Count Your Blessings, One By One

Historically there have been relatively few reported examples of the way in which the jurisdiction has been exercised in practice, mainly because it is generally exercised in chambers (in private) and because judges in the past have been less inclined to deliver fully reasoned judgments where, as is more usual than not, the parties are in agreement with each other and the judge is satisfied that it is appropriate to make the order they are asking for. Although these applications generally continue to be held in private and the rulings are frequently anonymised to preserve the parties’ privacy, current popular thinking is that open justice requires adequate publicity to be given to the reasons for granting the relief the trustee seeks. This allows us to see with greater clarity what features are of particular significance to the court and how that plays out on particular facts.

What Is A “Blessing” Application And Why Make It?

If you are a trustee facing a difficult and important decision about how to exercise your powers, you will be concerned not only to reach a proper conclusion based on a consideration of relevant factors (and, of course, to disregard irrelevant ones) but also to ensure that the decision cannot later be challenged, or at least not easily. This is not merely a self-interested consideration on the part of the trustee fearful of criticism from his beneficiaries and potential personal liability. It is also a desire to ensure that both trustee and beneficiaries can rely on the decision for the future without worrying whether some later generation of beneficiaries may come along to try to upset it. The parties may have taken further steps in reliance on the original decision which they would not want to see attacked. This protection of the integrity of decision-making is generally the most important feature of a blessing application, particularly in light of exoneration provisions in the trust which are likely to protect the trustee against personal liability except in limited circumstances. In answer to the occasional judge who asks why the court should be prepared to act as the trustee’s insurer, we have always pointed to the primary protective purpose of the application for the benefit of all involved.

In a blessing application, a trustee facing a so-called “momentous” decision applies to the court for approval of the decision it has reached. It does not generally ask the court to decide for it (although there are rare cases where the trustee surrenders its discretion to the court) but to scrutinise the decision-making process. The court reviews that process by looking at the factors which the trustee has considered.  If the court is satisfied that the trustee has approached its task correctly and has reached a conclusion which a reasonable trustee could have reached, the court will approve the decision. It does not matter that the court might have reached a different conclusion on the same facts. Indeed, in many cases more than one outcome would have been reasonable for the trustee to reach. It is all about process.

What Decisions Are Momentous?

The concept is difficult to define because it varies from case to case. A trustee making day-to-day decisions about income distributions or a particular investment that are clearly within its powers is unlikely to consider them sufficiently controversial to warrant court scrutiny. Nor is the court likely to be pleased to be approached. But if, for example, the trustee is considering appointing the whole of a very large trust fund to one particular beneficiary only, or a particular class of beneficiaries, or where there is disagreement among the beneficiaries about the right course, that might justify (or sometimes require) an application to the court for safety’s sake. It is a question of importance and degree in the particular circumstances. Some trustees are more robust than others and prepared to make potentially controversial decisions, others less so and more inclined to want the comfort the court can offer. The size of the trust fund is relevant too, to a decision whether to make an application since the costs of going to court may be disproportionate. The examples from the cases referred to below will give some idea of the type of circumstances in which an application is desirable or necessary.

An Object Lesson In Decision-Making

The recent Cayman Islands case of AA v. BB and Colin Shaw (as amicus curiae) (the “1990 Trust” case) is an example of what the judge (the Chief Justice of the Cayman Islands) described as a “textbook” approach by a trustee to what was undoubtedly a momentous decision.  It envisaged the liquidation of all of the trust’s assets and their distribution to a small minority of the persons who were within the class of discretionary beneficiaries under the terms of the trust.

The settlor of the 1990 Trust was the patriarch of a Middle Eastern Muslim Arab family who had been educated in the Shari’a law applied in his home country - including the forced heirship system that is the Shari’a law of inheritance. In early 1990, he was considering creating a structure to hold and administer his international investments. For this purpose, his then financial and legal advisers recommended a Cayman Islands law-governed discretionary trust as the top level of the structure. 

Over time, the structure grew to include an eclectic variety of assets in various countries. Although Cayman Islands law-governed, the trust was always administered by a trustee based in Guernsey.

As was relatively common in family wealth trusts of this vintage, the definition of the discretionary class was very wide; it included the settlor as “Principal Beneficiary” during his lifetime and thereafter his surviving spouse(s), children and remoter issue, and, indeed, the spouses (including widows and widowers) of issue. It also included – again, typically for its time - expansive powers of appointment and advancement.

However, from the point at which the 1990 Trust was created down to the settlor’s final illness and death, he had consistently expressed the wish that, following his death, the ultimate beneficiaries of the structure should be those members of his family who were his heirs under the Shari’a law of inheritance applied in his home country. Further, relatively early in the history of the trust, and following his own experiences of the delays in the administration of estates of deceased relatives, the settlor added the wish that following his death, the trust structure should be wound up as soon as reasonably possible and the assets within it, or the proceeds of their realisation, distributed to his heirs.

In the events which happened, such heirs were a relatively small number of people (comprising only the settlor’s widow, sons, and daughters). The discretionary beneficial class as a whole, however, was reckoned to be huge, potentially numbering hundreds of persons, including younger generations of issue and spouses of issue.  Initial inquiries disclosed that a very substantial proportion of this class comprised minors.

The main difficulties for a trustee in this situation are perhaps obvious. First, despite having what appeared to be clear and consistent guidance from the settlor as to his dispositive intentions, the range of individuals in favour of whom the trustee might properly exercise its powers was potentially very extensive. Second, the patriarchal family structure, the fact that all discretionary beneficiaries were Muslims, and the respect for the Islamic traditions and religious beliefs that guided the settlor and bound members of his family, all  meant that detailed inquiries into the circumstances of individual beneficiaries, such as a trustee of a discretionary trust might normally undertake, were extremely problematic.

The approach which the trustee took, guided by advice from a combined London and Cayman Islands legal team, was to undertake a meticulous examination of two main areas: (1) the circumstances in which the trust was drafted and records of the settlor’s intentions prepared and; (2) the current composition of the beneficial class, including ascertaining as far as it could the identities of the members of each heir’s family. The trustee also applied for and was granted permission to join an amicus curiae as an independent advocate for the non-heir discretionary beneficiaries. In addition, the trustee formulated and was able to place before the court a detailed asset liquidation plan, which was framed having due regard to the possibility that circumstances might require changes in it.

In these circumstances the Chief Justice was satisfied that the trustee’s decision to realise the trust assets, distribute them amongst the heirs, and thereafter wind up the trust was a rational one as well as within the trustee’s express dispositive powers. The difficulties that the trustee faced had been recognised and given proper consideration. He therefore blessed the trustee’s proposal to proceed with its intended course.

Contested Applications

Although the majority of blessing applications proceed, in our experience, with the active support of all the adult beneficiaries and of the guardian of minor beneficiaries, on occasion one or more beneficiaries actively contest the trustee’s decision. The contesting beneficiary often has a variety of complaints, ancient and modern, against the trustee, some of which may have little to do with the rationality of the trustee’s decision. It is important to bear in mind, however, that such a beneficiary will need to convince the court that the trustee’s decision-making has been faulty, and that the decision is one which no reasonable trustees could have reached. That is a high bar for such a beneficiary to surmount, particularly where the trustee is a properly advised serious professional. 

For a recent example of a contested application, the case of Re A Trust is instructive. In that case, the trustee, after a long process of consultation with all the beneficiaries following the settlor’s death, devised a “Final Distribution Proposal” to divide the trust fund (largely properties or property-owning companies) between the three adult beneficiaries. The method of allocation was vigorously opposed by one of the beneficiaries even though it sought to implement an earlier agreement made between the beneficiaries. The Proposal was very detailed and required various valuation and other implementation steps to be taken. The judge was satisfied that the Proposal had been reached after proper consideration by the trustee, including consultation with the beneficiaries, and blessed its implementation with or without certain modifications which the court identified. The judge made it clear, however, that it was for the trustee to consider whether to adopt the modifications, consistently with the basis on which the court gives its blessing. The court did not seek to impose a decision on the trustee or to make it itself.

Help Is At Hand

A trusteeship is an onerous obligation, often involving the need to weigh up competing interests and expectations of beneficiaries as well as those of others involved in the structure such as the settlor and protectors. Where a decision has to be reached which can properly be described as momentous, help is at hand both from experienced advisers who are well-versed in this area of the law and ultimately, if need be, the court. The supervisory jurisdiction of the court over trusts remains the ultimate comfort blanket.

Shân Warnock-Smith
Shan Warnock-Smith QC is a barrister who provides advisory and litigation services to professional clients in the wealth structuring field. From her bases in London and Cayman, Shan has an international practice, which takes her around the globe to advise and litigate.

Andrew De La Rosa
Andrew De La Rosa has a recognised expertise in cases involving the application of equitable principles and remedies in international disputes, in particular where fiduciary relationships in trust, succession, partnership, corporate governance and investment management spheres are involved. He practices from Cayman and London and has a long-term connection with the Arabian Gulf jurisdictions.