Tips on managing disputes after the Privy Council refuses to hear appeal

The Perry family have been involved in long running and fiercely contested litigation since the death of Mr Israel Igo Perry, a wealthy businessman and a qualified Israeli lawyer. The dispute has involved court proceedings in a number of jurisdictions. The recent decision by the Privy Council relates to proceedings in the Cayman Islands concerning the ownership of the single issued share (the Share) in Britannia Holdings (2006) Limited (BH06), a Cayman Islands company. BH06 is a holding company which, for many years, was the main source of liquidity for the Perry family. Before his death, Mr Perry transferred the Share to a discretionary trust established under Liechtenstein law (the Trust). Following Mr Perry’s death, his widow Lea Lilly Perry, and the couple’s eldest daughter, Tamar Perry (the Claimants), challenged the validity of the Share transfer.

The case is an example of trust litigation where the disagreement arises from facts external to a trust, rather than from the terms of the trust itself. Here, the circumstances surrounding the Share transfer were under scrutiny. This type of litigation, and the red flags trustees should look out for, are discussed in our chapter on Litigious Matters in Bloomsbury’s Planning and Administration of Offshore and Onshore Trusts.

Background facts

Mrs Perry and Tamar Perry claimed that the underlying assets of BH06 were worth in excess of US$200 million when the Share was transferred to the Trust. Under the terms of the Trust, Mrs Perry and Tamar Perry did not hold a proprietary interest in the Share and provision for them was subject to the trustees’ discretion and the laws governing trusts in Liechtenstein. However, if Mr Perry had not transferred the share validly it would have remained in his estate.

The challenge to the transfer was made on two bases. Firstly, Mrs Perry claimed that under Israeli matrimonial law she had an interest in the Share based on community of property rules, and that the transfer was void and should be set aside on the ground that the transaction violated her joint ownership rights. She claimed the transfer was made without her knowledge or consent and without complying with the formalities required by Israeli law. This is referred to as the Matrimonial Property Rights Claim. Secondly, Mrs Perry and Tamar Perry claimed on behalf of Mr Perry’s Cayman Islands estate that the transfer of the Share should be set aside for equitable mistake. The Claimants asserted that Mr Perry failed to appreciate his family would have limited rights to ensure the Trust was administered properly. Specifically, they claimed that Mr Perry transferred the Share as a result of his mistaken belief, or tacit assumption, that discretionary beneficiaries of Liechtenstein trusts have effective rights under Liechtenstein law to apply to the court to enforce the trustees’ obligations. They claimed that Mr Perry believed or assumed that a Liechtenstein “trust” was a trust in the common law sense, which it arguably turned out not to be. This is referred to as the Equitable Mistake Claim.

Legal analysis

The Grand Court of the Cayman Islands dismissed Mrs Perry and Tamar Perry’s claims in a judgment dated 27 May 2020. On the Matrimonial Property Rights Claim, the Judge found that Mrs Perry did consent to Mr Perry making transfers of matrimonial property, including the Share, into trust for tax planning and succession purposes. Therefore, she could not challenge the transfer. In relation to this finding, the Judge concluded that the Share was not to be treated as an asset of “purely family character” under applicable Israeli law, which would have impacted Mr Perry’s ability to deal with it. Further, the Share transfer was not a “critical event” capable of terminating Mr Perry’s power and authority in relation to the Share.

On the Equitable Mistake Claim, the Judge concluded that Mrs Perry and Tamar Perry failed to show that on the evidence, Mr Perry held the beliefs or made the tacit assumptions which they say he held. The evidence did not establish that Mr Perry turned his mind to the litigation remedies the beneficiaries may have to hold trustees to account. In addition, the Judge found that even had he made an assumption that the rights and remedies of the beneficiaries in Liechtenstein law and procedure would be “effective”, he did not make a mistake.

The Claimants appealed against the order, challenging findings of fact made by the Judge, and findings on Israeli and Liechtenstein law made after hearing expert evidence on those legal systems. The Cayman Islands Court of Appeal dismissed the appeal in a judgment delivered on 11 November 2021. Conditional leave to appeal to the Privy Council was granted by the Court of Appeal on 15 December 2021.

The Privy Council decision

In hearing submissions from the Appellants’ Counsel, the Judges of the Privy Council (the Board) referred to the Board’s practice of not, save in exceptional cases, reviewing by way of second appeal concurrent findings of fact by the courts below. This practice has been described as a “super-added constraint” over and above the reluctance of any appellate court to interfere with findings of primary fact by the trial judge. It is supported by the following policy reasons:

• Access to justice considerations have generally been satisfied in such cases by the availability of an earlier appeal.
• Parties have a reasonable expectation of finality in litigation.
• It is unlikely that a second appellate court will be well-placed to disagree with two lower courts on a finding of fact.
• Appeals are cost and time intensive and the Board’s resources are limited.
• A local court may have deeper understanding as to custom and culture (factual context).

In the Perry case, the Board was not persuaded by the Appellants’ submissions that there was no evidence to support the disputed findings by the Judge. At a hearing on 18 January 2023, the Board concluded that there were no exceptional circumstances which would justify the Board considering the appeal.

Relevance for trustees and beneficiaries

This ends an aspect of the dispute over the division and use of Mr Perry’s wealth following his death. Trustees, and indeed beneficiaries as in this case, should be aware that disagreements can arise following the death of a person connected with a trust and it is prudent to seek advice on the trustees’ obligations at an early stage. Dispositions of property to trust may be challenged in a variety of ways. In some jurisdictions with forced heirship regimes for example, “claw-back” provisions exist, whereby assets settled on trust with the intention of defeating succession laws may be recovered for the benefit of the legal heirs.

Other circumstances where trustees may find themselves involved in litigation driven by external events include disputes on divorce (claims by spouses), and cases concerning insolvent settlors or insolvent trusts (claims by creditors). Partners Tamasin Perkins and Oliver Auld, and senior associate Sarah Moore, have recently updated our chapter in Planning and Administration of Offshore and Onshore Trusts on trust litigation. Their analysis provides a useful starting point for trustees seeking to understand the claims that commonly arise in these and other scenarios, the process of litigation and the protective measures trustees can take to increase confidence that their conduct will not be challenged.

We advise settlors, trustees and beneficiaries on both advisory matters concerning the establishment of tailored wealth structures, and on the conduct and avoidance of disputes. We welcome the opportunity to answer your queries and look forward to speaking with you.