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Tasked with a request to approve a trustee’s “momentous decision”, in the recent decision of In the Matter of A Trust1 (the “Judgment”) the Hon Justice Kawaley took the opportunity to restate the principles applicable to “Category 2” Public Trustee -v- Cooper2 applications. The Judgment also provides useful guidance for both trustees and beneficiaries who are seeking to negotiate proposals for the distribution of assets held in discretionary trusts, which are likely to be the subject of Court blessing applications.
The Judgment concerns an irrevocable discretionary Cayman trust (the “Trust”), settled in 2007 by the father (the “Settlor”) of the three defendants in the case (the principal beneficiaries). The Settlor, prior to his death, made clear that his wish was to have all of the Trust assets distributed on his death, to each of his three children in equal shares.
The Trust assets consisted of a network of companies incorporated in various jurisdictions which held various assets, the most valuable assets being several pieces of real estate.
The Trust itself gave broad discretionary powers to the trustees, such that they were under no strict legal obligation to consult with the beneficiaries prior to distributing the assets of the Trust. It also contained a strong anti-Bartlett provision under which the trustees were required to leave the administration of the Trust’s underlying companies to the directors. Further, the trustees were entitled to assume due administration without the need (or requirement) to investigate or verify information received in respect of the Trust assets.
Following the Settlor’s death, the Trustee began preparing for the distribution of the Trust assets. Despite there being no obligation to do so, the Trustee consulted with the beneficiaries to ascertain their wishes in respect of the Trustee’s proposal to distribute all of the Trust assets. Having completed an initial, but extensive, consultation period in 2014, the Trustee presented the beneficiaries with a distribution proposal. All three of the defendant beneficiaries signed a letter confirming their agreement with the proposal (the “2014 Agreement”).
However, in 2016 a dispute arose between the three defendant beneficiaries. Shortly thereafter, in January 2017, the attorneys for the second defendant (“D2”) wrote to the Trustee indicating that D2 no longer wished to be bound by the 2014 Agreement, and proposed an alternative method of distribution of the Trust assets. This was unfortunately followed by considerable and hostile to-ing and fro-ing between the Trustee, the first defendant (“D1”) and third defendant (“D3”), and D2. Ultimately, in July 2017, the Trustee presented the defendant beneficiaries with a “Final Distribution Proposal”, which was met by D2’s counter-proposal, but agreed to by D1 and D3.
On the basis that the Trustee had decided to move forward with the Final Distribution Proposal, particularly in light of the strong objections expressed by D2, the Trustee applied to Court seeking the Court’s blessing of its momentous decision in respect of the distribution of all of the Trust assets.
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In the Matter of A Trust
1(unreported, 17 January 2019)
2 W.L.T.R. 901