Cayman Islands: In Pursuit Of Robust And Efficient Justice

Trust Disputes

Cayman Islands trusts remain a popular way to preserve family assets and to control how, when, and in what amounts wealth is passed down to future generations. Settling assets on trust can serve important asset protection functions, and professional trustees can ensure that valuable family and business assets are protected for generations to come, even in the event of the all too common family breakdown among members of the beneficial class of the trust.

However, the role of trustee of a Cayman Islands trust is not one to be accepted on a whim. In a modern and highly regulated world, which now includes families who may have generated their wealth in novel ways and individuals with a greater propensity for litigation, the position can involve exposure to great risk and liability. Raw family wounds, generational rifts, and suspicions of wrongdoing are the bread and butter of trust disputes in the modern world and are on the rise.

Administering a trust can become even more complex if trustees face conflicting and hostile requests or demands from settlors or beneficiaries of the trust who (as is now increasingly common) are located in different jurisdictions and have competing interests, even if there is no allegation of breach by the trustee itself. When disputes arise, it can be very difficult to find an efficient solution, particularly if the risk of cross-border disputation is high. However, with careful management of these situations, and knowledge of external options for resolution including the Cayman Islands courts, all parties in a dispute can find a clear path forward.

The Cayman Islands Courts

Local legislation and regulations offer a number of avenues by which a trustee or other officeholder facing conflict involving a Cayman Islands trust can seek the assistance of the Grand Court of the Cayman Islands (the Court) to determine a potentially contentious matter or a resolution to a hostile dispute. Judicial independence is a core pillar of the legal system in the Cayman Islands, and the ability of the judges to perform their duties free of influence or control by others, whether governmental or private, ensures the proper administration of justice within the islands. With its widely respected judiciary and reputation for issuing important and robust judgments, the Court ensures that the jurisdiction is at the forefront of the development of modern trusts and estates law.

Trustees of Cayman Islands trusts are entitled under Section 48 of the Trusts Law (as revised) to apply to the Court for the opinion, advice or direction of the Court on any question concerning the management or administration of trust money or the assets of any estate. Such applications, in appropriate circumstances, can be made ex parte or, if acceptable to the Court, by written submissions without an oral hearing. As long as the trustee is not guilty of any fraud or misrepresentation in approaching the Court on this basis, they will be deemed to have discharged their duty as trustee when acting upon any order made by the Court.

Separately, the Grand Court Rules offer a solution. Order 85 sets out a procedure by which a trustee, beneficiary, or enforcer of a trust, or an executor or administrator of an estate, can make an application to the Court for the determination of any question arising in administration of the estate of a deceased person or in the execution of a trust. 

The circumstances in which private clients might need access to swift and robust justice from a respected and experienced judiciary are numerous. Some examples are discussed below.

Death Of A Matriarch Or Patriarch

One of the most common origins of a dispute involving a Cayman Islands trust is the unexpected passing of a settlor who leaves behind a valuable estate including family business and coveted assets (and, more often than not, family members from multiple marriages). The situation becomes particularly dire where the late settlor has not left a will, or if their assets are controlled by a trustee. In these circumstances the administrators of the deceased's estate, and/or the trustees of the relevant trust, may find themselves in the middle of a hostile battle for the estate assets, threaded with high emotions and unhealed family wounds. Unhappy family members who learn of these trusts may seek to challenge their validity in an effort to draw the assets back into the estate (and out to them as beneficiaries of the estate). Executors and trustees will need sound advice on the complicated rules surrounding probate and succession law in the Cayman Islands to avoid unnecessarily inflaming family disputes, so the assistance of the Court and its independent judiciary pursuant to the administration procedures mentioned above can be invaluable.

Marital Breakdowns

Matters can also become complex for trustees of Cayman Islands trusts when marriages break down. Trustees may face requests for information about whether trusts contain marital assets, queries about how the trustee intends to administer the trust in the best interests of the family in light of a separation, and demands to partition the assets in light of a pending divorce. These interactions with settlors and beneficiaries must be carefully managed to ensure independence, neutrality, and adherence to relevant laws. Of course, when divorces become particularly hostile, the situation can deteriorate very quickly and the trustee can be drawn into all manner of contentious (and cross-border) applications as the battle begins over and accusations are made about ownership of trust assets. In these situations, the Court is available to guide the trustee of a Cayman Islands trust on the question of whether it is appropriate to submit to the jurisdiction of the foreign court, as well as to how the trust assets should be managed and/or preserved pending resolution of the dispute.

Paralysis

Where a trustee is unable to respond to or resolve requests and competing claims made by the settlor or beneficiaries to their satisfaction, the trustee may well find themselves in a situation where any move exposes them to potential liability and the threat of legal action. Decision-making can become very difficult and highly stressful, and in rare circumstances is virtually impossible because the trustee finds their interests in limiting their own liability conflicting with their duty to the trust. In this scenario, a trustee will likely find themselves effectively deadlocked. For trustees of Cayman trusts who are unable to find any sensible alternatives to the competing claims, which is a relatively rare scenario, the best (and possibly only) option will be to make an application to surrender their discretion to the Court. Assuming it is satisfied that there is good reason to do so, the Court has jurisdiction to step into the shoes of the trustee and determine how to exercise its discretion in order to find an appropriate path forward for all parties. This may include directions as to next steps, and sanctioning of conduct by the trustee having regard to all the material circumstances.

The Importance Of Liquidity

Of course, all litigation inevitably involves legal expenses and court fees. While complex trust structuring offers a robust asset protection plan for individuals and families, when disputes arise it can also lead to headaches if liquid trust funds have been soundly ringfenced in underlying entities and cannot be easily accessed to fund the costs of obtaining, for example, legal or tax advice in response to challenges to the trust. Even trustees holding significant liquid trust funds may have severely restricted access to those funds by terms of the trust deed that prevents their use without the consent of a protector or enforcer (who in reality may be the party taking issue in respect of the trustee’s conduct). In some circumstances, the trustee must pay for urgently needed advice from their own pocket. However, the Court is also able to assist with the provision of directions and declarations as to the appropriate use of trust funds during hostile litigation.

Access To Justice

Despite the minefield of potential issues that can arise in respect of a Cayman Islands trust or estate as outlined above, with careful and considered planning at the outset, and access to a respected and efficient judiciary to resolve points of contention if sensible discussions do not, disputes involving Cayman Islands trusts can be resolved expeditiously and sensibly in the short term. With this ultimate safety net supporting the careful considerations outlined above, tools are readily available to assist with effective conflict mitigation for families who have identified the Cayman Islands as their jurisdiction of choice.

Bernadette Carey
Partner and head of Carey Olsen's trusts and private wealth practice in the BVI and Cayman Islands. Bernadette has a broad private client practice advising on wealth structuring and estate planning matters, including the administration, restructuring, and termination of trusts, as well as probate and testamentary issues. She also has significant experience in trust litigation, regularly appearing before the Grand Court of the Cayman Islands on multi-party contentious trust disputes, estate litigation, and other cross-border private client disputes. Bernadette is admitted as a barrister and solicitor in New Zealand (2002) and Australia (2005), and as an attorney-at-law in the Cayman Islands (2008).