TMSF v Merrill Lynch

• Jurisdiction: Cayman Islands
• Judge: (Chadwick, P., Mottley and Vos, JJ.A.)
• Judgment Date: 09 September 2009
• Court: Court of Appeal (Cayman Islands)
• Date: 09 September 2009

Court of Appeal

(Chadwick, P., Mottley and Vos, JJ.A.)

TASARRUF MEVDUATI SIGORTA FONU

and

MERRILL LYNCH BANK AND TRUST COMPANY (CAYMAN) LIMITED and FIVE OTHERS

S. Moverley Smith, Q.C. and C.G. Russell for the appellant;

C.D. McKie and Ms. J. Clarkson for the first to fifth respondents;

N. Meeson, Q.C. and S.G. Leontsinis for the sixth respondent.

Cases cited:

(1) Brace, Re, Welsh v. Colt, [1891] 2 Ch. 671, referred to.

(2) Gilchrist, Ex p., In re ArmstrongELR(1886), 17 Q.B.D. 521, referred to.

(3) Masri v. Consolidated Contractors Intl. Co. SAL (No. 2), [2009] Q.B. 450; [2009] 2 W.L.R. 621; [2008] 2 Lloyd”s Rep. 128; [2008] 1 C.L.C. 657; [2008] EWCA Civ 303, applied.

(4) Thorpe v. Goodall(1811), 17 Ves. 388, 460; 34 E.R. 150, 178, considered.

(5) Triffitt”s Settlement, In re, [1958] Ch. 852; [1958] 2 W.L.R. 927; [1958] 2 All E.R. 299, referred to.

Legislation construed:

Trusts Law (2007 Revision), s.2:

‘“[P]roperty” includes real and personal property, and any estate, share and interest in any property, real or personal, and any debt, thing in action and other right or interest, whether in possession or not . . .’

Trusts-receivers-appointment-appointment of receivers not legitimate over power to revoke trust-‘power’ not to be treated as ‘property’ unless expressly authorized by statute (not included in Trusts Law (2007 Revision), s.2)-given legislative history appointment not permissible as incremental refinement of equitable jurisdiction

The appellant, as a judgment creditor of the sixth respondent, sought the appointment by the Grand Court of receivers by way of equitable execution over his power to revoke two Cayman trusts.

The appellant had obtained judgment in the Grand Court to recover a judgment debt obtained against the sixth respondent in Turkey, who was now allegedly bankrupt. It sought the appointment of receivers by way of equitable execution over the sixth respondent”s power of revocation over two Cayman trusts, to enable its assets to be applied in satisfaction of the judgment.

The Grand Court (Smellie, C.J.) dismissed the appellant”s application (in proceedings reported at 2009 CILR 324) on the basis that the court had no jurisdiction to appoint receivers in these circumstances. The distinction between powers and property had been well established at common law and equating them would only be permissible if expressly authorized by statute, which was not the case here since the definition of ‘property’ in s.2 of the Trusts Law (2007 Revision) contained no express reference to powers. Nor would it be permissible as an incremental refinement of the court”s equitable jurisdiction since it involved the setting aside of settled common law principles and would challenge the fundamental concept of the trust, and thus such an expansion could only be effected by legislation. The court also held that it did not have jurisdiction to mandate the sixth respondent to delegate his powers, which would only be possible with the consent of the holder. Finally, receivers would be appointed over any future capital or income that may be appointed to the respondent or result to him if he exercised his powers of revocation.

On appeal against the refusal to appoint the receivers, the appellant submitted that the Grand Court had erred because (a) a power of revocation should be distinguished from a power of appointment; (b) a

power of revocation constituted a chose in action which must be regarded as property over which equitable execution could be permitted; (c) the definition of ‘property’ in s.2 of the Trusts Law included a power of revocation; (d) a power of revocation could be delegated; (e) the equitable jurisdiction should be extended incrementally to include powers of revocation; and (f) it had a discretion to refuse execution in inappropriate circumstances (so it would not have to exercise the jurisdiction in relation to a settlement for an incapacitated child).

Held, dismissing the appeal seeking the appointment of receivers over the sixth respondent”s powers of revocation:

(1) The court did not have jurisdiction to appoint receivers by way of equitable execution over a power of revocation, so as to enable a single creditor to obtain execution in satisfaction of a judgment debt. The legislature had decided that only in specific circumstances was ‘property’ to be equated with powers-s.2 of the Trusts Law was not such an example since the section did not expressly mention powers were to be included-and moreover, there was no meaningful distinction between a power of appointment and a power of revocation (the latter was a narrower species of the former), so either both, or neither, of which would be considered as ‘property’ at common law. Further, given the legislative history of determining when powers were amenable to execution, it would be inappropriate to allow this execution by way of incremental refinement of the court”s equitable jurisdiction. It was not the case, however, that the inclusion of powers as property subject to execution would challenge the fundamental trust concept since there was little conceptual difference between including them in a bankrupt”s estate divisible amongst creditors and granting equitable execution over them. The desired expansion of the equitable jurisdiction would have to await express legislative intervention and the appeal would therefore be dismissed since there was at present no jurisdiction to order execution over the respondent”s powers of revocation (para. 29; paras. 36–38; paras. 40–41).

(2) The court would also have to consider whether, even if it had the jurisdiction to do so, it would exercise its discretion to grant execution. The court would in inappropriate circumstances (such as when dealing with a settlement in favour of an incapacitated child) decline to allow execution and the use of this example in the Grand Court had therefore been unhelpful in ascertaining whether powers should be subject to equitable execution. It was further stated hypothetically that had the court had the jurisdiction, it would nevertheless have declined to exercise its discretion to appoint receivers because this would have been the wrong procedure for the appellant to achieve the result it desired (the collection of assets was a matter for the trustee in bankruptcy) which would have otherwise excluded any other creditors of the respondent. The court also expressed its hope that, if the sixth respondent were indeed bankrupt, the appellant would pass any moneys it did recover to the bankrupt”s estate for the benefit of all of the respondent”s creditors. Bearing in mind that it was

inconceivable that the jurisdiction would have been exercised had it been available, the court indicated that it would be likely to reject any application for special leave to appeal to the Privy Council, pursuant to s.3(2)(a) of the Cayman Islands (Appeals to Privy Council) Order 1984, since it would be a matter of purely academic interest (paras. 38–39; para. 42).

1 VOS, J.A., delivering the judgment of the court:

Introduction

On April 30th, 2008, the plaintiff (‘TMSF’) obtained judgment in the Grand Court against the sixth defendant (‘Mr. Demirel’) for US$30m. together with interest and costs. In a separate judgment of this court to be delivered immediately before this one, Mr. Demirel”s application for leave to appeal against that judgment was dismissed. On August 22nd, 2008, TMSF issued a summons seeking the appointment of receivers by way of equitable execution over Mr. Demirel”s power of revocation over two trusts called the ‘Dolphin Trust’ and the ‘Mana Trust,’ both established by separate deeds dated June 8th, 1999 (the ‘trusts’). Mr. Demirel is both the settlor and a beneficiary of the trusts.

2 On June 26th, 2009, Smellie, C.J. dismissed TMSF”s application to appoint receivers over Mr. Demirel”s power of revocation of the trusts, but appointed Mr. Stuart Sybersma and Mr. Michael Penner of Deloitte & Touche as joint receivers by way of equitable execution over any income

or capital that might in the future be appointed to Mr. Demirel from the trusts. The Chief Justice further declared that if the power of revocation were to be exercised by Mr. Demirel, the assets of the trusts that would revert to him would immediately become subject to the receivership. He gave TMSF leave to appeal if it needed it. TMSF now appeals against the Chief Justice”s refusal to appoint the receivers by way of equitable execution over Mr. Demirel”s power of revocation.

The issues raised by the appeal

3 This appeal raises two issues. First and foremost, whether, as a matter of law, the court has jurisdiction to appoint receivers, at the behest of a single judgment creditor, by way of equitable execution over a power of revocation in a trust. The Chief Justice held that it did not. Secondly, whether, if such jurisdiction exists, the court ought in the circumstances of this case to exercise its discretion to appoint receivers, at the behest of TMSF, over the powers of revocation in the trusts. Having held that the court had no such jurisdiction, the Chief Justice did not go on to consider how he might have exercised his...