Changing With The Times: The Cayman Islands' Trusts Law Gets A Revamp

Legislative amendments to the Cayman Islands' Trusts Law have been passed and are expected to take effect shortly. While the reforms do not represent a drastic overhaul of the Trusts Law, they introduce welcome improvements to ensure the Cayman Islands remains a leading offshore jurisdiction for the establishment, administration, and maintenance of trusts.

The legislative amendments1 are the latest in a series of revisions to the Trusts Law (2018 Revision) (the "Trusts Law"), which is the main source of legislation concerning trusts in the Cayman Islands. The amending legislation was gazetted on 15 May 2019 and is expected to come into force shortly, on such date as may be appointed by Cabinet (although no date has yet been announced). As part of a continual process of finetuning the Trusts Law, the reforms effect the following key changes:

1. codifying the "Hastings-Bass" principle: providing a clear statutory framework to apply for relief where the trustee (or some other fiduciary) has made a mistake in the exercise of their powers;

2. extra-judicial variation of trusts: making it easier for the Grand Court to approve a variation to a trust on behalf of minor and unborn beneficiaries;

3. compromise trust litigation: making it easier for the Grand Court to approve a compromise to a trust dispute on behalf of minor and unborn beneficiaries;

4. foreign element provisions: extending the "firewall" or foreign element provisions which protect against a foreign law applying to a Cayman trust or foundation company; and

5. trust corporations: widening the definition of a "trust corporation" to include licensed trust companies' controlled subsidiaries and thereby widening the scope for such trustees to retire.

Hastings-Bass: setting aside mistaken decisions

Where a trustee makes a mistake in the exercise of their powers, it stands to reason that innocent beneficiaries should have relief from the consequences of that mistake. Traditionally, common law courts had recognised wide powers in this regard, relying on the rule in "Re Hastings-Bass2", which concerns the validity or otherwise of a trustee's exercise of their powers in reaching a fiduciary decision.

In reliance on this principle, common law courts had held that trustees' exercise of their power was invalid not only where the power was exercised in bad faith or excessively, but also where the trustees, in exercising their powers, had taken into account irrelevant matters or failed to take into account relevant matters.

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