Beddoe Relief: A Case Study From The Grand Court Of The Cayman Islands

This article was first published on Lexis®PSL Private Client on 2 June 2017. Click for a free trial of Lexis®PSL.

In the case of X (as Trustee of the A Trust) v Y (as Beneficiary of the A Trust) (unreported) 15 March 2017, Smellie CJ, the Grand Court of the Cayman Islands granted Beddoe relief to a trustee in circumstances where a successful third party claim would have exhausted trust assets. Partner Rachael Reynolds and Associate Shaun Maloney assess the decision's potential ramifications.

What issues did this case raise? The trustee of a Cayman Islands trust had been joined as a defendant to a claim brought by a third party in England. The third party claimed substantial damages against the trustee for breach of contract and in tort. An adverse judgment in the English proceedings would have exhausted the trust assets.

The trustee sought directions under section 48 of the Trusts Law (2011 Revision) to defend the English proceedings and, if so granted, an indemnity out of the trust assets for its costs and expenses properly incurred for that purpose.

The Cayman Islands court was required to address the ability of a trustee to obtain Beddoe relief in these circumstances and also determine who should bear the burden of costs, as between the third party and the trustee.

What did the court decide and what are the practical implications? The court recognised the well-established principle, beginning with Re Beddoe [1893] 1 Ch 547 that where a trustee pursues or defends an action unsuccessfully without the protection of a court order, it will only be granted an indemnity by the court in exceptional circumstances.

The trustee's application for Beddoe relief turned upon whether the trustee would be acting properly in defending the third party's claim.

If the English proceedings went undefended, the third party would have been entitled to default judgment. This would have exhausted the trust assets to the detriment of the beneficiaries. On the other hand, any reduction in the value of the trust assets from an unsuccessful defence by the trustee would have depleted the trust property against which the third party could enforce any judgment in the English proceedings.

On balance, the court decided that the potential prejudice suffered by the third party from the trustee's defence was not a factor that could outweigh the interests of the beneficiaries.

The third party had only asserted a personal (ie non-proprietary) claim against the trustee and its...