The Benefit of Hindsight!
How S64A of the Cayman Islands Trust Law can be a useful addition to a trustee’s armory in current times
In a similar vein to the collective approach used to combat this global pandemic, various stakeholders of the financial services industry in the Cayman Islands have also played their role by extending various regulatory and reporting deadlines (FATCA/CRS, Economic Substance and CRS Compliance Form etc), implementing processes to accommodate electronically signed documents and transitioning to online platforms where physical meetings were once required. In these times of general economic and social uncertainty, Cayman professional trustees may be further comforted by Section 64A of the Cayman Islands Trust Law which codifies how the Court can set aside a mistake made by a trustee in certain circumstances.
No competent trustee ever intends to make a mistake that is to a beneficiary’s detriment however there are an increasing number of risk areas currently facing even the most prudent and experienced trustee such as the following (to name a few):
- Investment decisions in an often volatile market;
- The effectiveness of anti-Bartlett provisions when poorly performing operating entities underlying trusts are concerned;
- Dealing with unusual distribution requests;
- Tax residency changes for settlors, protectors and beneficiaries arising from international travel restrictions;
- Regulatory and reporting obligations; and
- Ensuring settlors, protectors and beneficiaries have the requisite capacity and ability to communicate and that advice is obtained, where required.
Coupled with the fast paced and dynamic environment within which a trustee often operates, it is easy to see how mistakes can happen and it is important for trustees to know how to remedy these errors quickly and effectively.
How S64A Cayman Islands Trusts Law may assist
The insertion of Section 64A in the Cayman Islands Trust Law enshrined the original Hastings-Bass approach into Cayman Trust Law. In summary, S64A provides that if a power holder does not take into account relevant considerations or takes into account irrelevant considerations in the exercise of a power and, but for those failures, the power holder would not have exercised the power or would have done so on a different occasion or in a different way, then the Court may set aside the exercise of that power.
The legislation further provides that:
- A breach of trustee duty is not necessitated (as previously set out in Pitt v Holt). This would imply that the diligent trustee is rewarded for fulfilling its fiduciary duties despite the intended result not having been achieved.
- A bona fide purchaser is not prejudiced. This safeguards the interests of parties connected to genuine commercial transactions.
- The Court has discretion to determine who may utilise the relevant provision in order to ensure that equity is achieved.
As this provision is relatively new, it is interesting to see how the Cayman Courts interpret and apply S64A in practice. Prior to this important revision, the Cayman Courts applied a dual approach in addressing the law of mistake, primarily driven by the facts of the cases presented, resulting in some questions over whether the Cayman Courts would follow the line of authority that culminated in the Hastings Bass or Pitt v Holt decision. Now, trustees have certainty of approach as the Hastings-Bass decision is hardwired into Cayman Trust legislation. This is a welcomed addition to every Cayman trustees’ armory especially in the current climate.
Brian O’Malley, ACA, TEP
R&H Trust & Corporate