Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Company (Cayman) Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judge | LORD COLLINS |
| Judgment Date | 21 June 2011 |
| Neutral Citation | [2011] UKPC 17 |
| Date | 21 June 2011 |
| Docket Number | Appeal No 0036 of 2010 |
| Court | Privy Council |
and others
[2011] UKPC 17
Lord Hope
Lord Mance
Lord Collins
Lord Clarke
Lord Reed
Privy Council
Appellant
Stephen Moverley Smith QC
Alexander Pelling
Christopher Russell
(Instructed by Berwin Leighton Paisner LLP)
1st – 5 th Respondents
Colin McKie
Jane Clarkson
(Instructed by Lawrence Graham LLP)
6 th Respondent
Nigel Meeson QC
Stephen Leontsinis
(Instructed by Harcus Sinclair)
LORD COLLINS (delivering the opinion of the Board):
I Introduction
This appeal is about the jurisdiction of the court to appoint receivers by way of equitable execution, and in particular whether the Cayman Islands court should apply the decision of the Court of Appeal in England in Masri v Consolidated Contractors International (UK) Ltd (No. 2) [2008] EWCA Civ 303, [2009] QB 450 (" Masri (No 2)") so as to appoint receivers over a judgment debtor's power of revocation of trusts established by him in the Cayman Islands under Cayman law, the assets of which are exclusively in the Cayman Islands.
The appellant, Tasarruf Mevduati Sigorta Fonu ("TMSF"), was established by the Turkish State to restructure and administer failed banks whose banking licences have been revoked. As part of the restructuring and administration process, TMSF has acquired the assets of two Turkish banks, Bank Ekspres and Egebank. Under Turkish banking legislation, TMSF has authority to bring proceedings in its own name for the recovery of losses sustained by the banks.
Mr Demirel was the controller of a group of companies which owned Egebank. TMSF claimed that at the time of its demise Egebank had accumulated losses of over US$1.2 billion, that investigations subsequently revealed that some US$490 million had been misappropriated from Egebank by Mr Demirel, his family and associates, and approximately US$336 million had been misappropriated from other banks. On 20 November 2001 the Turkish courts gave judgment in personam against Mr Demirel in the sum of US$30 million in respect of a right of action of Bank Ekspres against Mr Demirel for damage caused by allegedly fraudulent loan transactions: see Tasarruf Mevduati Sigorta Fonu v Demirel [2006] EWHC 3354 (Ch), [2007] 2 All ER 815; affd [2007] EWCA Civ 799, [2007] 1 WLR 2508 (service out of the jurisdiction in claim in England to enforce the Turkish judgment).
TMSF learned that Mr Demirel had established two discretionary trusts in the Cayman Islands, with assets of some US$24 million. For practical purposes the beneficiaries are Mr Demirel and his wife. Mr Demirel has power of revocation of the trusts, with the consequence that he could re-vest in himself an amount which would satisfy a very large proportion of the judgment debt. TMSF seeks the appointment of a receiver by way of equitable execution with a view to reaching the power of revocation and thereby reaching the funds in the trusts.
The legal background to the dispute is that the power to appoint a receiver by way of equitable execution is contained in section 37(1) of the Senior Courts Act 1981 (formerly called the Supreme Court Act 1981), as applied in the Cayman Islands by section 11(1) of the Grand Court Law (2008 Revision). Under section 37(1) the court "may by order … grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so." The appointment of a receiver by way of equitable execution is not "execution" in the ordinary legal sense of the word, but a form of equitable relief for cases in which execution in that sense is not available.
In Masri (No. 2) the Court of Appeal in England held that the jurisdiction to appoint a receiver by way of equitable execution permitted of gradual and incremental development, and in particular was not limited to choses in action which were presently available for legal execution. The appointment of a receiver was not limited to such property as might be taken in execution, but extends to whatever is considered in equity to be assets: Masri (No 2) at [151]; Kerr, Receivers (1 st ed 1869), p 87.
Mr Demirel resisted the appointment of the receiver broadly on these grounds: (1) a receiver by way of equitable execution could only be appointed over property; (2) a power of revocation was for this purpose in the same category as a general power of appointment; (3) it had been long been understood that (in the absence of legislative provision to the contrary) a power of appointment was not property; (4) the order could only be effective if the receiver were authorised to revoke the trusts on Mr Demirel's behalf and/or Mr Demirel were ordered to revoke them; (5) as a matter of law, the power to revoke was not delegable and the court had no jurisdiction to order the exercise of the power of revocation.
Both Smellie CJ and the Court of Appeal of the Cayman Islands refused TMSF the remedy it sought. The main question on this appeal by TMSF is whether the power of revocation of the trusts is sufficiently close to the notion of property to enable the equitable remedy of a receiver by way of equitable execution to be available to ensure that Mr Demirel has not put himself beyond the reach of the judgment creditor, and whether the appointment can be made effective by ordering Mr Demirel to transfer or delegate the power of revocation to the receivers (and, in default, ordering the transfer or delegation to be executed on his behalf).
II The Trusts and the Cayman proceedings
The Trusts
On 28 June 1999 Mr Demirel executed two deeds of trust, establishing two trusts, the Mana Trust and the Dolphin Trust ("the Trusts"). The trustee of the Trusts is the first respondent, Merrill Lynch Bank and Trust Company (Cayman) Limited ("Merrill Lynch"). The Trusts are Cayman Islands discretionary trusts, and it is common ground that the Trusts are valid and duly constituted as a matter of Cayman Islands law.
The discretionary objects of both Trusts are Mr Demirel, Ayse Nur Esenler, who is now the wife of Mr Demirel, and Mr Demirel's children and remoter issue now living or born afterwards. At present, Mr Demirel has no living children or remoter issue. The residuary beneficiary is charity.
The assets of the Trusts are shares in Cayman companies. The shares are held by Fairfield Nominees Ltd as nominee for Merrill Lynch. The company owned by the Dolphin Trust is the fifth respondent, Medro Ltd. The companies owned by the Mana Trust are the second, third and fourth respondents, Kaffee Ltd, Barla Finance Ltd and Cunur Cash Ltd. As of 31 October 2006 these companies held cash balances at Merrill Lynch amounting in aggregate to about US$24 million.
Mr Demirel reserved a power to revoke, amend, vary or alter the Trusts, in these terms:
"This Trust may be revoked, amended, varied or altered in any manner whatsoever from time to time and at any time by the Settlor by deed and delivered to the Trustees provided always that no such revocation, amendment, variation or alteration shall take effect until actual receipt of such instrument by the Trustees or with the written consent of the Trustees thereto if such revocation, amendment, variation or alteration would increase or extend the obligations, liabilities or responsibilities of the Trustees".
Cayman proceedings
On 1 December 2005 TMSF issued proceedings in Cayman against Merrill Lynch and the Trust Companies in cause no. 555 of 2005 (the proprietary claim). On 5 December 2005 TMSF obtained freezing orders from Levers J against the Trust Companies in that action in the sum of US$30 million, and on 5 January 2006 the freezing orders against the Trust Companies were renewed by Levers J.
On 23 February 2007 TMSF issued proceedings against Mr Demirel, in order to enforce the Turkish judgment in the Cayman Islands. TMSF obtained a freezing order from Levers J against Mr Demirel in the value of US$45 million.
On 30 March 2007 the proprietary claim was consolidated with the claim to enforce the Turkish judgment.
On 30 April 2007 Mr Demirel served a defence to the claim against him to enforce the Turkish judgment, and on 30 April 2008 summary judgment was given in favour of TMSF in the amount of US$30 million plus interest and costs.
On 22 August 2008 TMSF issued a summons seeking: the appointment of receivers by way of equitable execution over the power to revoke, amend, vary or alter the Trusts contained in the Trusts; and orders against Mr Demirel for the assignment to the receivers of the powers of revocation and/or their exercise, and upon the powers being vested in the receivers, authorisation to exercise the power to revoke the Trusts; following the exercise of the power, extending the appointment of the receivers over the share capital and the assets of the companies holding the money, and vesting in the receivers the share capital and the assets of those companies.
The application by TMSF was dismissed by Smellie CJ on 21 July 2009 and TMSF's subsequent appeal against that decision was dismissed on 9 September 2009 by the Court of Appeal of the Cayman Islands ("the Court of Appeal"), which gave leave to appeal to the Board.
Turkish bankruptcy
Meanwhile, on 31 December 2008 Mr Demirel had been declared bankrupt by the Turkish court.
III The judgments below and the appeal
Judgment of Smellie CJ
Smellie CJ's starting point was that the effect of Masri (No. 2) was that, although the jurisdiction to appoint a receiver was not limited to property which was available for legal execution, it was still necessary that it be in the nature of property. The distinction between a power and property was fundamental and longstanding: Ex Parte Gilchrist; Re Armstrong (1886) 17 QBD 521....
To continue reading
Request your trial
-
Sean Lindsay v Jared Michael O'Loughnane
...relied upon the decision of the Privy Council in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Company (Cayman) Limited [2011] UKPC 17, a case concerning a right of revocation of a trust held by the debtor where the question was whether the court could order the defendant t......
-
Parbulk II A/S (Arbitration Claimant) v Heritage Maritime Ltd SA (Arbitration Defendant)
... ... had been created as a single purpose company for the purposes of performing the sale and ... ...
-
BAT Industries Plc v Windward Prospects Ltd (First Defendant)
...is not to be taken as conferring an 'unfettered power'. In Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17 the proper approach was summarised by Lord Collins giving the judgment of the Privy Council as follows at [55] to [58]: "55 The background ......
-
Blight and Others v Brewster
...own right." As the Privy Council pointed out in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Company (Cayman) Limited [2011] UKPC 17 at [63], "[t]he basis for such a characterisation of the order in that case is not clear." 64 The Privy Council themselves distinguished Fiel......
-
Can an interest in a discretionary trust ever be a proprietary interest?
...where the defendant has power of disposition over the trust’s assets (see TMSF v Merrill Lynch Bank & Trust Co (Cayman) Ltd (2009) [2011] UKPC 17, [2012] 1 WLR 1721), the “illusory trust” ground in JSC Mezhdunarodniy Promyshlenniy Bank, et al v Sergei Viktorovich Pugachev et al [2017] EWHC ......
-
Clayton v Clayton: Trust busting
...for the trusts' property. 4That issue is discussed in the writer's article: Clayton v Clayton: Nipping the "Illusory Trust" in the Bud. 5[2011] UKPC 17 (PC). 6In re Triffitt's Settlement [1958] Ch 852 citing Thomas, Power (1998) at The content of this article is intended to provide a genera......
-
Dispute Resolution Review (4th Edition) - Cayman Islands
...2011, Quin J. 19 Unreported, decision dated 18 August 2011. 20 Ibid. 21 [1996] AC 284. 22 Unreported, decision dated 30 November 2011. 23 [2011] UKPC 17 (Cayman 24 [2009] QB 450. 25 [1958] Ch 852. 26 [2008] CILR 301. 27 The principles applicable to such applications were considered in First......
-
TMSF v Merrill Lynch Bank - Breaking into Discretionary Trusts
...claims of the beneficiaries creditors. A Turkish fraud A recent decision of the United Kingdom's Privy Council TMSF v Merrill Lynch Bank [2011] UKPC 17 found that the assets of a discretionary trust established in the Cayman Islands were available to creditors of an extremely wealthy indivi......
-
CONTEMPT ORDERS AND JUDICIAL “ATTACHMENT” OF EQUITABLE PROPERTY
...Cie International de Navigation[2004] 1 AC 260. 36179 F 3d 1228 (9th Cir, 1999). See also Re Lawrence279 F 3d 1294 (11th Cir, 2002). 37[2012] 1 WLR 1721. 38 See Derby & Co Ltd v Weldon (No 6)[1990] 1 WLR 1139. 39 See Ewing v Ewing(1883) 9 App Cas 34, 40; 10 App Cas 453; Penn v Lord Baltimor......
-
Table of Cases
...EWHC 1447 (Ch), [2007] 1 All ER 851 26 Table of Cases xxxv Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17, [2012] 1 WLR 1721 259, 261 Tasbian Ltd (No 3), Re [1991] BCC 435 151 Taylor v Neate (1883) 39 Ch D 538 248 Tea Corp, Re [1904] 1 Ch 12 37 ......
-
Receivership
...Another v Novokuznetsk Aluminium Plant [1998] QB 406. 384 Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17, [2012] 1 WLR 1721 at [56]–[57]. 385 Blight and Others v Brewster [2012] EWHC 165 (Ch), [2012] 1 WLR 2841. 386 Bourne v Colodense Ltd [1985]......
-
Equity and Trusts
...Furthermore, this decision did not consider the effect of Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd[2012] 1 WLR 1721. In this case, the Privy Council held that a judgment creditor's power of revocation of the trust meant that the judgment creditor may have ......