A Trusts Law Update - New Judgments From The Cayman Islands Courts

Just two months into 2020, the Grand Court of the Cayman Islands (the Court) has already released a number of new judgments that will be of great interest both to trustees of Cayman Islands trusts and to private clients more generally. Covering issues of construction of trust deeds, letters of wishes, and the surrender of a trustee's discretion to the Court, these latest decisions of the local judiciary are in characteristically robust form and provide helpful guidance on trust law principles as presently in operation in the Cayman Islands.

Distributions and terminations

In the first of the new judgments, anonymized as "AA v BB"1 the Court considered an application by a trustee of a Cayman Islands trust (known as the 1990 Trust) for the approval or blessing by the Court of a proposed plan of liquidation and distribution of all of the assets of the 1990 Trust among certain members of the discretionary class of beneficiaries, followed by the winding up of the 1990 Trust.

The Trust

The 1990 Trust was a long-standing Cayman Islands trust, which had been established as a holding structure for the settlor's personal wealth and held "an eclectic range of international assets" previously owned personally by the settlor and all of substantial value. The settlor was the patriarch of a Middle Eastern Arab Muslim family, and the principal beneficiary named in the 1990 Trust. The settlor was a devout Muslim and was educated in and familiar with the Islamic law principles applied in his home country. Over time, a series of letters of wishes were prepared on the settlor's instructions, which recorded in express terms his dispositive intentions, in particular for the ultimate disposition of the 1990 Trust's assets after his death to be amongst the settlor's heirs in accordance with the rules of inheritance of Islamic law.

The settlor had passed away some time before the trustee made its application, and was survived by his wife and adult children (referred to in the judgment as the Heirs). The Heirs had been officially identified as the settlor's heirs under the Islamic law of inheritance applied in the Middle Eastern country of which they were all nationals, and it was to the Heirs (rather the wider group of members of the beneficial class as a whole) that the trustee intended to distribute all of the assets of the 1990 Trust.

The application

The application before the Honourable Chief Justice in this case was a "Category 2" Public Trustee v Cooper application, made pursuant to Order 85 of the Grand Court Rules and section 48 of the Trust Law (as Revised), pursuant to which the trustee was seeking the sanction of the Court for a particularly momentous decision. The parties were in agreement in this case that the trustee's proposed course of action was indeed "momentous" in nature, given that it would involve the realization and distribution of all of the 1990 Trust's assets and thereafter the termination of the 1990 Trust. However, the focus at the hearing was on whether the view taken by the trustee was a view that a reasonable trustee could properly have arrived at (the third limb of the well-traversed Public Trustee v Cooper test). The question was whether the trustee, in the exercise of its discretionary powers to distribute the assets and wind up the trust, was obliged to inquire into and consider the circumstances of each and every member of the wider class of beneficiaries with a view to benefitting them or whether it could - in keeping with the "rationality standard" applied in cases such as this and compliant with the wishes of the settlor - reasonably decide to benefit only those beneficiaries who were the settlor's heirs under Islamic Law.2

The...