5 October 2018
In the context of the normal administration of a Cayman Islands law governed discretionary trust, the trustees sought an Ex Parte Originating Summons (Confidentiality Summons) whereby only anonymised versions of court documents would be placed on the public register and the substantive directions hearing would be heard in private.
The trustees considered this was necessary to protect the beneficiaries from the safety risks of being publically linked to substantial wealth and to protect the minor beneficiaries from being aware of their family's substantial wealth because of the potentially adverse effect this could have on their personal development and welfare.
The general approach of the Cayman Courts is for hearings determining 'civil rights or obligations' to be heard in public and their decisions made public (Cayman Islands Constitution (the Constitution) s.7(9)).
It was recognised by the Court that this right to 'open justice' may be limited on the grounds of s.7 (10) of the Constitution. In summary these are:
The confidentially order was granted on the basis of: 1) the trustee's arguments that s.7(9) was not engaged as the proceedings relating to the administration of a trust and therefore the proceedings were not determining any 'civil right or obligation'; and 2) the nature of the proceedings fell within an exception permitted by s.7(10).
The judgment demonstrates a strong stance from the Cayman Court on protecting confidentiality in appropriate circumstances. This is in contrast to the trend towards increasing transparency (without exception) which we have seen in other jurisdictions.
The court explained that its stance may lean towards confidentiality more than may be the case in other jurisdictions because the 'public interest' of the Cayman Islands, as a jurisdiction which actively promotes the legitimate establishment of trusts, is different to that of other jurisdictions.
This case concerned a variation of trust application under the Variation of Trusts Act 1958 (VTA). The adult beneficiaries had consented to the proposed variation of the trust. However, the court's approval was sought on behalf of minor beneficiaries and the unborn and unascertained beneficiaries. Importantly, one of the minor beneficiaries was aged ten and was severely autistic, and so lacked capacity to approve the variation due to both his age and his mental capacity.
The court considered the issue as to whether the High Court could approve a variation of a trust on behalf of a minor who lacked mental capacity or whether that approval had to instead be given by the Court of Protection.
Section 1 of VTA allows the court to approve variations of a trust on behalf of those who lack capacity to approve the variation themselves. However, Section 1(3) of VTA provides that such jurisdiction shall be exercisable by the Court of Protection where the person lacks the particular type of capacity falling within the definition of the Mental Capacity Act 2005 (MCA).
The court held that in this case, by reasons of the beneficiary's age and the fact he was a minor, section 1(3) did not apply and the issue did not have to be determined by the Court of Protection even if, additionally, the beneficiary was unable to approve the arrangement by reason of mental incapacity.
The case demonstrates that section 1(3) is limited to situations where mental incapacity is the only reason for an individual being unable to consent. Therefore, in the case of a beneficiary who is under 18, whether a proposed variation of a trust is for his/her benefit will always be a matter for the High Court, and not the Court of Protection, even if the beneficiary is nearly 18 and lacks capacity under the MCA. The court made clear that this would apply even in the event that the beneficiary's circumstances have been considered in other respects by the Court of Protection and a deputy has been appointed.
A trust named the Grand Trust was settled by Madame Crociani in 1987. The Grand Trust comprised of two sub-trusts for each of her daughters, Cristiana and Camilla, and contained a valuable portfolio of investments and works of art. In 2010, a $132 million distribution was made for the benefit of Madame Crociani, who was not a beneficiary. All that remained in the Grand Trust was a promissory note. Cristiana and her children successfully brought proceedings against the former trustees of the Grand Trust, her sister Camilla, and Madame Crociani for breach of trust in relation to this appointment of out of those funds. The Royal Court found in favour of Cristiana Crociani and her children and concluded that the 2010 appointment was void and of no legal effect. It ordered that the Grand Trust be reconstituted in full by the former trustees (BNP).
The Court of Appeal hearing concerned the appeals of three of the parties on various different issues. For the purposes of this summary, we focus on BNP's appeal in relation to the issue of equitable compensation.
BNP appealed the Royal Court's decision to remedy the breach by ordering equitable compensation calculated by reference to the value of having to fully reconstitute the trusts of both daughters. BNP submitted that the fairer remedy was to limit their obligation to the reconstitution of Cristiana's trust only on the basis that Camilla had or would receive the majority of the assets that had been appointed to Madame Crociani in 2010.
The Court of Appeal allowed BNP's appeal and accepted that it would be unfair to 'punish' BNP by making it reconstitute both of Camilla and Cristiana's trusts. The Court of Appeal found that on reviewing the trust deeds the two sub-trusts were treated quite separately by the Trustee and the likelihood of Cristina or her children holding a principle interest in Camilla's trust were very remote. The Court of Appeal also attached significant weight to the fact that Camilla had never made a claim for breach of trust in relation to her trust. The Court of Appeal therefore concluded that Camilla's trust could be treated, albeit with some exceptions, as having been paid out. BNP remains liable to reconstitute Cristiana's trust in full.
Whilst BNP succeeded with their appeal as regards the reconstitution of Camilla's trust, this case remains a stark reminder to trustees and settlors of the potential results arising from the improper administration of trusts, particularly appointments to non-beneficiaries.
by multiple authors