Why Cayman for trust cases?
Cayman has an established and trustworthy legal system. It is no accident that the laws of the Cayman Islands are chosen as the governing / forum clause in trust instruments all around the world. A huge reason for this is the strength and reputation of the Cayman courts, which have developed a substantial body of jurisprudence over a number of decades dealing with the full spectrum of trust applications, disputes and issues. The first iteration of the Banks and Trusts Companies Law was passed almost 60 years ago, in 1966, and there have been many updates and improvements since that time. Cayman Islands’ trusts are governed by English legal principles, as supplemented by the Trusts Act (2021 Revision) which is a modern and sophisticated piece of trust legislation.
What are the most significant contentious and other trust issues that have been heard in Cayman in the last 12 months?
The Cayman courts have grappled with a number of significant and complex trust matters in the last 12 months (or so), demonstrating strength and depth on trust issues, including:
1.Re Settlements made by Declarations of Trust dated 9 May 2023 (Unreported, 28 September 2023, Kawaley J): the first published judgment considering the application of the new section 64A of the Trusts Act, which is a provision placing the so called rule in Hastings-Bass onto a statutory footing.
2. AA v JTC (Cayman) Limited (Unreported, 26 April 2024, Kawaley J): concerned the standing of an enforcer of a STAR trust to seek the Court’s approval in relation to a ‘momentous’ decision to the proposed exercise of one of his fiduciary powers, in this case the power to direct the trustee to exercise rights attached to shares held by it, the exercise of which was central to the purpose of the trust. This is the first published judgment on the principles applicable to such an application by an enforcer under the STAR trust regime in which Kawaley J held that an enforcer has standing to make such an application in light of sections 48, 98 and 102 of the Trusts Act and GCR O.85 r.7(1) and that the principles to be applied are the same as those applicable to trustees under the principles established in Public Trustee v Cooper and adopted in Cayman. He granted the directions sought by the enforcer.
How has the landscape of contentious and other trusts matters changed during your career?
There is an upward trend in applications arising in the administration of trusts and estates going to court in Cayman, and the issues are becoming more complex and sophisticated. The causes of this are many and varied: globally, private wealth is growing very substantially, and with increased geopolitical uncertainty, the demand for safe structures in just and stable jurisdictions such as the Cayman Islands has grown in tandem. At the same time, families have become more dispersed and more complex, with UHNW families often living across separate jurisdictions (and sometimes, separate continents) and facing sometimes difficult personal challenges, including divorce, estrangement, and capacity issues. These factors have led to an enormous increase in proceedings relating to the administration of trusts: a trend which is only set to continue.
Are there any precedents set in the Cayman Islands in the last few years that have reshaped trust work?
The final court of appeal for the Cayman Islands is the Judicial Committee of the Privy Council, and Cayman appeals have often established globally important precedents. An obvious example is TMSF v Merrill Lynch Bank & Trust Company (Cayman) Ltd [2011] UKPC 17, in which the Privy Council held that a receiver by way of equitable execution could be appointed of a settlor’s power of revocation, with a view to the power being exercised by the receiver for the purpose of returning trust assets to the settlor’s personal estate for execution. This is a leading case and in day-to-day practice is a case to keep in mind when structuring or stress-testing Cayman (and other) trusts. In TMSF, the settlor’s personal power of revocation was liable to execution by the appointment of a receiver, however, it remains to be seen whether it could be successfully argued to permit execution in respect of powers which are described in the trust instrument as being “fiduciary” in nature.
The decision in Re O Trust [2018(1) CILR 59] is an important decision on the governing principles as regards the test for legal capacity in relation to the exercise of trust powers which has been recently applied in In the matter of the Poulton Family Trust (Unreported, 18 February 2022, Kawaley J). There is no doubt that issues relating to mental incapacity are now frequently arising in the context of the administration of trusts and as a potential ground to challenge the validity of a trust and/or the exercise of a power by an office holder in a trust.
Are there emerging areas of dispute or novel issues that trust professionals should be aware of?
The statutory Hastings-Bass jurisdiction in section 64A of the Trusts Act has now been applied in relation to a trustee committing an error in the exercise of its fiduciary powers, however, this section also has scope to be applied to other fiduciaries, such as directors, so section 64A is likely to lead to further jurisprudence and application in a number of contexts.
What do you think will be the most significant issues in the contentious and other trust matters field in the next 3 years?
- Mental capacity issues. A relatively recent focus on mental health awareness has led to more persons being diagnosed, and with a growing ageing population this means more diagnoses of age-related conditions such as dementia. Although helpful for families in treating such conditions earlier in life, it may lead to an increase in challenges against trusts and wills due to the alleged mental capacity issues of the settlor, testator or other office holders in exercising powers.
- Statutory Hastings-Bass and common law mistake claims.
- Disputes relating to trustee investments and in particular if there are more turbulent times ahead.
- The rise of ESG issues and the potential for disputes if not clear on mandates.
- An increase in applications relating to trust restructurings (particularly as trustees grapple with clunky old trust instruments that may be problematic and not able to flex with the times). Although not necessarily contentious, there may not be a consensus on how a restructuring should take place when dealing with different generations and complexities.
- The so called “great wealth transfer” has been talked about for some time but it is now happening as wealth is being passed from the current owners of wealth (baby boomers) to the next generations. This is something trustees are being exposed to and is leading to a number of disappointed persons who will seek to challenge wealth structures, including trusts, established by the baby boomer generation.
What is your final word on contentious and other trust matters
Communication – and more communication – is key. When there are open lines of communication, there are usually solutions to what appear to be difficult issues, potentially avoiding escalation and the involvement of the court. This is where experienced trustees and other professional advisors with experience in contentious trust matters can play a vital role, navigating the personalities involved away from proceedings and finding solutions to difficult circumstances. Life is too short to be spent fighting in court if it can be avoided!
