Regulation

Keeping Pace with the Ever Changing World in Which We Practice


By Morven McMillan, Partner, Mourant Ozannes, Cayman Islands (01/02/2015)

On Friday 3 October 2014, Mourant Ozannes held its fourth International Trusts & Private Client conference in the Cayman Islands, which, as in previous years, Shân Warnock-Smith QC and I co-chaired.  In our opening remarks to the conference, we expanded on a theme which we had already highlighted in our welcome note in the conference programme.

 

My comments were as follows: In the last 12 months, we have seen the gradual recovery of the international financial markets continue, the introduction of FATCA in the United States and similar legislation anticipated for the United Kingdom and elsewhere, the movement towards a system of international financial reporting continuing apace.

 

The impetus to increase financial and business transparency has therefore not diminished; if anything it has increased, as nations strive to bolster their revenue base and undermine the ever-present threat to international and domestic stability and security from terrorism and criminal enterprise.  At the same time, we have witnessed a backlash against press intrusion in the western world and the methods employed by the less scrupulous newspapers in their drive to discover the more salacious details of the private lives of so-called celebrities.

 

In the meantime, professionals who work in the financial services industries across the globe, have had to adapt to these challenges: amongst them, fundamental changes to the concept of privacy and of confidentiality, the introduction of complex reporting obligations, developing duties of disclosure and information exchange, all while the need for sensible estate and succession planning has not in any way declined. 

 

For that reason, our collaboration with one another in an effort to maintain the relevance of the international financial centres, including the Cayman Islands, has never been more important. I believe it is an essential part of the work that we do in the industry to share our knowledge and expertise with those who are coming up through the ranks, so that we can equip our young practitioners with the skills to maintain the highest professional standards in the trusts and wealth management industry in years to come.

 

In the same way, it is all the more important to continue the drive to innovate and to stay ahead in that supremely competitive environment.  We cannot afford to fall behind and we cannot rely solely on the historical achievements of previous generations of professionals in the Cayman Islands, of which there are many, to keep us at the cutting edge in the development of international trusts law. 

 

Nor can we rely solely on our courts, despite their fine contribution to the body of international jurisprudence in this area of the law.  I do not wish to descend into too much technical detail in this article but one only has to look at cases such as AN v Barclays Private Bank & Trust (Cayman) Ltd [2006] 9 ITELR 630, the first reported authority on beneficiary 'no contest' provisions in the context of a lifetime settlement, or MEP v Rothschild Trust Cayman Limited [2009] CILR 593, relied upon by the parties and quoted extensively in the English Court of Appeal decision in Sutton v England [2011] EWCA Civ 637, for examples of what I mean.

 

To support our industry, we must continue to develop our legislative framework to keep pace with changes in the international business environment. There are many highly experienced trust practitioners in the Cayman Islands and elsewhere who have given up a lot of their personal time (and continue to do so) to argue for a place at the table for the international trusts and wealth management community.  What I am talking about is pushing for further innovation of our trusts law and supporting those who would help us achieve it. 

 

At our conference I urged our delegates to use their professional organisations, the Society of Trusts & Estate Practitioners (STEP) for example, to lobby for changes to the law to repair gaps in or revise provisions of local Cayman Islands' legislation which they believe may have fallen out of step with the way their practice operates.  If they see a legislative development in another international financial centre which they believe would improve the offering in the Cayman Islands, they should say so.

 

In the Cayman Islands, in common with a number of other jurisdictions, we modelled our Trusts Law, currently in its 2011 Revision, on the English Trustee Act 1925 and the English Variation of Trusts Act 1958.  That is not to say that we have not made our own far reaching and fundamental changes.  Our Trusts Law is a consolidating statute, combining under one law, most notably, our Trusts (Foreign Element) Law, now more commonly known as 'firewall' legislation; the Special Trusts (Alternative Regime) Law, more commonly known as our STAR Law; and our reserved powers legislation, each of them innovations of which this jurisdiction can rightly be proud and each of them innovations which have been adopted and, in some cases, fine-tuned by other international financial centres.

 

Looking for a moment as some of that fine-tuning, is there anything we can learn from developments instituted in other jurisdictions based on initiatives first brought in here in the Cayman Islands?  In my opinion: almost certainly.  For example, a great deal has been written about the Cayman Islands' firewall legislation over the years, stemming in no small part from the fact that this jurisdiction was the first international financial centre to pass legislation of this nature.  Passed into law in 1987, Part VII of the Cayman Islands Trusts Law (2011 Revision) was designed to insulate Cayman Islands trusts from attacks by forced heirs and those claiming against the trust by reason of a personal relationship with the settlor. 

 

Broadly, and this has been amply illustrated in other jurisdictions with similar legislation as well, this has come to mean that in principle at least, a Cayman Islands trust should be protected from attack by a spouse who applies to the Grand Court to enforce against the trustee an English Family Division court order in a contested divorce, as long as the spouse's claim is based on a personal relationship with the settlor.  

 

Other jurisdictions, for example, Jersey and Guernsey, have introduced legislation which expands the basis on which the relationship is founded to provide that trusts subject to Jersey and Guernsey law should be protected against attacks by those claiming against the trust assets by reason of a personal relationship with a beneficiary of the trust.  This, in my view, would be a sensible development for our legislature to consider, not least because Cayman Islands trusts have in many cases been in existence for a number of generations now. The original settlor may no longer be alive and the beneficial class is likely to include individuals who have no blood or marital relationship with the settlor.  They may well however be married to the settlor's son or daughter.

 

Again without wishing to go into too much technical detail, there are other aspects of the Cayman Islands Trusts Law which may benefit from review.  The absence of an equivalent to s155 of the English Law of Property Act 1925 (the LPA) continues to cause difficulty in practice. As a matter of Cayman Islands' law, the holder of a collateral power cannot release it by deed.  A collateral power is a power given to a person who has no interest in the property over which the power is given, but it is exercisable for the benefit of others.  Section 155 on the other hand provides that the holder of a power, whether coupled with an interest or not, may, by deed release or contract not to exercise that power, meaning that in England, the holder of a collateral power can release it by deed.

 

Curiously, s155 of the LPA was replicated in s54 of the Cayman Islands Conveyancing Law (1963 Revision) but when the system of landholding and land registration was overhauled in the early 1970s, the Conveyancing Law was repealed and s54 did not find its way in to any of the new statutes relating to land or property here in the Cayman Islands.  In Al-Ibraheem v Bank of Butterfield International (Cayman) Limited [1999] CILR 449, although looking at section 159 in that case, Murphy J unequivocally found that the English LPA had not been extended to the Cayman Islands and that remains the position today.

 

A client who is not a beneficiary of a trust but nonetheless has been granted a power under a trust, may wish to release that power, for any number of reasons.   Trust deeds can of course provide expressly for the release of powers but in my view, it would simplify matters greatly and introduce an element of certainty where there is currently none, if the ability to release a collateral power were expressly provided for in Cayman Islands statute.   The alternative, as matters currently stand, is either that you must advise the client that they cannot release the power in question, or, if there is any doubt about the nature of the power as a collateral power, one could always make an application to court for clarification.

 

What I have said in this article about modernising our Trusts Law to keep pace with changes in the international world of finance is necessarily subjective, an expression of my own views.  Legislative change can be, as the readers of this article will know all too well, controversial.  I am simply keen to ensure that we maintain the Cayman Islands as a centre of excellence in the world of international trusts and wealth management. While exciting and ground breaking innovation is (nearly!) always welcome, there are some very simple modernising changes which we could be making now to our statutory framework to assist us all in doing so.

 

About the Author:

Morven McMillan leads Mourant Ozannes' international trusts and private client team in the Cayman Islands and has a mixed contentious and non-contentious trusts practice. She was admitted as a solicitor in England in 1996 and is admitted to practice in the Cayman Islands and in the BVI. Top-ranked in Chambers Global 2013, where she is described as "the best in the business", Morven is a member of STEP and is a co-editor of International Trust Disputes (OUP).