Navigating Trustee Challenges: A Comprehensive Case Study Analysis

1. 10 May 2016 Hil De Frias Andrew Martin Richard Wilson QC On a sticky wicket: Exiting a Difficult Trusteeship

2. I’m a Trustee…Get me out of here 1

3. Case Study 1 2 Cogency Trust Company Limited (the “Trustee”), a Bermuda based trust company, is seeking advice on exiting the following trusteeship: Ernest Lee Richmond established the F. Lam Trust in August 1975. The trust is a fixed income trust for his grandson, Frankie Rob Lam (a US citizen), for his lifetime. The trust terminates on Frankie’s death and the trust fund is then required to be held for Frankie’s wife for life (income interest) and subject thereto, for his descendants through certain “Existing Trusts” (capital interest). The trust is irrevocable, not capable of amendment, there is no overriding power of appointment and no discretion in the trustees. One of the clauses in the trust deed states that: “The trust corpus shall not be distributed during the lifetime of the Beneficiary”. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

4. Case Study 1 (cont.) 3 In 2000, the Trustee made loans to Frankie of trust capital from the trust structure via the trust’s underlying company, contrary to the express provisions of the trust deed. Upon realising its mistake, the Trustee obtained judgement against Frankie for repayment of the loan monies totalling approximately $2 million. However, Frankie refused to meet the judgment against him and went on the run. The Trustee has not been able to locate Frankie ever since. The trust deed contains a clause which provides that: “The Beneficiary acting alone, may ratify any act (or omission) or any proposed action (or omission) of any Trustee, and such act (or omission), if so ratified by the Beneficiary, shall be conclusively presumed to have been a proper action (or omission) of the Trustee”.    The trust deed also provides that the Trustee can resign by giving notice to the Trust Protector, who is Frankie. It is then for the Trust Protector to appoint a successor trustee. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

5. Case Study 1 (cont.) 4 The Trustee wishes to terminate the Trust. What are the available options given that neither Frankie nor his wife can be located - it is not known whether they are still living or not? Would it make any difference whether the Trust had significant cash assets or not? • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

6. Considerations 5 • Loss to the Trust • Resign or Terminate Trust? • Indemnity? • Court Directions?

7. Options 6 • Anti-Bartlett? Is it effective? • Hastings Bass relief under s 47A? • Ratification: implied? Frankie’s wife? Who is “Beneficiary”? • Resignation? Vesting of Assets? • Indemnity? s 22 “negligent breach of equitable duty” • Court directions? • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

8. Case Study 2 7 MashaAnatolyevnaVolkova (a Russian national) settled the Artemis Trust in December 2009 for the benefit of herself, her husband (also Russian) and their three children (dual UK and Russian citizenship). The only trust asset is a 3 bed apartment in South Kensington, London, UK (the “Property”), held by the Trust’s underlying company, Athene Holdings Limited (“AHL”). The Property was bought for £1.5 million in January 2010. Masha funded a £500,000 deposit for the purchase of the Property and AHL obtained a mortgage with Salamander Bank (the “Bank”) to meet the remaining sales price and associated costs of the purchase totalling £75,000. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

9. Case Study 2 (cont.) 8 Masha and her family are the only persons to have lived in the property since its purchase. Additional borrowing of £200,000 was carried out using the Property as security to fund renovations to the Property. Masha was initially meeting all the mortgage repayments (interest only in the sum of £5,000 per month) but ceased paying in June 2015. Unbeknownst to the Trustee, Masha had a particularly close relationship with the chief lending officer, D. OgieDeeler, at the Bank who charged further borrowing against the Property to cover remortgage payments from July to December 2015. Mr. Deeler left the bank at the end of December 2015. Remortgage payments are due from January 2016 to date. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

10. Case Study 2 (cont.) 9 At the end of January 2016, the Bank calls in the mortgage and threatens foreclosure. The Trustee has had intermittent contact with Masha since July 2015. Masha has sent the odd postcard to the Trustee from various different locations around the world including the Middle East and South America and at one point sent a quick email to indicate that she was considering relocating to Las Vegas. However, from January to April 2016, the Trustee has been unable to make reciprocal contact with Masha. The bank has not proceeded to foreclose as yet, but the outstanding mortgage continues to increase daily as late payment interest is charged at a rate of 5% p.a. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

11. As at the end of April 2016, the amount due to the bank including late payment fees, etc. is in the region of £1,350,000. Due to intrusive construction works to build a new high-rise block of ultra-modern apartments next door to the Property, its value has decreased to £1,200,000. At the beginning of May 2016, Masha contacts the Trustee to confirm that her family is still living in the Property and wishes to remove the Trustee. She does not want the Property sold. What should the Trustee do? Case Study 2 (cont.) 10 • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

12. Bermuda: Limited recourse 11 The Trustees have entered into this Agreement solely in their capacities as trustees of the X Trust and the obligations of the Trustees hereunder are subject to the provisions of the Trust.  Notwithstanding any other provision of this Agreement, any and all liabilities of the Trustees created by this Agreement shall be limited to the extent such liability can be met from and out of the funds or other property from time to time subject to the trusts of the Trust and, accordingly: (a) the obligations of, and rights against, the Trustees under this Agreement and any and all liabilities of the Trustees that may otherwise arise in connection with this Agreement and the • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

13. Bermuda: Limited recourse cont’d 12 matters contained in this Agreement shall be performed, satisfied and paid only out of, and enforced only against and recourse under this Agreement shall be had only against, the funds and or other property from time to time subject to the trusts of the Trust; and   (b) no obligation of the Trustees under this Agreement or that otherwise may arise in connection with the matters contained in this Agreement is binding upon, nor in respect thereof shall any resort or recourse be had, judgment issued, or execution or other process levied against, any other property of the Trustees held in their capacities as trustees of any other trust or held in their personal private capacities. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

14. Jersey: The Z Trusts 13 “… we are satisfied that we may find that within the law of Jersey there is a form of equitable remedy which would justify an earlier trustee who had disposed of assets to a successor trustee having an entitlement to recover such of those assets as is necessary for the purpose of satisfying a claim which has been established under Article 32(1)(a) [of the Trusts (Jersey) Law 1984]”. Investec Trust (Guernsey) Ltd & Anr v Glenalla Properties Ltd & Ors, GLR 28/14, 41/2014 and 54/2015 • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

15. Article 32(1)(a) 14 • Where a trustee is party to any transaction or matter affecting the trust, if the other party knows that the trustee is acting as trustee, any claim by the other party shall be against the trustee as trustee and shall extend only to the trust property. • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

16. Prevention is better than cure? 15 “A clever person solves a problem. A wise person avoids it.” Albert Einstein • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

17. Adequate protection? 16 “Persons, whether professional men or not, who accept appointment as trustees…are clearly at risk…and have only themselves to blame if they accept the obligations of trustees without ensuring that they are sufficiently and effectively protected whether by their beneficiaries or otherwise from fiscal or other liabilities which may fall on them personally as a result of the obligations which they had felt able to assume” Lord Roskill, Roome v Edwards [1981] 1 All ER 736 at 744 • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

18. What can be done? 17 • Indemnity • Lien • Liability Insurance • Release & waiver • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

19. Conflict of Interest? 18 • Balancing fiduciary duty to beneficiaries with legitimate concerns to protect own liability • Proportionate & reasonable • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text

20. Contacts 19 • CLICK HERE TO ADD TITLE • Click here to add text • Click here to add text • Click here to add text