Settlements Made by Declarations of Trust Dated 9 May 2013 (The “Trusts”) and Section 64A of the Trusts Act (2021 Revision) Between Maples Trustee Services (Cayman) Ltd Plaintiff v (1) AB (2) CD (3) EF (4) GH (5) IJ (6) KL (7) MN (8) OP Defendants
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 28 September 2023 |
| Docket Number | CAUSE NO: FSD 228 OF 2023 (IKJ) |
| Court | Grand Court (Cayman Islands) |
In the Matter of Settlements Made by Declarations of Trust Dated 9 May 2013 (The “Trusts”)
And in the Matter of Section 64A of the Trusts Act (2021 Revision)
The Hon. Justice Kawaley
CAUSE NO: FSD 228 OF 2023 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Ex parte Originating Summons-application by trustee for declarations that trust settlement transfers void ab initio-statutory Hastings-Bass principles—Trusts Act (2021 Revision), section 64A-Grand Court Rules Order 15 rule 13
Ms. Shân Warnock-Smith KC of counsel and Mr Quentin Cregan and Ms Allegra Crawford of Maples and Calder (Cayman) LLP for the Trustee
Ms Bernadette Carey and Mr Graham Stoute of Carey Olsen for the First Defendant (“D1”)
Mr Carlos de Serpa Pimentel and Mr Esmond Brown of Appleby (Cayman) Ltd. for the Second to the Eighth Defendants (“D2-D8”)
By an Ex Parte Summons dated 3 August 2023, the Trustee applied for a Confidentiality Order in relation to the present proceedings which I granted administratively on 7 August 2023. The Originating Summons was issued on 21 August 2023.
All beneficiaries had essentially the same interests and supported the relief sought by the Trustee on an urgent basis. It was accordingly directed that the substantive application could also be heard on the papers. The Hearing Bundles including the pleadings, evidence, skeleton arguments and authorities were delivered to the Court on 28 August 2023. The relief sought was to set aside the transfers made to Trusts 1, 2 and 3 under this Court's statutory Hastings-Bass jurisdiction.
On 5 September 2023, I granted an Order in the terms sought by the Trustee with affirmative support from D1 and D2-D8. Counsel indicated that there appeared to be no published judgments dealing with section 64A of the Trusts Act (2021 Revision) (the “Act”) and presented fulsome submissions on this new jurisdiction. Accordingly, I now give reasons for this decision.
The Trusts were established in the Cayman Islands in 2013 by a husband and wife (the “Settlors”) domiciled in an onshore jurisdiction to preserve and accumulate their largely inherited family wealth. They had a home in Cayman and Caymanian friends. Two close friends agreed to become trustees of the Trusts (the “Initial Trustees”), which essentially held shares in a Caymanian company (“Caymanco”) which the settlors transferred to them to be settled upon the respective Trusts. Neither the Settlors nor the Initial Trustees obtained professional tax advice from the Settlors' domicile about the tax implications for the Trusts, the Settlors and/or the beneficiaries of settling the Trusts in the way which was done. Everyone assumed, by all accounts, that the settlements in question would serve to preserve rather than diminish the family fortune.
The Trusts were each settled with the initial nominal sum of US100.00 in 2013. In early 2014, the three transfers of Caymanco shares were made by the Settlors to the Initial Trustees on behalf of each of the three Trusts. Neither of the Initial Trustees had ever acted as professional trustees and they received no remuneration. By the end of 2019 they had both retired and been replaced by the Trustee, a professional corporate trustee. One of the two Settlors had sadly died. In response to a proposed restructuring, the Trustee obtained initial tax advice in 2021 and was advised that the now impugned transfers, rather than taking the transferred assets out of the onshore tax regime, had triggered substantial potential tax liabilities including penalties covering several years. It was obvious that had appropriate tax advice been taken at the relevant time, the relevant settlements would not have been made.
The surviving Settlor (D1) and the current holder of all of the family wealth unequivocally deposed to an intention to deal appropriately with the relevant tax authorities and pay whatever sums were found to be lawfully due in the event that the Trustee's application to set aside the impugned transfers was successful. The result of the setting aside would be that the relevant assets would revert to her ownership. The adult beneficiaries were all content to benefit through D1's personal succession arrangements and supported the Trustee's application to set aside the settlements without exception. One child of the Settlors was appointed (GCR Order 15 rule 13) to represent the interests of the children and unborn beneficiaries and supported the application on their behalf.
The consensus amongst all beneficiaries was that they all, including the children and unborn, had common interests which the present application would best serve. The Trustee and D1 both filed Skeleton Arguments, as well as evidence, supporting the case for granting the relief sought under the Originating Summons on legal and factual grounds. The representative of the children and unborn beneficiaries filed evidence confirming her support for the application. These averments seemed self-evidently to be valid. The Trusts would be depleted significantly by virtue of their tax liability and D1's personal tax liability would further diminish what the other beneficiaries could potentially receive in any event from D1's estate.
The Trustee deposed that there was no bona fide third party purchaser who might be prejudiced by the application. There was no reason to doubt the accuracy of this assertion.
The Trustee invoked the jurisdiction under section 64A of the Trusts Act (2021 Revision). The functional essence of the jurisdiction is captured by subsection (1):
“ Jurisdiction of Court to set aside mistaken exercise of fiduciary power
64A (1) If the Court, in relation to the exercise of a fiduciary power, is satisfied by a person specified in subsection (5) that the conditions set out in subsection (2) have been met, the Court may —
(a) set aside the exercise of the power, either in whole or in part, and either unconditionally or on such terms and subject to such conditions as the Court may think fit; and
(b) make such order, consequent upon the setting aside of the exercise of the power, as it thinks fit.”
9. The function of section 64A is to confer a statutory power on the Court to set aside the exercise of a fiduciary power. The ambit or scope of the power is defined by reference to the conditions set out in subsections (2)-(4):
“ (2) The conditions referred to in subsection (1) are that —
(a) in the exercise of the power, the person who holds the power did not take into account one or more considerations (whether of fact, law or a combination of fact and law) that were relevant to the exercise of the power, or took into account one or more considerations that were irrelevant to the exercise of the power; and
(b) but for that person's failure to take into account one or more such relevant considerations or that person having taken into account one or more such irrelevant considerations, the person who holds the power —
(i) would not have exercised the power;
(ii) would have exercised the power, but on a different occasion to that on which it was exercised; or
(iii) would have exercised the power, but in a different manner to that in which it was exercised.
(3) If and to the extent that the exercise of the power is set aside under this section, to that extent the exercise of the power shall be treated as never having occurred.
(4) The conditions specified in subsection (2) may be satisfied without it being alleged or proved that in the exercise of the power, the person who holds the power, or any advisor to such person, acted in breach of trust or in breach of duty.”
The pivotal conditions for the Court exercising the jurisdiction are, expressing it most broadly, that a fiduciary power was exercised in a way which would not have occurred had the true position been known. Subsection (5) next confers standing on the following applicants to seek relief under section 64A:
“ (5) An application to the Court under this section may be made by —
(a) the person who holds the power;
(b) where the power is conferred in respect of a trust or trust property, by any trustee of that trust, or by any person beneficially interested under that trust, or (in the case of a purpose trust) the enforcer;
(c) where the power is conferred in respect of a charitable trust or otherwise for a charitable purpose, the Attorney General; or
(d) with the leave of the Court, any other person.” [Emphasis added]
The Trustee clearly had standing to make the present application. Subsection (6) protects bona fide purchasers:
“ (6) No order may be made under subsection (1) which would prejudice a bona fide purchaser for value of any trust property without notice of the matters which allow the Court to set aside the exercise of a power over or in relation thereto.”
Section 64A concludes with a definitions clause:
“ (7) In this section —
‘fiduciary power’ means any power that, when exercised, must be exercised for the benefit of or taking into account the interests of at least one person other than the person holding the power;
‘power’ includes a discretion as to how an obligation is performed; and
‘person holding the power’ includes any person, whether or not the trustee of a trust, on whom a power has been conferred, whether or not that power is exercisable by...
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