Doyle J
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IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
CAUSE NO: FSD 82 OF 2022 (DDJ)
IN THE MATTER OF SECTION 48 OF THE TRUSTS ACT (2021 REVISION)
AND IN THE MATTER OF GCR ORDER 85 RULE 7
AND IN THE MATTER OF THE SUMMONS OF STANDARD CHARTERED
TRUST (SINGAPORE) LIMITED AS TRUSTEE OF THE EMERGING MARKETS
DIVERSIFIED FUND TRUST DATED 5 APRIL 2022
Appearances:
Nicholas Dunne of Walkers (Cayman) LLP
Before:
The Hon. Justice David Doyle
Heard:
18 May 2022
Ex Tempore
Judgment delivered:
18 May 2022
Transcript
of Ex Tempore Judgment
circulated:
18 May 2022
Transcript of
Ex Tempore
Judgment approved:
19 May 2022
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HEADNOTE
Factors to be considered when the court is dealing with an application by a trustee for the
blessing by the court pursuant to section 48 of the Trusts Act (2021 Revision) of a momentous
decision proposed to be made by a trustee
JUDGMENT
Introduction
1.
I have considered the two hearing bundles in respect of this matter. I have also
considered the helpful oral submissions of Nicholas Dunne of Walkers who appears for
Standard Chartered Trust (Singapore) Limited (the “Trustee”) with Matthew Welds (an
articled clerk) observing.
2.
By summons dated 5 April 2022 (the “Summons”) the Trustee seeks certain directions
on matters relating to the Emerging Markets Diversified Fund Trust (the “Fund”) which
is governed by an Amended and Restated Declaration of Trust dated 27 August 2013.
3.
It is stated that the Trustee became trustee pursuant to a deed of appointment, retirement
and indemnity of trustees dated 5 September 2013.
4.
The factual position which presently confronts the Trustees has been well set out in the
comprehensive first affirmation dated 16 March 2022 of Mok Cher Hwee, the managing
director of the Trustee. I have also considered the exhibited documentation and the
protracted correspondence.
5.
In very brief summary, it is stated that the Fund has a single investor, a company
incorporated in Singapore called ABG Shipyard Singapore Pte Ltd (the “Unitholder”)
and a single investment namely an outstanding loan of approximately US$80 million
(the “Loan”) to a company incorporated in the British Virgin Islands (the “BVI”) known
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as Montego Sands Capital Investment Inc (the “Borrower”) which has gone into
insolvent liquidation under the supervision of the BVI Court.
6.
It is stated that it has subsequently become clear in the course of the liquidators’
investigations that the Borrower has insufficient resources with which to repay the Loan,
the capital having apparently been utilised to fund an investment into a company
incorporated under the laws of the United Arab Emirates called Al Aqili Distribution
(“AAD”) which has itself sustained very significant losses such as to apparently render
it insolvent.
7.
The liquidator has stated that there is little prospect of the Borrower recovering anything
from AAD other than US$200,000 from which US$20,000 would be deducted for the
liquidators’ capped fees.
8.
The Trustee therefore seeks approval to accept US$200,000 in full and final settlement
of the Loan and following payment of liquidation fees and expenses thereafter to
terminate the Trust, its purpose having then come to an end.
9.
The Trustee has encountered some significant difficulties in relation to its dealings with
the Unitholder. In particular the Unitholder, or at least those purporting to act on its
behalf, made unsuccessful attempts at a formal redemption. Since late 2019 the Trustee
has heard nothing from or on behalf of the Unitholder. The Unitholder has failed to
properly engage with the Trustee and has left the Trustee with no real alternative other
than to apply to the court for relief.
10.
The Trustee finds itself in a position where the only practical option appears to be the
acceptance of the monies that are “on the table” from AAD, however meagre, for the
liquidator of the Borrower to distribute those monies and for the Trustee thereafter to
take steps to apply its share of those monies and terminate the Trust in accordance with
its provisions.
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The relevant law
11.
I have considered the relevant law including section 48 of the Trusts Act (2021 Revision)
and the various authorities referred to in the helpful skeleton argument including
Kawaley J’s judgment in In the Matter of A Trust 2019 (1) CILR 130.
Otto Poon (Jersey Court of Appeal)
12.
The position is also covered in a judgment of the Court of Appeal of Jersey (Sir Hugh
Bennett, George Bompas QC and David Doyle First Deemster of the Isle of Man) in
Otto Poon Trust [2015] JCA 109 which referred to the well-known test for approving
momentous decisions by trustees. In short, the court must be satisfied that:
(1) the trustee’s decision has been arrived at in good faith;
(2) the decision is one which a reasonable trustee properly instructed could have
reached; and
(3) the decision is not vitiated by any actual or potential conflict of interest.
Section 48
13.
Under section 48 of the Trusts Act (2021 Revision) any trustee 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 and
such application should be served upon, or the hearing attended by, all persons
interested in such application or such of them as the court shall think expedient. The
trustee acting upon the opinion, advice or direction given by the Court shall be deemed,
so far as regards that person’s own responsibility, to have discharged that person’s duty
as such trustee in the subject matter of the application.
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14.
Section 48 contains an important proviso namely – the trustee shall not be indemnified
in respect of any act done in accordance with such opinion, advice or direction if such
trustee “shall have been found to have committed any fraud, wilful concealment or
misrepresentation in obtaining such opinion, advice or direction.”
15.
It is also provided that the costs of an application under section 48 are in the discretion
of the Court.
AA v BB (Chief Justice Smellie)
16.
Chief Justice Smellie in AA v BB (FSD unreported judgment 14 February 2020) stated
(at paragraph 4 of his judgment) that in applications by trustees for the court’s sanction
of “particularly momentous” decisions, the questions for the Court will normally be as
follows:
(1)
Does the trustee have power to enter into the proposed transactions?
(2)
Is the Court satisfied that the trustee has genuinely formed the view that the
proposed transactions are in the interests of the trust and its beneficiaries?
(3)
Is the Court satisfied that this is a view that a reasonable trustee could properly
have arrived at?
(4)
Has the trustee any conflict of interest, and if so, does the Court consider that
the conflict prevents it from approving the trustee’s decision?
17.
The case before the Chief Justice principally concerned criterion (3) and the “rationality
standard”.
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A Trust (Kawaley J)
18.
Kawaley J in In the Matter of A Trust also considered the court’s role in respect of
applications by trustees for the blessing by the court of momentous decisions by trustees.
19.
In that case the question was whether a proposed distribution plan was one which a
reasonable trustee might decide to implement. At paragraph 3 of his judgment Kawaley
J commented that the opponent to such plan “assumed a heavy burden in seeking to
persuade the court that the final distribution proposal was in whole or in part an
irrational one.”
20.
It was agreed that the critical legal question is in effect whether the proposed decision
was one which a reasonable body of trustees properly instructed could properly have
arrived at. Reference was made to the observation of Vos LJ in Cotton v Brudenell-
Bruce, Earl of Cardigan [2014] EWCA Civ 1312 to the effect that the trustee must put
the court in possession of all relevant facts so that it may be satisfied that the decision
of the trustee is proper and for the benefit of the beneficiaries. Moreover, it must be
demonstrated that the exercise of the trustee’s discretion is untainted by any collateral
purpose. The court will not approve a trustee’s decision without a proper evidential
basis for doing so. But the court should equally not deprive a trustee of approval
without good reason. The court is not a rubber stamp and must be cautious to ensure
that it is satisfied that the trustee is indeed justified in proceeding in accordance with its
decision. But the court should not place insurmountable hurdles in the way of trustees
who are placed in difficult positions. The court has a supervisory jurisdiction that needs
to be exercised in appropriate circumstances. Vos LJ also explained that the need for
caution in approving a trustee’s momentous transaction needs to be placed in context,
adding: “Caution cuts both ways.”
21.
Kawaley J also referred to judicial statements emphasising the importance of trustees
seeking the blessing of the court making full and frank disclosure to the court.
The Judge’s Perspective
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22.
In an extra-judicial statement made in a lecture I delivered at the International Trust
Conference (15 September 2015 available at www.courts.im) entitled The Judge’s
Perspective [seeing trust issues through the eyes of the Deemster] I also referred to the
need for full disclosure stating: “It is …important for the trustee to put the court in
possession of all the relevant facts and documents.” I note that O 85 r 7 (3) (d) of the
Grand Court Rules (“GCR”) provides that an application under section 48 shall be
supported by an affidavit which shall “give a full and frank disclosure of all facts
material to the application”. In the lecture I stated that trustees should not dump the
problem on the court’s lap saying “There you are, you sort it out, we don’t know what
to do” and I added:
“The court is entitled to expect the fullest assistance from a professional trustee
who should ensure that all relevant law is before the court and that all the
arguments for and against the various possible courses of action are well
rehearsed. The court will usually be assisted by the trustee recommending a
particular course of action and explaining the reasons for its recommendation.”
I also note that Order 85 rule 7 (c) of the GCR requires the affidavit in support to “define
the question in respect of which the Court’s opinion, advice or discretion is sought.”
In the lecture I stated that:
“The courts are here as a service to facilitate rather than to obstruct lawful
activities and business while also providing assistance by way of judicial
intervention where necessary and appropriate. We are here to serve the local
and international community.”
I concluded the lecture by stating:
“So from the judge’s point of view, especially in relation to applications by
trustees for directions, all we want is for the applicant to provide us with all the
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necessary information and assistance to enable the court to do justice … As
much as the court will endeavour to support trustees, the trustees must, along
with all other associated parties, support the process of the court … To ensure
the legal process runs smoothly you must be well prepared with the relevant
facts and documents as well as arguments for and against possible courses of
action. If in preparing for court you endeavour to see legal issues from the point
of view of the judge it will significantly help you to persuade the judge to grant
the relief you are seeking.”
Textbook example – thanks to the Trustee and the attorneys
23.
I have to say that the case presently before me is a fine example of how trustees should
go about applying to the court where assistance is necessary. The facts and the law
have been properly put before the court as have the questions in issue. This is a textbook
example of how to proceed properly in respect of such matters. The Trustee is clear in
the decision it wants to make and has transparently set out the thinking behind and the
reasons for such proposed decisions. The filing of the draft order is also of great
assistance. I thank the Trustee and its attorneys for the very helpful way in which this
matter has been presented to the court.
Determination
24.
I now turn to my determination of the Summons and the relief requested.
25.
I am satisfied that all reasonable steps have been taken to notify the Unitholder of this
hearing. In this respect I note the evidence contained in the second affirmation of Mok
Cher Hwee dated 9 May 2022 and also paragraph 59 of the first affirmation. There has
been no appearance by or on behalf of the Unitholder today. I do not think it is
expedient for anyone else to be notified or for any further steps to be taken in respect
of notification to the Unitholder. I note the termination provisions in the governing
documents of the Trust.
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26.
The Trustee has the power to take the proposed steps but the Trustee recognises that
those steps would be momentous in three respects:
(1)
they involve a very substantial write-off in respect of the Trust’s sole asset;
(2)
the Trust will ultimately come to an end; and
(3)
such action would be unilateral.
27.
On the evidence presented to the court there appears to be no better solution available,
nor is there any reasonable prospect of it being available in the future.
28.
The Trustee’s proposed course of action has plainly been arrived at in good faith. It is
one which a reasonable trustee properly informed and instructed could have reached
and it is not tainted by any actual or potential conflict of interest. I accept that the
payment to be received will in large part be applied to the payment of the Trustee’s fees
and expenses. It will also be applied in respect of the investment adviser’s fee pro rata.
Such fees having been incurred pursuant to the provisions of the Declaration of Trust.
There will be no distribution to the Unitholder. In my judgment this does not taint the
Trustee’s proposed sensible decision. Indeed it would have been in the Trustee’s own
interests to pursue an increased return if there was a reasonable prospect of doing so
but plainly there is not. The Trustee will in effect be out of pocket.
29.
In summary, I am satisfied that:
(1)
the Trustee has the power to do what is proposed;
(2)
the Trustee is acting in good faith and has genuinely formed the view that what
it proposes is in the best interests of the Trust;
(3)
a reasonable trustee could properly arrive at the proposals. The rationality test
is plainly met; and
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(4)
there is no conflict of interest. I accept that under the proposals the Trustee will
receive payment for a proportion of its outstanding legitimate fees and expenses.
Such does not, however, taint the appropriateness of the proposals and such does
not prevent the court from approving the proposals.
30.
Unitholders and beneficiaries do not always make life easy for trustees. If they fail to
engage properly with trustees they must take the consequences. They only have
themselves to blame if through lack of proper engagement further fees are incurred
which, in accordance with well-established principles and the terms of the relevant trust
deed, are paid out of the trust fund and effectively exhaust it so that nothing is left to
distribute to them.
31.
The Trustee has done its best to engage with the Unitholder and the Borrowers’
liquidator and it is time to draw a line and to finalise matters rather than let them drag
on indefinitely.
32.
This is a proper case for the court to sanction the Trustee’s proposed course of action
and I have no hesitation in doing so.
Order
33.
I make an order substantially in terms of the draft helpfully filed in advance of today’s
hearing such order to incorporate the amendments I specified during my exchanges
with counsel.
THE HON. JUSTICE DAVID DOYLE
JUDGE OF THE GRAND COURT