Foreign Divorce Proceedings And Its Effect On Cayman Trusts

The treatment of trusts in divorce proceedings has become increasingly important since the landmark decision of the House of Lords in White v White [2001] 1 All ER 1.

Since the White decision, there has been an emphasis on the 'equality' of the division of assets rather than providing for the reasonable needs of the spouse. Courts in some jurisdictions, such as Hong Kong and England, have broad discretionary powers to impose tailor-made outcomes in divorce proceedings and to divide assets including those held in trust.

As a result, Cayman trusts have become increasingly embroiled in foreign divorce proceedings and trustees have been asked to either submit to the foreign proceedings, to disclose trust information or to vary the terms of the trust. Before acceding to these requests from the foreign courts, trustees must bear in mind the following.

Firstly, the trustee owes fiduciary obligations to the beneficiaries not to divulge confidential information except in accordance with Cayman law which governs the trust. Trustees are not permitted to disclose confidential information relating to a trust even where ordered by a foreign court unless released in accordance with section 3 of The Confidential Relationships (Preservation) Law ("CRPL"). Confidential information may be disclosed if the Grand Court of Cayman makes such an order or the principal of the confidential information consents to its disclosure. Section 4 of the CRPL provides that whenever a person intends or is required to give evidence on or in connection with any proceeding by any court, tribunal or other authority, whether within Cayman or otherwise, relating to any confidential information, he shall before doing so apply for directions from the Grand Court. Even where the principal consents, the trustee may be well advised to seek an order of the Cayman Grand Court as it is now settled law that an acquiescence, non-objection or expressed consent, if given under pain of penalty may not be accepted by the Cayman courts as valid consent or authorization. In Re ABC Ltd [1984-85] CILR 130 and Re H [1996] CILR 237.

The Courts in considering an application for disclosure pursuant to foreign proceedings will consider matters of public policy and the interests of the beneficiaries, particularly, the interests of innocent third party beneficiaries.

Secondly, it would generally not be recommended for a trustee to submit to the jurisdiction of a foreign court in matrimonial proceedings in...