The Trusts Act (2021 Revision) and Order 85 of the Grand Court Rules Kate Holdings Ltd
| Jurisdiction | Cayman Islands |
| Judge | Anthony Smellie |
| Judgment Date | 18 November 2021 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | FSD 283 OF 2021 (ASCJ) |
The Hon Anthony Smellie
FSD 283 OF 2021 (ASCJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Application by corporate trustee holding assets on a bare trust for appointment of a successor trustee and for the blessing of the court for the transfer of the assets to the successor trustee in circumstances of concern about the legality of the source of funding of the assets—considerations for the court and applicable legal principles.
Mr Harry Shaw of Campbells appeared for the Applicants,
Campbells Nominees Ltd, Campbells Directors Ltd and Campbells Secretaries Limited
Campbells Nominees Ltd, Campbells Directors Ltd and Campbells Secretaries Ltd bring this application in their capacity as trustees of the issued shares of Kate Holdings Ltd (together the “Applicant Trustees”), seeking various orders and directions as prayed in their ex parte originating summons (the O.S.). In summary, these orders and directions would involve the Court appointing FFP Cayman Ltd as Successor Trustee and would impart the Court's sanction or “blessing” to the Applicant Trustees' transfer of their trusteeship to the Successor Trustee, and the blessing of the concomitant transfer and management of the trust assets, certain steps to be taken by the Successor Trustee for verifying the true beneficial entitlement to the trust assets and ultimately, the distribution of the assets and winding up of the Trust.
The application to the Court is based on the Applicant Trustees' belief and assertion that the transfer to the Successor Trustee is, in the current circumstances, of such momentous significance as to justify seeking the intervention and blessing of the Court. They seek to invoke not only the jurisdiction vested in the Court by section 10 of the Trusts Act (2021 Revision) (“the Act”) for the appointment of the Successor Trustee but also the Section 48 jurisdiction to “bless” their decision, as the jurisdiction is explained and applied in the case law.
There is however, no doubt that the Applicant Trustees are empowered under section 4(1) of the Act, to themselves appoint a successor 1. Having determined that they wish to retire as trustees, their reason for seeking the Court's intervention in this regard, relying on section 10, is explained by Mr Shaw as arising in circumstances where:
The central question is therefore whether or not the attendant circumstances justify this application to the Court for its appointment of the Successor Trustee, pursuant to section 10 and for its blessing, pursuant to section 48 (or the inherent jurisdiction over trusts) for the transfer of the assets and of the directions which the Applicant Trustees wish to give to the Successor Trustee. A further direction is also sought, pursuant to section 11 of the Act, approving of the arrangements for the remuneration of the Successor Trustee.
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(i) there is no trust deed or instrument which governs the replacement of trustees, or the terms on which incoming trustees shall be appointed;
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(ii) the settlor's wishes concerning the appointment of replacement trustees is unknown, and seemingly (in circumstances to be explained below) incapable of being determined;
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(iii) an appointment under section 4 of the Act would not provide for the Successor Trustee to be remunerated for acting as trustee (without making a further application for such remuneration to be approved);
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(iv) the Court's supervisory jurisdiction is already being invoked in relation to the balance of the directions sought by the Applicant Trustees in the O.S. (under section 48 of the Act and/or the inherent jurisdiction) which concern the same subject matter; and
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(v) the Successor Trustee is being asked to comply with those very directions being sought.
The relevant background to the Originating Summons is described in the First Affidavit of John Philipp Wolf sworn 23 August 2021 (“Wolf 1”) and the exhibit thereto. Mr Wolf, among other positions held within the Campbells Group, is a director of each of the Applicant Trustees and is therefore well placed to speak to the circumstances of the Trust addressed in his affidavit and from which the following narrative is helpfully presented by Mr Shaw.
The Company Kate Holdings Ltd is the main and holding asset of the Trust and is therefore the subject-matter of this application. It was incorporated in the Cayman Islands on 17 September 1982. Since its date of incorporation, the Company has issued three shares with a par value of $1 each, with each of the Applicant Trustees holding one issued share as a nominee shareholder (for those purposes, the “Nominee Shareholders”).
On the day of incorporation, Campbells Directors Limited (“CDL”) and Campbells Secretaries Limited (“CSL”) were appointed as directors of the Company (the “Corporate Directors”), and at the same time the Nominee Shareholders executed a nominee agreement to hold their issued share in the Company on behalf of an unnamed party until further notice. On 3 April 1987, the Nominee Shareholders executed an identical nominee agreement as the one executed on the 17 September 1982, but then with Mrs Kathleen Locke (“Kathleen”) named as the beneficial owner of the issued shares of the Company.
Around 23 December 1982, the Company acquired absolute title over the property legally described as Registration Section West Bay Beach South Block 112E Parcel 54H38 — commonly known as Lacovia Condominiums, Block C, Apt #38 (the “Lacovia Apartment”). The purpose of the Company at all times has been to hold the Lacovia Apartment which formed part of a rental pool of the associated strata corporation and generated rental income. The Company's only other asset is the cash held for its account in an unstated amount, in Campbells' Trust Account, representing the rental income generated from the Lacovia Apartment. The Lacovia Apartment and the Campbells Trust Account balance thus constitute and are hereinafter referred to as the “Trust Assets”.
These arrangements initiated between the Nominee Shareholders and the “unnamed party” for whom they held, describe what appears to be a bare trust upon which the Applicant Trustees originally acted and have continued to act.
The condominium complex in which the Lacovia Apartment is located is now due to undergo substantial redevelopment, anticipated to commence in 2022. As a result, it is estimated that its market value would increase up to approximately USD4 million. The Applicant Trustees have become parties to the contractual arrangements for the redevelopment.
The books and records of the Company for the period prior to 2005 were in part maintained by the Corporate Directors and/or the Nominee Shareholders in hard copy form. As a result of the destruction caused by Hurricane Ivan in September 2004, a substantial volume of hard copy documents held in the common offices of the Nominee Shareholders and the Corporate Directors was damaged, lost or destroyed. This involved documents relating to the Company with the consequence that its books and records for that period are incomplete.
At some point prior to 2001, Kathleen's sister, Eileen Rita Dillon (“Eileen”), was named as the contact of record for matters related to the Company, but there was no assignment of beneficial interest in the Trust Assets. The Corporate Directors managed the affairs of the Company with minimal interaction with either Kathleen or Eileen, but periodic statements and updates were sent to Eileen as the contact of record.
Following the (then) newly enacted Money Laundering Regulations 2000, the Corporate Directors contacted Eileen in early 2001 requesting KYC documentation for Kathleen and herself. On the 31 July 2001, the Corporate Directors received KYC documentation from Eileen in respect of herself and including a sworn affidavit from one Michael Francis Murray (“Michael”) dated 25 June 2001, stating that he was the original beneficial owner of the Trust Assets and had subsequently transferred ownership of the Company to Eileen. This, states Mr Wolf, was the first time that any of the Applicants became aware of Michael's potential interest in the Company. Michael has since been identified as Kathleen's and Eileen's brother.
Mr Wolfs affidavit goes on to explain the various efforts which the Applicants have undertaken since 2001 in order to confirm who the true beneficial owner of the shares in the Company is, and obtain KYC particulars accordingly.
As a result of the discrepancies as to the true identity of the beneficial owner, the Company engaged KPMG to undertake investigative searches to ascertain the whereabouts of Kathleen, Eileen and Michael. The private investigator produced a report on 2 January 2002 which confirmed what he understood to be the then current address of Kathleen and Eileen but stated that he was unable to confirm the whereabouts of Michael. Periodic requests for information since 2002 have proven unsuccessful, including the various exchanges between 2008 and 2011 with a Mr James Duggan, a Boston attorney who purported to act for Michael. Mr Wolf explains that despite the Applicants' efforts over many years, they have been unable to satisfy themselves as to who the true beneficial owner of the issues shares is, or obtain requisite KYC information.
In a letter from him dated 17 July 2008, Mr Duggan did not disclose, and the Corporate Directors were up until then unaware, that Michael appeared to have been serving a 30 year prison sentence for drug smuggling offences. Recent online searches were however, made, and the Corporate Directors and Nominee shareholders have become aware, but unable to...
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