Power Struggles: Challenges Based On Capacity And Undue Influence

• Published date: 19 July 2022
• Subject Matter: Family and Matrimonial, Wills/ Intestacy/ Estate Planning
• Law Firm: Ogier
• Author: Mr Chris Vincent and Samantha Conolly

Introduction

A recent judgment issued by Kawaley J provides a detailed and helpful analysis on claims seeking to set aside an exercise of powers on the basis of a lack of capacity and undue influence in the Cayman Islands.

The judgment in In the Matter of Poulton Trust¹ will be of assistance to individual power holders, and those assisting or advising such persons, in seeking to: (i) assess potential deficiencies prior to a purported exercise of powers; (ii) take steps to protect a purported exercise of powers from challenge; and (iii) minimise the risk of costly litigation associated with a challenge to a purported exercise of powers.

Re Poulton Trust will also be of assistance to beneficiaries and trustees in assessing their rights, liabilities and obligations where a purported exercise of powers by an individual power holder has taken place and may be open to challenge on the basis of incapacity and/or undue influence.

Trustees will, for example, need to consider whether any active steps are required by them consistent with their duties to act in the interests of the beneficiaries. The beneficiaries may seek to take active steps themselves, particularly where their interests may have been prejudiced by any such purported exercise of powers.

Summary of facts

Re Poulton Trust relates to a purported removal of beneficiaries by a settlor in respect of a family trust governed by the law of the Cayman Islands. The beneficial class, from time to time, included the settlor (Alan), his wife (Deborah), his five children (the Children) and the Children's descendants.

In October 2015, Alan received a terminal cancer diagnosis, having been in declining health from early that year. The Children complained to the trustee of the trust that they were being denied access to Alan, and raised concerns about his mental capacity and Deborah's undue influence. The last time Alan saw any of the Children was in early August 2015. On 2 March 2016, Alan removed the Children and their descendants from the beneficial class of the trust (the Removal). Alan died on 6 June 2016.

The Children brought proceedings seeking to set aside their purported removal as beneficiaries, primarily on the grounds of either: (i) Alan's lack of mental capacity; or (ii) Deborah's undue influence.

In the event, the Court found that the Children's claims succeeded on the grounds of undue influence and failed on the grounds of Alan lacking mental capacity.

The Court's judgment provides a helpful...