Enhancements to the Cayman Islands Trusts Laws

06/27/2019

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The Trusts (Amendment) Law, 2019 (the “Amendment”) was passed by the Cayman Islands Legislature in May 2019.  It came in to force on 14 June 2019. The Amendment makes changes to The Trusts Law (2018 Revision) (the “Trusts Law”) that further enhance Cayman’s reputation as a leading jurisdiction for the establishment and governance of a trust.

Jurisdiction of the Court to set aside a mistaken exercise of a fiduciary power

The Amendment, confirms the extent of the jurisdiction of the Court to set aside the exercise of a fiduciary power.  It will settle debate that has arisen over the application of the “Hastings Bass rule”.

An application to Court for the setting aside of a mistaken exercise of a fiduciary power may be made by:

  • a person who holds the power;
  • (where the matter relates to a trust or trust property) by any trustee, any one beneficially interested under the trust, or in the case of a purpose trust, by the enforcer;
  • (where the power relates to a charitable trust or charitable purpose) by the Attorney General; or
  • any other person with the leave of the Court.

Where the Court is satisfied that in the exercise of a fiduciary power:

  • the person who holds the power did not take into account one or more considerations (whether of fact, law or a combination of fact and law) that were relevant to the exercise of the power, or took into account one or more considerations that were irrelevant to the exercise of the power; and
  • but for his failure to take into account one or more of such relevant considerations or his having taken into account one or more of such irrelevant considerations, the person who holds the power:
    • would not have exercised the power;
    • would have exercised the power, but on a different occasion to that on which it was exercised; or
    • would have exercised the power, but in a different manner to that in which it was exercised.

The Court may set aside the power in whole or in part and subject to such conditions as it sees fit.

The conditions specified above may be satisfied without it being alleged or proved that in the exercise of the power, the person who holds the power, or any advisor to such person, acted in breach of trust or in breach of duty.

No Court order may be made which would prejudice a bona fidepurchaser for value of any trust property without notice of the matters which would allow the Court to set aside the exercise of a power over or in relation thereto.

To the extent that the exercise of the power is set aside by the Court, it shall be treated as never having occurred.

Jurisdiction of Court to approve compromise

Where there is any trust litigation (being litigation under which one seeks to invoke the inherent jurisdiction of the Court in relation to the administration of a trust) under which a compromise is proposed and the approval of the Court is required on behalf of any beneficiary (e.g. a minor or unborn) the Court shall be entitled to approve the compromise if it is satisfied that the compromise is not to the detriment of such beneficiary, notwithstanding that the Court is not satisfied that it is for his benefit.

Jurisdiction of the Court to approve the variation of trusts

The previous requirement to satisfy the Court under section 72(1) of the Trusts Law that a proposed arrangement to vary or revoke a trust is “for the benefit of that person” (e.g. a minor, person suffering incapacity or unborn who cannot consent for himself) has been replaced with a not to “the detriment of that person” test.  This is seen as a more flexible approach.

Firewall

The protection afforded under section 91(b) of the Trusts Law by reference to “a personal relationship to the settlor” has been extended to include a personal relationship to “any beneficiary (whether discretionary or otherwise)”. This means that a trust or a disposition of property would not be liable to be set aside simply on the basis that it avoids an interest conferred on a person through their relationship with the settlor or with a beneficiary under foreign law. This further enhances the “firewall” provisions under the Trusts Law which operate to protect trusts from attack where a foreign law does not recognisetrusts or imposes “forced heirship”.

The Amendment, further enhances the administration of trusts in the Cayman Islands by adding greater clarity and flexibility in cases where the assistance of the Court is necessary and adding further protection to trusts from attacks based on foreign law.

About the Author
Wendy Stenning is a senior associate in the firm’s private client and wealth management group in the Cayman Islands. She has significant experience advising trust companies and high net worth individuals on the establishment and ongoing administration of a variety of trusts.

The information contained in this article is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases.Copyright ©2019 Higgs & Johnson. All rights reserved.

 

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