Key takeaways
- For the purposes of determining the incidence of costs under Buckton, the fact that the relief sought is strenuously opposed by a party and comments are traded that some might perceive as "hostile" does not mean that a Category 2 case (i.e. where costs are generally paid from the trust) becomes a Category 3 case (i.e. where the "loser pays").
- The Cayman Islands Court sets a high bar for prospective costs orders from the trust fund because of the concerns about fettering the discretion of the Court in a final hearing, but temporary orders may be subject to different considerations. This could benefit parties unable to fund legal costs during proceedings.
- As regards confidentiality in private trust cases, the Cayman Islands judiciary will continue to treat proper privacy and confidentiality concerns as an appropriate exception to the important principle of open justice.
In In the Matter of the A Trusts (unreported, 25 February 2024, Doyle J), the Grand Court of the Cayman Islands provided guidance as to the appropriate approach to costs in trust matters and also reflected on the need to balance open justice with the right to privacy.
Case overview
The Plaintiff ("P") is the Settlor of various family trust (the "A Trusts"), the majority of which are governed by the laws of the Cayman Islands. P and certain of his family members are beneficiaries of the A Trusts in varying combinations, including P's son, the fourth defendant ("D4").
The A Trusts were administered by the first defendant ("D1") as trustee. In 2023, P, in his capacity as Protector of each of the A Trusts, by way of certain deeds purported to remove D1 as trustee and replace it with the third defendant ("D3"). In 2024, P, by way of certain deeds, also purported to remove D4 as his successor protector and appoint his former wife in D4's place. Upon D4 disputing the validity of these actions on the basis of P's capacity, P filed an Originating Summons seeking judicial determinations as to his capacity to effect the same.
At a directions hearing in February 2025, a number of procedural issues were determined. Likely to be of most interest to practitioners is the helpful guidance the Court provided in respect of costs in trust cases. The Court also made some interesting observations regarding the confidentiality of trust proceedings and how the approach of the Cayman Islands differs from that in England & Wales.
Costs
D4 sought a prospective order that his costs should be payable out of the trust fund on the indemnity basis. He sought this order pro tem (i.e. temporarily, for the time being).
The Buckton categories
The Cayman Islands Courts have frequently applied the English case of Re Buckton [1907] 2 Ch 406, which sets out three categories of trust proceedings for the purposes of determining the incidence of costs. In summary:
• Category 1: includes proceedings brought by trustees to have the guidance of the court on some question of law arising in the administration of the trust. In these cases, the costs of all parties are usually treated as being necessarily incurred for the benefit of trust fund and ordered to be paid out of it.
• Category 2: involves proceedings brought by someone other than the trustee but raising the same kinds of issues as Category 1. Such proceedings differ in form but not in substance from Category 1 and similar considerations apply as to costs.
• Category 3: involves proceedings that have the character of a hostile claim founded on a point of construction or law raised by someone other than a trustee to a beneficial interest in or entitlement to the trust fund. Such a claim is brought not in substance for the benefit of the trust fund, but for the benefit of the plaintiff. In such cases, the guiding principle is that the "loser pays".
Much of the debate in the A Trusts concerned which category the proceedings fell into in light of the hostile direction the proceedings had taken, specifically as between P and D4. P's position was that D4's position made this a Buckton Category 3 case (a hostile dispute between father and son) and therefore the Court should not make the costs order sought by D4. D4's position (with which D1 and D3 agreed) was that this was a Buckton Category 2 case.
Overall nature of the proceedings
In determining whether to make prospective costs orders, the Court determined that the overall nature of the proceedings fell within Buckton Category 2 for the following reasons:
• Standing back and looking at the case in the round, the overall nature of the litigation clearly fell within Buckton Category 2, despite how bitterly fought it was between P and D4. Although D4 had raised the issues as to P's capacity, the trustees (D1 and D3) also had concerns in that respect.
• The issues of capacity (which affected the proper identity of the trustee and protector) relate to the administration of the trusts and is vital to their administration. The resolution of these issues is important to the interests of the beneficiaries as a whole and it was plainly in the best interests of the A Trusts that the issues which arose on P's Originating Summons are determined.
• The fact that the relief is strenuously opposed by a party or parties and that comments are traded that some might perceive as "hostile" does not change the overall nature of the case or take it out of Category 2. The hostility between P and D4 in this case did not take it out of Category 2. Parties and courts need to take care how they use the word "hostile" in this area of law and the Court must distinguish between the nature of the proceedings and the attitudes and language of those engaged in the proceedings. Even if one party harbours "hostile intentions" that is insufficient to take a case out of Category 2 if the nature of the case otherwise falls within that category.
Prospective costs orders pro tem
The Court made prospective cost orders on a pro tem basis, including an order that D4's costs of the proceedings should be paid from the assets of the trust pro tem on an indemnity basis. The Court was of the view that it would be in the interests of justice and assist in the just, expeditious and economical determination of the issues arising from the Originating Summons to make such orders.
Doyle J noted that where prospective costs orders are not sought merely on a pro tem basis, the Court sets the bar high because of the concerns about fettering the discretion of the Court in a final hearing. This means the Court at the interlocutory stage should be satisfied that the judge at trial could only properly exercise his discretion by ordering costs to be paid out of the trust fund. Conversely, in pro tem cases such as this, Doyle J queried whether the same level of judicial hesitation or judicial reluctance should be exercised as there is no fetter of the trial judge's discretion to make different costs orders at the final hearing. A pro tem prospective costs order could be adjusted at the end of the final hearing.
As to the risk that D4 would be unable to satisfy any adverse costs order made against him at a final hearing, Doyle J held that this concern was outweighed by the benefit the Court would derive from D4's "focused and funded engagement" with the proceedings. Doyle J stated that D4 should have the proper opportunity to put before the Court his position on the issues for determination and a prospective costs order pro tem should give D4 a proper opportunity to do that.
The Court did accept that were the trust fund much smaller, there might have been much more force in this prejudice point if D4 could not repay any funds advanced. However, in this case, the A Trusts were stated to be worth over US$1 billion, so there was no real concern about any real financial hardship to P or the trustees.
Confidentiality
The Court had previously granted a confidentiality order in the proceedings. In his judgment, Doyle J reflected on the balance that needed to be struck between open justice and legitimate privacy concerns. Whilst he emphasised the importance of open justice, he noted that jurisdictions such as the Cayman Islands, which encourage individuals to set up private trusts on the basis their privacy will be protected, should respect those expectations of privacy so far as the law and circumstances permit. In the words of Doyle J, "We must take care not to sacrifice a fundamental and constitutionally protected right of privacy on the altar of generalised assertions of open justice. In law context and specificity are important." The important principle of open justice has well established exceptions and a nuanced application in the Cayman Islands to proceedings in respect of private trusts.
Doyle J referred to the situation in England where he commented that "the English tide (some may describe it as a potential tsunami) of open justice (even in family matters) appears to be building up at a fast rate". He warned that if the "incoming English tide" of open justice generally is left unchecked, it could "swamp and adversely impact legitimate private trust industries worldwide." Insofar as private trusts are involved, Doyle J provided helpful reassurances that the Cayman judiciary will continue to do their best to ensure that "the sand on Seven Mile remains fresh and dry" in a well-respected financial services jurisdiction which "legitimately treats proper privacy and confidentiality concerns in private trust cases as an appropriate exception to the important principle of open justice".
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