When is a trustee's directions application not an abuse of process?

Walkers successfully resisted an application brought by beneficiaries of a trust to strike out a trustee's application under section 48 of the Trusts Law.

The trust in question is a Cayman Islands Trust (with a Cayman Islands trustee). The beneficiaries of the trust comprise the settlor and her family, all US citizens. In 2017, the beneficiaries complained the trust had suffered loss as a result of the purchase and maintenance of certain life insurance policies insured on the beneficiaries' lives and issued proceedings in the Florida courts against the trustee’s sister company for breach of fiduciary duty and negligent misrepresentation. The trustee was not joined as a party, despite the fact that some of the acts complained of by the beneficiaries concern the management and administration of the trust.

In these circumstances, the trustee sought directions from the Grand Court pursuant to section 48 of the Trusts Law, that entitles any Cayman Islands trustee "to apply to the Court for an opinion, advice or direction on any question respecting the management or administration of the trust". The proceedings are subject to strict confidentiality provisions.

Section 48 of the Trusts Law required the trustee to serve the application on the beneficiaries (as persons "interested in the application"). In response, the beneficiaries brought inter alia petitions in Florida, Massachusetts, and Missouri seeking declarations that such a proceeding could not be validly served on them as a matter of US law because they did not meet the US "minimum sufficient contact" test with the Cayman Islands. The trustee applied to restrain the actions in the USA on the grounds that they were vexatious and oppressive and in breach of the exclusive jurisdiction clause in the deed of settlement. By a decision reported at [2018 (1) CILR Note 3] Parker J. made findings about the validity of service on the beneficiaries but refused to restrain the US beneficiaries from continuing their applications in their local courts. The Court of Appeal granted leave to the trustee to appeal Parker J.'s decision (insofar as leave was required) but, without the need for a hearing, the parties agreed by consent that the appeal should be allowed with costs to the trustee. The parties also agreed that the exclusive jurisdiction clause conferred exclusive jurisdiction on the Courts of the Cayman Islands to determine the trustee's section 48 application. In the circumstances, [2018 (1) CILR Note 3] should be read with appropriate caution.

After the appeal the beneficiaries applied to strike out the trustee's section 48 application on the basis that it was an abuse of process (because, inter alia, it sought to 'thwart' the beneficiaries' proceedings in Florida). In the alternative, the beneficiaries sought a temporary case management stay (pending determination of the Florida proceedings).

In a judgment dated 26 February 2019, Parker J. dismissed both of the beneficiaries' applications. The section 48 application was not an abuse of process; nor would he order a case management stay. The Judge confirmed that in circumstances where foreign proceedings concern the administration of a Cayman Islands trust the trustee will be entitled to bring a section 48 application. In this case, Parker J. said the various allegations made by the beneficiaries in the Florida proceedings "clearly involve" certain acts or omissions by the trustee in relation to the purchase and maintenance of the life insurance policies. The trustee was entitled to seek specific directions pursuant to section 48 and entitled to have the matters complained of in the Florida proceedings examined by the Cayman Islands court. Moreover, there was no compelling reason advanced by the beneficiaries which outweighed the disadvantage to the Trustee in ordering a case management stay.

CAYMAN ISLANDS
Shelley WhitePartnerT +1 345 914 4205shelley.white@walkersglobal.com
Lucy DiggleSenior CounselT +1 345 914 4250lucy.diggle@walkersglobal.com