Island Remedy (Focus On Caribbean And Latin America Cayman Islands Trust Deeds)

IN DECEMBER 1982, the Y Trust No 1 was constituted by deed. Its settlor, Y Trust Inc, was named in the trust deed as the first protector. On the same date, however, Fern SA (Fern) was appointed protector by deed by the original trustee and, from that date, acted as protector of the settlement.

In 2012, it was discovered that the appointment of Fern as protector may have been invalid because, under the relevant clause of the trust deed, the original trustee only had power to appoint a new protector if there had not been a protector for a period of one month. As Y Trust Inc, the protector named in the trust deed, was not formally dissolved until October 1985, it was arguably protector from December 1982 to October 1985, while Fern potentially was not.

The position was complicated by the fact that the questionable validity of Fern's appointment as protector also put in issue the validity of a deed of retirement of two of the trustees in 1984. The consent of the protector was required for the trustees' retirement and proper discharge from the trusts of the settlement. Plainly, unless the issue of the appointment of Fern could be remedied, a multitude of decisions and steps taken in the administration of the settlement over a period of 31 years were arguably invalid, since the two 'retired' trustees had not joined in those decisions, including joining in the appointment of the new trustees.

Three arguments were put before the Chief Justice in Re the Y Trust No 1:1 rectification; the interpretation and construction of certain provisions of the trust deed; and the statutory powers of retirement.

RECTIFICATION

Rectification is a discretionary equitable remedy that allows the court, in certain circumstances, to modify trust instruments so that they properly reflect the intentions of the settlor. The attraction of rectification is that, if available, it operates retrospectively.

The Chief Justice considered rectification and the circumstances under which it would not be appropriate to grant rectification where there are other, more appropriate remedies available to the parties.2

In the Cayman Islands, the conditions required to establish an equitable claim for rectification are: 'a mistake, by reason of which the document in question fails to give effect to the intention of its maker... and that, if rectified as sought, the document would give effect to the intention of the maker.'3

The Chief Justice confirmed that the Grand Court is sensitive to the...