Cayman Court relieves law firm from its undertaking when “caught between the Devil and the deep blue sea”
In a recent decision of the Financial Services Division of the Grand Court of the Cayman Islands (In the matter of a trust in favour of Lorenz and Lorenz), Justice Kawaley directed pursuant to section 48 of the Trusts Act (2021 Revision) that the applicant law firm could pay funds it had been holding on trust into court under section 69 of the Act, after indemnifying itself for its costs.
In this case, the applicant law firm was holding money in connection with a conveyancing transaction on trust for over five years pursuant to an undertaking which it gave to its client and her spouse, both of whom were then divorcing. The terms of the undertaking created an express trust to hold the funds until specific instructions were received from each party. Despite repeated requests for a joint instruction signed by both parties as to the disbursement of the funds, no such instruction was received and with no clear end in sight the law firm invoked the court’s supervisory jurisdiction.
Justice Kawaley noted that, unlike a typical trustee appointed on the terms of a trust instrument (with all of the express powers that this would normally afford), a law firm acting in relation to a conveyancing transaction and agreeing to hold the proceeds of sale for an interim period assumes none of those benefits in return for accepting ill-defined burdens, such that it is in effect “between the Devil and the deep blue sea”. In those circumstances, Justice Kawaley applied the court’s supervisory jurisdiction over trusts to relieve the law firm, who merely acted for a party who was also a party to matrimonial proceedings in relation to the sale of matrimonial property, from the burden of continuing to hold and manage the proceeds of sale and from being bound by the undertaking.
This case is a good example of the Grand Court exercising its jurisdiction under section 48 of the Act in different circumstances to which the prescient dicta from 2005 by the former Chief Justice Smellie in A v Rothschild Trust Cayman Limited envisioned, and is worth keeping in mind:
it is a jurisdiction to which resort has been taken in a number of different circumstances and while its boundaries have never been defined by the court, it has, from the decided cases, clearly come to be regarded as a remedial jurisdiction, for orders to be made as the justice of the case deserves.
As Justice Kawaley observed, at first blush it seemed somewhat odd for a section 48 application typically invoked by professional trustees to be relied on by a law firm holding money pursuant to a mere undertaking. However, this is an important decision, which serves as reminder of when a person or firm may be acting as a trustee (in this case an express trust was created but it could also extend to implied and constructive trusts) and the circumstances in which the Court may exercise its supervisory jurisdiction to grant relief in appropriate circumstances.
