The long-running saga of the Dawson-DamerI litigation, which started back in 2015 and is understood to be the longest running trusts claim brought in the Bahamas, has finally reached its conclusion before the judicial committee of the Privy Council this week. The appellant beneficiary (Mrs Dawson-Damer) was again unsuccessful in her appeal seeking to set aside two appointments into trust in 2006 and 2009 on the basis that the trustee had given "inadequate deliberation" to her needs and that the settlor's wishes had been incorrectly identified, namely that the primary purpose of the trust in question was to benefit future generations, not Mrs Dawson-Damer.
Background
The trust at the centre of the claim was known as the Glenfinnan Settlement and the value of the assets in the trust at the time was in excess of US$400 million. The Grampian Trusts Company Limited was the trustee and Mrs Dawson-Damer was a discretionary beneficiary of that trust. Following the restructuring in 2006 and 2009, 98% of the assets in the Glenfinnan Settlement were transferred into the new trusts. Mrs Dawson-Damer was excluded as a beneficiary of those trusts and she argued that this constituted an improper exercise of discretionary power and that Grampian either considered irrelevant factors or failed to consider relevant ones, making the two appointments voidable (i.e. liable to be set aside). The second issue raised was that Grampian did not correctly identify the wish or intention of the settlor of the Glenfinnan Settlement, having identified the primary purpose as the benefit of future generations after Mrs Dawson-Damer. The settlor in this matter was actually a corporate settlor (Spey Limited) and there was therefore a question of corporate attribution.
Settlor's intention
On the latter point, the Board of the Privy Council found that, as Grampian had identified, it was Spey's intention to benefit future generations over Mrs Dawson-Damer, a conclusion supported by the Court of Appeal. This was a relevant consideration for the trustee to consider in the exercise of their discretion. As Spey was a corporate, rather than an individual settlor, the correct legal test for corporate attribution was the intention of all (or a majority) of Spey's board of directors. This was the finding reached by the trial judge, upheld by the Court of Appeal and again by the Board.
Inadequate deliberation
On the second issue, the test to be applied when considering whether Grampian's actions amounted to a breach of trust which warranted setting aside the appointments, was that set out in the leading case of Pitt v Holtii, namely whether the trustee would have acted differently (and not exercised its power to make the appointments), if it had given adequate deliberation to Mrs Dawson-Damer's circumstances.
Adequate consideration for a trustee involves taking into account all relevant factors, including the settlor's intentions and the needs and circumstances of the beneficiaries, and ensuring that decisions are made based on current and accurate information.
Criticism was directed at the trustee for failing to obtain up to date information about Mrs Dawson-Damer's financial circumstances and Grampian had therefore failed to give proper consideration to her circumstances, her needs and wishes, and that this was a failing in their deliberation process which amounted to a breach of fiduciary duty.
The key question was the effect of the breach of fiduciary duty. The Board found that Grampian had correctly proceeded on the basis that the primary purpose of the trust was to benefit the next generation. The judgment considers the "would have" versus "might have" in relation to whether the trustee "would have" or "might have" made a different decision had there been no breach of fiduciary duty. The Board found that the correct test was that the decision would have, or even might have, been different absent the breach. It was also noted that the trustee had, in fact, provided for her by holding back 2% of the Glenfinnan Settlement (which was now worth US$14 million) as a "safety net" for her.
Takeaway points
While this is a success for the trustee and the decisions they had made, it is important to note that criticism was levied against the trustees for failing to obtain up to date information about the circumstances of a discretionary beneficiary, which did amount to a breach of fiduciary duty. This serves as a salutary reminder for trustees not to become complacent about their understanding of a beneficiary's needs when deliberating and exercising their discretion. It was however confirmed in the judgment that was not a breach of duty for a trustee to fail to consult with beneficiaries.
Secondly the Board, criticising the lower courts, emphasised that the issues of identifying a breach of duty and then the consequences of such a breach should not be conflated. It was first necessary to determine whether there had been a breach of fiduciary duty and secondly to consider the consequences of that breach, including whether the trustee's decision would have been different had there been no breach. In this matter, there was no difference in outcome, but the position may be different if such a breach impacted on a trustee's decision and this acts as a further mark of caution for trustees in the future.