefit trust (‘the Cayman trust’), appointing the plaintiff and the defendant as trustees. The trust was established for the benefit of employees of the company and their spouses, children and ‘remoter issue.’ The trustees were empowered to transfer trust property to ‘qualifying settlements,’ which were defined as settlements solely for the benefit of the stipulated beneficiaries (i.e. the employees and their spouses and descendants).

In response to a change in UK legislation which would subject distributions from the fund to taxation, the trustees sought legal advice. Their advisers recommended making transfers to an employee-financed retirement benefit scheme (an ‘EFRBS’), suggesting that this would limit their exposure to taxation and be within the powers of the trustees under the trust deed. The trustees duly made transfers to three EFRBSs, each of which was declared to be governed by Jersey law and was made for the benefit of a company employee, his spouse and children, and any other person dependent on the employee. Subsequently, HMRC determined that the transfers were subject to UK inheritance tax, having clarified its position the day before the transfers were made.

Upon realizing that they had been given erroneous advice, the trustees sought an order to set aside the appointments. They submitted that the

EFRBS appointments were (a) governed by Cayman law (and not the law of Jersey) as the transfers were made by a trustee resident in the Islands exercising powers governed by Cayman law; (b) an ‘excessive execution’ of their power of appointment under the Cayman trust as that power was only to be exercised for the benefit of the stipulated beneficiaries, which did not include the wider class of ‘dependants’ included in the EFRBSs; and (c) voidable and liable to be set aside as the result of mistakes made regarding the extent of the class of beneficiaries and the tax consequences of the transfers.

Held, ordering the appointments to be set aside:

(1) The EFRBS appointments were excessive executions of the power of appointment contained in the Cayman trust deed and as such were void. The Cayman trust expressly required that appointments be made only to ‘qualifying settlements’ which were solely for the benefit of the stipulated beneficiaries. The EFRBSs, however, were for the benefit of a wider class as they included those dependent on an employee for the necessities of life. An appointment may be allowed which incidentally benefits non-objects of a trust, but the express requirement that appointments be made solely for the benefit of the stipulated beneficiaries precluded such an appointment in the present case (paras. 64–69).

(2) Alternatively, the appointments would be set aside due to mistake as the trustees had not realized that they would be excessive in scope or that the transfers would be subject to UK inheritance tax. In determining whether to set aside a mistaken appointment, the court had to consider whether the mistake was caused by more than mere inadvertence and had resulted in serious loss such that it was unconscionable to allow the appointment to stand. The trustees” mistake was causative as they had made transfers to the EFRBSs on the basis of legal advice that they had the power to do so, and on the understanding that liability to UK tax would be avoided. It would be unconscionable to allow the mistakes to stand, irrespective of whether the trustees would claim in negligence against their legal advisers-though if such a claim were made the setting aside of the mistaken transfers would mitigate any award made (paras. 76–80).

(3) The most appropriate forum for determination of the dispute was the Cayman Islands and not Jersey. Both jurisdictions had seemingly conflicting legislative provisions requiring the validity of trusts to be determined within the jurisdiction. However, the dispute was most closely connected with the Cayman Islands as the trustees were resident in the Islands and were exercising dispositive powers governed by Cayman law, and, indeed, if the appointments were invalid then no trust property would have been within the jurisdiction of the Jersey courts. Further, the assets purportedly appointed out of the Cayman trust were choses in action, which were generally considered as being located in the jurisdiction in which they were recoverable, which in this case was the Cayman Islands. In any

event, the law on mistake was sufficiently similar in both jurisdictions that the conclusions of the court would be most likely to stand (paras. 46–50; para. 80).

1 SMELLIE, C.J.: Fifteen years ago, on January 28th, 2000, Boyer Allan Investment Management Ltd. (later Boyer Allan Investment Services Ltd.) (‘Boyer Allan’), a UK company, irrevocably established the Boyer Allan Investment Management Ltd. Employee Benefit Trust (the ‘Cayman trust’), in this jurisdiction.

2 The plaintiff and the defendant (an affiliate of the plaintiff”s based in Switzerland) were appointed as the original trustees (‘the trustees’, ‘the plaintiff’ or ‘the defendant’ as the context might require). The Cayman trust was established for the benefit of a class of beneficiaries defined in cl. 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 Co. Ltd. (a Cayman Islands company), for investment purposes, the shares in which were held by the Cayman trust.

3 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].’

4 Clause 4 conferred...