Appleby Corporate Services (BVI) Ltd (as a Trustee of Clef Trust) Claimant v Citco Trustees (BVI) Ltd Defendant

• Jurisdiction: British Virgin Islands
• Judge: Bannister J [Ag]
• Judgment Date: 20 January 2014
• Neutral Citation: VG 2014 HC 1
• Judgment citation (vLex): [2014] ECSC J0120-1
• Court: High Court (British Virgin Islands)
• Docket Number: CLAIM NO. BVIHC (COM) 0156 of 2011
• Date: 20 January 2014

[2014] ECSC J0120-1

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

COMMERCIAL DIVISION

CLAIM NO. BVIHC (COM) 0156 of 2011

Appleby Corporate Services (BVI) Limited (As a Trustee of Clef Trust)

Claimant

and

Citco Trustees (BVI) Limited

Defendant

Appearances:

Mr Michael Heywood and Mr Andrew Willins for the Claimant

Mrs Shân Wamock-Smith QC, Mr Kissock Laing and Mr Jeremy Child for the Defendant

(BVI discretionary trust - sole asset entire issued share capital of investment company - management of investments delegated to professional managers - managers disregarding contractual investment guidelines - funds invested by managers in speculative trading on margin - almost entire value of trust fund lost in consequence - duties of trustee holding majority shareholding in company whose assets represent the value of the trust fund - whether trustee under a duty to review performance of managers - Bartlett v Barclays Bank Trust Co Ltd 1 considered and applied - whether trustee exonerated by Trustee Act section 31(1) - meaning of 'willful default' - In re Vickery 2 3 distinguished - Trustee Act Sch 2 paragraphs 4(q)(i) and 8 considered - correct

approach to the assessment of equitable compensation - Court's power to award interest in equity)

Bannister J [Ag]

1 In these proceedings, the current trustee of a BVI discretionary trust asks for an order requiring the former trustee (in effect) to reconstitute the trust fund by compensating the trust for losses which it claims were suffered by the trust as a result of the negligence of the former trustee. The former trustee is Citco Trustees (BVI) Limited. I will refer to it as Citco. 4 The current trustee is Appleby Corporate Services (BVI) Limited ('Appleby'). The trust was settled on 27 December 2000 by a deed made between Franklin Alejandro Marmorek ('Mr Marmorek') as Settlor and Citco as Trustee. The trust is called the Clef Trust. I will refer to it simply as 'the Trust.' The only assets of the Trust are (1) the entire issued share capital of a BVI registered company called Clef International Holding Limited ('the Company') and (2) the claim made in the present proceedings.

Background

2 Mr Marmorek is of Argentine nationality and comes from a prosperous commercial/mercantile background. In 1995/6 the family realised its businesses for cash and Mr Marmorek's share of that was in excess of US$30 million. He appears to have managed that cash and any investments made with it on his own account until about the end of the decade. During that period he received advice on investment from a Mr Gabriel Wiegers, who when Mr Marmorek came across him was an employee of ABN Amro at its Buenos Aires office ('Mr Wiegers'). In about 1999 Mr Wiegers joined a firm of independent financial advisers in Buenos Aires called Consultatio and at the suggestion of Mr Wiegers Mr Marmorek became a client of that firm. During this period and before the establishment of the Trust, Mr Marmorek was kept in touch with the performance of his portfolio through regular meetings with Mr Wiegers.

3 In about March 2000 Mr Marmorek decided to place part of his wealth (the figures are not clear, but perhaps as much as about US$10 million), then in the custody of UBS, into a special purpose limited company. He made it clear in his evidence that this decision was unrelated to his later decision to make use of a trust structure. The Company was the vehicle chosen for this purpose. Mr Marmorek was issued with 50% of its shares and his wife with the other 50%.

4 At some stage in the latter part of 2000 Mr Marmorek decided that he wished at any rate a significant proportion of his wealth (part of which was by now held by the Company) to be put into trust. The main driver for this decision appears to have been personal tax

saving, which is why Mr Manmorek did not become a beneficiary of the Trust as eventually established. Mr Marmorek also said that he wished his assets to be put in trust so that they would be safe for his widow and children if anything happened to him. I never quite managed to grasp why putting the assets into trust would be of particular benefit to Mr Marmorek's family in the event of his death, but, again, tax may have had something to do with the decision and in any case it does not really matter for present purposes

5 In order to arrange for the creation of the Trust, Mr Marmorek was put in touch by Mr Wiegers, then working for Consultatio, with Ms Sylvie Legionnet, of Citco's Uruguay office ('Ms Legionnet'). Largely, I think, because the Company was a BVI registered company, it was decided to establish the Trust in this jurisdiction, so that both the Trust and the Company would be domiciled in and governed by the laws of a single jurisdiction. For whatever reason, all the trust arrangements were in fact made between Ms Legionnet and personnel working out of Citco's Cayman Islands office ('Citco Cayman') and, once the Trust had been established, its files were kept there, rather than in the BVI. While the Trust was being set up, parallel arrangements were being made through Mr Wiegers to establish a Jersey CI trust for a large part of Mr Marmorek's remaining wealth. Those arrangements matured into the establishment of a Jersey trust called the Harmony Trust - I think at around the same time.

6 At all events, documents were executed, all dated 27 December 2000, for the establishment of the Trust. The first was a Deed of Trust, made between Mr Marmorek as Settlor and Citco as Trustee. The Trust Fund was defined as (i) the property specified in the First Schedule; (ii) any later accretions; and (iii) any accumulations. The First Schedule (headed 'Trust Fund') listed one asset only - the entire issued share capital of the Company. There have been no accretions or accumulations, with the result that the Trust Fund, as defined, has at all times comprised only the shares in the Company. Shortly before execution of the Trust Deed, Mr Marmorek's wife transferred her 50% shareholding to Mr Marmorek. Mr Marmorek then transferred the entire issued share capital of the Company to Citco. The Trust is a fairly straightforward discretionary trust with the beneficiaries defined as Mrs Marmorek and the four children of Mr Marmorek. There was power for the Trustee to add to or remove persons from the class of beneficiaries (with the consent of the Protector, if any 5) but the power has not, to date, been exercised.

7 By clause 8(a) of the Trust Deed Citco was given all the powers and immunities set out in what is now the Second Schedule to the Trustee Act ('the Act'). Those powers include the power contained in what is now paragraph 4(q)(i) of the Second Schedule ('paragraph 4(q)') to delegate the management of investments.

8 By an Investment Management Agreement ('the IMA'), also dated 27 December 2000 and entered into between Citco (1); the Company (2); and a party named as 'Alberto Gabriel Wiegers, Consultatio Independent Advisers' (defined as the 'Investment Manager') (3), it was recited (Recital A) that Citco was the trustee of the Trust; that it was empowered (Recital B) by the provision in the Act then corresponding to paragraph 4(q) to delegate management of all or part of the investment of the Trust Fund (as defined in the Trust); that (Recital C) the Company owned the Trust Fund; and that (Recital D) Citco and the Company wished to be provided with management services which the Investment Manager was willing to provide. As a matter of fact, the Company did not own the Trust Fund as defined in the Trust Deed. The Trust Fund as defined in the Trust Deed was the entire issued share capital of the Company, which was (or was about to become) vested in Citco. Neither Citco nor the Company needed the assistance of any investment manager in order to manage and invest the shares of the Company, because there was never any intention that they should be otherwise than held permanently by Citco. Nevertheless, the operative part of the IMA went on to provide that Citco and the Company appointed the Investment Manager to manage the investment of the Trust Fund (subject to the overall supervision of Citco). Subject to that qualification, the Investment Manager was given authority to manage the investment of the Trust Fund at its complete discretion, but within the terms of a Limited Trading Authority ('the LTA'). The IMA further provided that the activities of the Investment Manager were subject to the control and review of Citco and the Company. The provisions of the IMA could be varied, etc, only by writing.

9 The LTA was scheduled to the IMA. It was executed by the Company and by the Investment Manager alone. Citco was not signatory to it. By the LTA the Company authorised the Investment Manager to open and operate in the name of the Company bank and brokerage accounts as might be agreed in writing and to enter into contracts with brokers and dealers for the sale and purchase of securities and similar property, including short sales. The document went on to provide that the Investment Manager was to manage the assets in accordance with an attached Annex. Subject thereto, transactions directly or indirectly involving commodities, derivatives such as futures and options, margin payments or nil or partly paid securities or which involved liabilities of any other nature were not permitted unless expressly authorised in writing by the Company. Withdrawals for any account, other than for reinvestment, were not authorised, nor were related party transactions. The final paragraph of the LTA provided that the authorisation granted was to remain in force until Consultatio received written notice from the Company to the contrary. Two managers at Citco Cayman's office signed for the Company and Mr Wiegers signed for Consultatio.

10 The document which the parties accepted at trial to be the Annex referred to in the LTA emerged rather late...