The new Cayman Islands ('Cayman') Trusts (Amendment) Law 2019 ('Amendment') will bring welcome amendments to enhance the existing Cayman regime under the Trusts Law (2018 Revision) ('Trusts Law'). It has been passed and will come into force on 14 June 2019.
What are the main changes?
The Amendment introduces various enhancements to make it easier for the Cayman court ('Court') to correct trustees' mistakes, agree variations of trusts on behalf of minors, unborns and others and to approve the compromising of trust litigation on behalf of beneficiaries. It also bolsters the protection of Cayman trusts under the existing 'firewall' provisions and widens the definition of 'trust corporation'.
How do the changes help trustees correct mistakes?
The Amendment provides a statutory basis for the Court to correct a trustee's mistaken exercise of their power ('Mistake'). In effect, it removes any doubt that the Court will continue to be able to make 'Hastings-Bass' type orders in future. The Amendment gives certainty and clarity as to what Mistakes the Court can correct, who can apply to ask for a Mistake to be corrected and gives the Court wide powers and discretion to impose terms and/or conditions when correcting a Mistake.
What can the Court do to correct mistakes?
Under the Amendment the Court can set aside the exercise of any 'fiduciary power' (see below) where it is satisfied that the person who has the right to exercise it (or any person delegated to exercise it) (the 'Holder') did so mistakenly. The Court can set aside a mistaken exercise of a fiduciary power in whole or in part and in doing so it may impose any terms or conditions or make any order it considers appropriate, provided that in doing so it does not prejudice a bona fide purchaser for value of any trust property who did not have notice of the circumstances behind the mistaken exercise. Importantly, where any part of an exercise of fiduciary power has been set aside it is treated as never having occurred.
What is a fiduciary power?
The Amendment defines a power as including a discretion as to how an obligation is performed. It defines a 'fiduciary power' as a power which the Holder must exercise for the benefit of someone other than themselves. It does not matter whether the Holder is a trustee or not or whether they can exercise the fiduciary power alone or jointly with others.
When can a court exercise this power?
An application asking the Court to set aside a Mistake can be made by the Holder, a beneficiary of the trust, the enforcer of a purpose trust or, where the trust is a charity, the Cayman Attorney General. The Court can grant leave to allow any other person to apply. There is no requirement to allege or prove that the Holder or an advisor to the Holder acted in breach of trust or in breach of duty. Instead the Court needs to find that, in exercising their fiduciary power, the Holder did not consider relevant considerations or took into account irrelevant considerations and, as a result, would not have exercised their power, or would have done so at a different time or in a different way.
A new standard will make it easier to vary a trust but still protects minor and unborn beneficiaries
The Amendment allows the Court to approve a variation of a trust on behalf of a minor or as yet unborn beneficiaries where it is satisfied the variation "would not be to the detriment of that person". This allows the Court a much more flexible approach than it had to varying such trusts under the Trusts Law, which restricted the Court from varying a trust unless it was satisfied "the carrying out [of the variation] would be for the benefit of that person".
Changes make it easier to compromise trust litigation
The Amendment gives the Court the power to approve the settlement of any trust litigation in its jurisdiction on behalf of any beneficiary provided that it is satisfied that it is not to the beneficiary's detriment. This replaces the previous requirement that the Court had to be satisfied the settlement would be to the beneficiary's benefit.
Beneficiaries will benefit from the extension of protection against foreign laws
The Amendment extends the existing 'firewall' protections to prevent the operation of any foreign law which might apply to a Cayman trust (or foundation company) by reason of someone's personal relationship not just to the settlor but also now to "...any beneficiary (whether discretionary or otherwise)".
Widening of definitions of 'trust corporation'
The Amendment widens the definition of trust corporation to include not just licensed trust companies but also controlled subsidiaries thereby widening the scope for trustees to retire and bringing the definition into line with what was the definition under the STAR trust provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.