In a recent case before the Financial Services Division of the Grand Court Walkers successfully argued that a discretionary interest in a Cayman Islands trust was not an available asset for enforcement purposes over which a receiver could be appointed.
In the Matter of Y v R1 concerned an application to enforce a US arbitral award in the Cayman Islands pursuant to the Foreign Arbitral Awards Enforcement Law. The Plaintiff sought the appointment of receivers by way of equitable execution to receive all distributions made to or for the benefit of the Defendant from a Cayman Islands law governed irrevocable trust (the “Trust”), of which the Defendant was a discretionary beneficiary.
Whether Receivers can be Appointed Over Interests Held in a Discretionary Trust
The key issue determined by the Grand Court was whether an interest in a discretionary trust amounted to an asset susceptible to enforcement. In this case, the Defendant had already received substantial and regular distributions from the Trust which had represented the overwhelming majority of his income for a number of years.
It was common ground that the Court has the same jurisdiction as the English High Court with respect to the appointment of receivers, and also that where a judgment debtor owns the beneficial interest in a bare trust, the Court may appoint receivers by way of equitable execution in respect of that beneficial interest.
However, the position here was different in that because the trust was discretionary in nature, the debtor’s interest in the trust assets was yet to crystallise, albeit that it might well do so in the future.
The Plaintiff relied upon the English Court of Appeal decision of Masri v Consolidated Contractors International (UK) Ltd2 which held that the Court had jurisdiction to appoint a receiver by way of equitable execution in respect of future receipts due to a judgment debtor from a defined asset, and recognised the possibility of incremental developments in the Court’s jurisdiction, as established principles were applied to new situations.
However, the Defendant’s position was simply that there was no asset over which receivers could be appointed. The only right of the Defendant was to require the trustees to consider from time to time whether or not to apply the whole or some part of the Trust assets for the benefit of the Defendant, which did not amount to an interest in the Trust in itself. There was no suggestion that the trust was a sham or under the de facto control of the Defendant himself.
The Honourable Mrs Justice Mangatal held that there was nothing in the circumstances of an ordinary discretionary trust that could lead to the conclusion that a beneficiary has a legal or beneficial interest in the trust, and it therefore followed that where there are no available assets which can be viewed as the Defendant’s assets in equity, there can be no question of appointing a receiver over them. To grant the relief sought by the Plaintiff would amount to a radical and impermissible extension of the law. Whilst Masri opened the door to incremental development of the jurisdiction, that did not amount to removing all fetters on the Court’s powers of enforcement.
This is an important and welcome decision which indicates that whilst the Court may be open to the possibility of incremental developments in its jurisdiction, any such developments will be made on a principled basis. The appointment of receivers where there is no present interest in an asset (at least in the absence of sham or fraud) would amount to a significant departure from the orthodox understanding of the nature of discretionary trusts developed in the common law world over many years.
The Plaintiff has sought leave to appeal against the decision.
Nick Dunne and Andrew Gibson acted for the Defendant.
1 Mangatal J, 9 January 2018. The parties' names and judgment have been redacted and anonymised for publication.
2  Q.B. 450.
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