Trustees - Finding Certainty In Uncertain Times

• Published date: 06 July 2020
• Subject Matter: Corporate/Commercial Law, Wealth Management, Corporate and Company Law, Wealth & Asset Management, Trusts
• Law Firm: Carey Olsen
• Author: Ms Bernadette Carey and Chris Duncan

There is an old saying, attributed to the French Philosopher Voltaire, that 'doubt is not a pleasant condition but certainty is an absurd one'. For trustees of trusts governed by the laws of the Cayman Islands (Cayman), and indeed for trustees worldwide doubt as to the future value of trust assets (and as to the future needs or actions of beneficiaries) may be their new default condition as they deal with the upheaval brought on by recent global events.

Those facing the most uncertainty, and risks of claims, may well be trustees of trusts that hold speculative or high-risk assets including investments in small business start-ups, private equity or venture capital funds, and technology companies - or with significant interests in industries (such as retail, tourism, or aviation) - all of which anticipate facing spectacular losses Liability for such losses will fall for consideration before too long, and it is important for trustees to be aware of how best to respond (and to protect themselves) when questions are asked, and claims directed to the trustees, in respect of those losses.

A trusteeship is of course a fiduciary relationship and trustees are bound to act bona fide in their dealings with the trust and to exercise care and skill in their judgment including by acting in the best interests of the beneficiaries. It is allegations based on breaches of those duties that are likely to increase given the present climate. However, in most cases, such claims may be effectively mitigated in reliance on protections incorporated into trust deeds and contract or, if necessary, with the assistance of the Grand Court of the Cayman Islands (the Court). Both categories of solutions are discussed further below.

Protections in the trust deed

Well-drafted trust deeds include a variety of provisions aimed at addressing risks trustees might otherwise bear personally. These fall into two broad categories; those that limit a trustee's powers and duties, and those which limit a trustee's liability for breach and loss to the trust fund. Outside of these inbuilt protections, trustees routinely rely on limitation of liability clauses when contracting with third parties, and in appropriate circumstances actively seek releases and indemnities from beneficiaries in respect of any future claims.

In terms of duty-limiting provisions:

• The most common provision of this nature is what is known as an anti-Bartlett¹ provision which limits a trustee's duty to be involved in the...