Meritus Trust Company Ltd v Butterfield Trust (Bermuda) Ltd
| Jurisdiction | Bermuda |
| Judgment Date | 13 October 2017 |
| Docket Number | Civil Jurisdiction 2017 No 146 |
| Court | Supreme Court (Bermuda) |
In the matter of the ESD 1994 Trust
And in the matter of the Marlborough Trust
And in the matter of the Trustee Act 1975 and RSC Order 85
[2017] Bda LR 145
Civil Jurisdiction 2017 No 146
In The Supreme Court of Bermuda
Removal of trustee — Whether trustee's equitable right to an indemnity includes the right to retain sufficient assets to meet actual and contingent liabilities — Right to a contractual indemnity
The following cases were referred to in the judgment:
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344
Apostolou v VA Corporation Aust Pty Ltd [2010] FCA 64
Re Pauling's Settlement (No 2) [1963] 1 All ER 857
Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99
Orconsult Ltd v Blickle [2008] Bda LR 41
Caversham Trustees Ltd v Crichton [2008] JLR Note 18
X v A [2000] 1 All ER 490
Re Representation of C; Re Z Trusts [2015] JRC 31
Mrs E Talbot Rice QC and Ms F Rana-Fahy for the Plaintiff
Mr N Le Poidevin QC and Ms J Almeida for the Defendant
JUDGMENT of Kawaley CJ
1. By an Originating Summons dated May 8, 2017, the Plaintiff (“Meritus”) sought, inter alia, (1) copies of documents listed in the Schedule and (2) an Order requiring the Defendant (“Butterfield”) to transfer immediately all assets of two trusts (the E Trust and the M Trust) and to vest title to such assets in Meritus. Butterfield had by that time been removed as Trustee and Meritus appointed in its place on December 21, 2017. The changing of the guard took place under the dark cloud of a threatened claim against the former Trustee and so the transfer process was, from the outset, somewhat prickly.
2. At the hearing of the Originating Summons on October 4, 2017, first two heads of relief were granted without any great controversy. The application for an account was adjourned with liberty to restore as the need for the relief initially sought was likely to be shaped by the nature of the document disclosure which was made. That left for determination one main and one subsidiary issue which were the subject of full argument and which were identified in Butterfield's own interlocutory Summons for directions issued on June 14, 2014.
3. Firstly, Butterfield asserted that it was entitled to retain sufficient trust assets against which to enforce its indemnity in relation to the contingent costs liability (which its estimated at $5 million) in relation to the defence of the threatened claim in respect of its management of the trust assets. Meritus contended that as a matter of law the right of indemnity did not confer such retention rights and that, if any retention right did exist, $750,000 was a generous estimate of the appropriate quantum in the absence of any evidence explaining how the $5 million figure was arrived at. Secondly, Butterfield asserted that it was entitled to a contractual indemnity, particularly as regards the M Trust, while Meritus countered that no such entitlement existed.
4. Mrs Talbot-Rice QC's submissions on the retention point can be distilled into the following main propositions:
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i. a former trustee's right of indemnity in equity, putting aside any more generous rights conferred by statute, contract or a particular trust deed, took effect as a non-possessory lien and did not include a right of retention as against a successor trustee, in contradistinction to the position of a beneficiary or creditor of a trust;
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ii. this position was consistent with the statutory framework for changing trustees which required all trust assets to be vested in the new trustee upon appointment or as soon as possible thereafter (Trustee Act 1975, section 27(d));
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iii. this position was also consistent with a proper analysis of relevant case law (principally Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd[2008] NSWSC 1344) and textbook authority.
5. Mr Le Poidevin QC relied upon a contrary view of the relevant law on the central issue. Cases he relied heavily on in terms of direct authority included Apostolou v VA Corporation Aust Pty Ltd[2010] FCA 64, while text authorities he referred to included Underhill and Hayton: Law of Trusts and Trustees, 18th ed. He questioned the soundness of his opponent's ‘absolutist’ thesis that there was a clear conceptual demarcation between transferring assets to a successor trustee and making payments to beneficiary.
6. Section 27 of the Trustee Act 1975 (“the Act”) provides:
“On the appointment of a trustee for the whole or any part of trust property—
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(d) any assurance or thing requisite for vesting the trust property, or any part thereof, in a sole trustee, or jointly in the persons who are the trustees, shall be executed or done.” [Emphasis added]
7. Subject to certain exceptions (notably shares or stocks), a deed appointing trustees after the commencement of the Act operates so as to automatically vest trust property in the trustees, unless contrary provision is made in the deed. Section 30 of the Act provides:
“(1) Whereby a deed a new trustee is appointed to perform any trust, then—
(a) if the deed contains a declaration by the appointor to the effect that any estate or interest in any land subject to the trust, or in any chattel so subject, or the right to recover or receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become or are the trustees for performing the trust, the deed shall operate, without any conveyance or assignment, to vest in those persons as joint tenants and for the purposes of the trust the estate, interest or right to which the declaration relates; and
(b) if the deed is made after 1 March 1975 and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by the appointor extending to all the estates, interests and rights with respect to which a declaration could have been made.
…
(4) This section does not extend—
(a) …
(b) …
(c) to any share, stock, annuity or property which is only transferable in books kept by a company or other body, or in manner directed by or under any statutory provision.”
8. The Deeds of Appointment executed on December 21, 2016 in relation to the E and the M Trust were not, incidentally, silent on the vesting issue. They each provided:
“3.1 It is HEREBY DECLARED that the Trust Fund of the Trust is hereby transferred (in so far as it is permitted by law without further documentation) to the New Trustee to be held by the New Trustee upon the trusts set out in the Trust.”
9. It being common ground that neither the Act nor the Trust Deeds conferred retention rights on Butterfield as a former Trustee, in my judgment Meritus' counsel was right to contend the statutory vesting scheme is, in a general sense, inconsistent with the notion of the old trustee enjoying retention of asset rights capable of being asserted by a former trustee as against a new trustee. The Act envisages that when a new trustee is appointed, either:
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(a) trust assets (including cash) will automatically vest in the new trustee; or
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(b) the old trustee will otherwise be subject to a mandatory obligation to execute whatever instruments of transfer may be required to perfect the vesting process.
10. The proposition that a trustee's fundamental function is to exercise control over the trust assets found only general and somewhat indirect support in the following observation of Wilberforce J (as he then was) in Re Pauling's Settlement[1963] 1 All ER 857 at 863 (upon which Mrs Talbot-Rice relied):
“To appoint new trustees, and at the same time to leave another person not in the position of a trustee in possession of the trust fund, would be to create a most undesirable situation.”
11. Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd[2008] NSWSC 1344 was the only case cited in argument which dealt head-on with the question of whether a trustee's equitable right to an indemnity included a right of retention which could be asserted against a new trustee. It is a decision of the New South Wales Supreme Court Equity Division, a first instance court like this Court. Brereton J's decision was an ex tempore one.
12. That case concerned a change of trustee triggered by the winding-up of the old trustee. The trust deed expressly imposed a duty on the former trustee upon removal to vest the assets in the new trustee and further expressly provided that, in the interim, the old trustee would hold the trust assets as a bare trustee for the new trustee. A dispute arose as to whether certain assets were trust assets and, if so, whether the former trustee could retain them for the purposes of enforcing its indemnity rights. The judge defined the issues falling for determination in the following way:
“8 There are two main issues to be decided. The first is whether the causes of action in the third party proceedings, and the loans and securities the subject of those proceedings, are assets of the Reliance Discretionary Trust. The second is, if so, whether the former trustee Reliance is entitled to retain those assets in its possession, notwithstanding its removal and replacement by RFSNSW as trustee, as security for its right of indemnity against the trust assets.”
13. Having decided that the assets in question were indeed trust assets, Brereton J turned to what he described (at paragraph 12) as the “much more difficult issue”. He set the legal scene in the following paragraphs to which Meritus' counsel referred:
“13 The relevant principles concerning a trustee's right of indemnity against trust...
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