Cayman Islands: Tasarruf Meduati Sigorta Fonu v Merrill Lynch (Cayman) Limited And Others

Last Updated: 9 October 2009
Article by Giorgio Subiotto and Fiona Barrie

Cayman Islands Court of Appeal, Unreported judgment given 9 September 2009.

As a matter of English and Cayman law, does the court have jurisdiction to appoint a receiver, at the behest of a judgement creditor, by way of equitable execution over a settlor's power of revocation of a trust?


On 08 June 1999, a Turkish citizen resident in Turkey, Mr. Demirel, established two Cayman trusts (the "Trusts"). Under the trust deeds, which were materially the same, Mr. Demirel reserved to himself a power of revocation. At the time of the hearing of the appeal to the Cayman Islands Court of Appeal, the trust assets were worth some US$27 million.

A Turkish court had awarded judgment against Mr. Demirel in favour of Tasarruf Meduati Sigorta Fonu ("TMSF"), a Turkish Government entity responsible for failed Turkish banks, for USD $30 million together with interest and costs. In separate proceedings to enforce the Turkish judgment in the Cayman Islands, the Grand Court recognised that judgment. In a separate appeal, the Court of Appeal dismissed Mr. Demirel's application for leave to appeal against the judgment obtained in the Grand Court, despite an outstanding appeal to the ECHR by Mr Demirel complaining of an unfair trial in Turkey.

Mr. Demirel had been made bankrupt in Turkey at the behest of TMSF. TMSF's counsel offered an undertaking that, if receivers were appointed over Mr. Demirel's powers of revocation, any assets thereby recovered would be provided to Mr. Demirel's trustee in bankruptcy, so that they would fall into his estate for the benefit of all his creditors, not just TMSF.

The Claim

TMSF (represented by Ogier) made application to appoint receivers over Mr. Demirel's power of revocation of the Trusts by way of equitable execution of his judgment debt. At first instance, Smellie CJ of the Grand Court refused the application. However, he did appoint joint receivers by way of equitable execution over any income or capital that might in the future be appointed to Mr. Demirel from the Trusts. The Chief Justice further declared that if the power of revocation were to be exercised by Mr. Demirel, the assets of the Trusts that would revert to him would immediately become subject to the receivership.

TMSF appealed against the Chief Justice's refusal to appoint receivers over Mr. Demirel's power of revocation.


The Court of Appeal (Chadwick, P. and Mottley and Vos JJA) dismissed the appeal, although it disagreed with some of Smellie CJ's reasoning at first instance. The judgment of the Court was given by Vos JA.

On close analysis, the Court concluded that the power of revocation given to Mr. Demirel was unfettered; he could exercise it as and when he chose without anyone else's consent and without regard to the interests of anyone else.

The Court considered that the appeal raised two issues: first, the jurisdictional question whether, as a matter of law, the court should recognise for the first time that equitable execution could be allowed in respect of powers of revocation of the type in question; and secondly, if such jurisdiction existed, how the discretion, as a matter of law, should be exercised. In relation to the first question, the Court was more concerned with whether, as a matter of policy, such jurisdiction should be recognised; it was less concerned with whether a power of revocation constituted "property", holding that the answer to that question was ultimately inconclusive.

On the jurisdictional question, the Court recognised that, on the authority of the English Court of Appeal in Masri v. Consolidated Contractors International Company SAL [2008] 2 Lloyd's Rep. 128, the jurisdiction to appoint a receiver by way of equitable execution could be advanced incrementally. But it concluded that it would be unwise and inappropriate for the court to advance the equitable jurisdiction to extend over a power of revocation of a trust, and that any such advance should be made by legislation, not the Court.

In coming to that conclusion, the Court began with the observation that at common law, as illustrated by the judgment of Lord Eldon LC in Thorpe v. Goodall [1811] 17 Ves. 388, 460, a power of appointment exercisable in favour of the donee of that power was not a species of 'property' that fell into the donee's bankrupt estate; that it took express legislative intervention following that decision to expand the concept of 'property' divisible amongst a bankrupt's creditors. In the Court's view, the legislative follow-up undermined the submission of TMSF that powers were always understood to be a species of property for the purpose of Cayman's Bankruptcy Law, even without the enactment of section 100 of that Law, which expressly includes powers within the property of a bankrupt. To similar effect, it concluded that the definition of 'property' in section 2 of Cayman's Trusts Law was not sufficient to include a power of revocation, as there was no express mention of powers (it is worth noting that in none of the trust statutes of Jersey, Guernsey or the BVI either, does the definition of "property" include "powers"). Furthermore, it considered that a power of revocation was merely a narrow power of appointment.


This is an important decision; as the Court of Appeal itself acknowledged, it concerns a point of great general or public importance.

Quite apart from the issue that it decided, the case also illustrates the value of offshore trusts for asset-protection purposes, even where such trusts reserve to the settlor an unrestricted power of revocation. In this regard, it is interesting to note that the Court endorsed the finding of the Chief Justice that the Trusts were valid and duly constituted, notwithstanding the unfettered power of the settlor to revoke the Trusts. The case, therefore, goes some considerable way to responding to those who may be minded to attack as shams offshore trusts with reserved powers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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