Knowledge

Section 64A of the Trusts Act ("s64A") grants the Grand Court of the Cayman Islands (the "Court") jurisdiction to set aside mistaken exercises of fiduciary powers.

It gives the Court statutory powers similar to what was the Court's equitable jurisdiction known as the rule in Hastings Bass.

Statutory framework

If the Court, in relation to the exercise of a fiduciary power, is satisfied that certain conditions have been met, it may:

• set aside the exercise of the power, either in whole or in part, and either unconditionally or on such terms and subject to such conditions as it may think fit; and
• make such order, consequent upon the setting aside of the exercise of the power, as it thinks fit.

The conditions that must be satisfied are that:

• in the exercise of the power, the person who holds the power either:
• did not take into account one or more considerations (whether of fact, law or a combination of both) that were relevant to the exercise; or
• took into account one or more considerations that were irrelevant to the exercise; and
• but for that person's failure to take into account such relevant considerations or their taking into account an irrelevant consideration, they:

‒      would not have exercised the power;

‒      would have exercise that power, but on a different occasion; or

‒      would have exercised that power in a different manner.

If and to the extent that the exercise of the power is set aside by the Court, to that extent the exercise of the power shall be treated as never having occurred.

Importantly, it need not be alleged or proved that, in the exercise of the power, the powerholder (or any advisor to them) acted in breach of trust or duty.

Further, the Court's jurisdiction extends beyond the exercise of powers by trustees and includes the exercise of fiduciary powers held by others, such as protectors and enforcers.  For the purpose of s64A, a fiduciary power is a power that, when exercised, must be exercised for the benefit of, or taking into account the interests of, at least one person other than the powerholder.

An application may be made by:

• the person who holds the power;
• a trustee, beneficiary, or an enforcer (in the case of a STAR trust);
• the Attorney General (in cases of charitable purposes); or
• with the leave of the Court, any other person.

One caveat to the Court's jurisdiction is that it may not make an order which would prejudice a bona fide purchaser for value of any trust property without notice of the matters which would allow the Court to set aside the exercise of the relevant power.

Judicial consideration of s64A

In Re Settlements made by Declaration of Trust dated 9 May 2013 (Unreported, 28 September 2023, FSD 228 of 2023 (IKJ)), the Court published its first decision on an application made under s64A.

In that case, the Court set aside the transfer of assets made to three trusts by declaring that such transfers were void.

Following a change of trustees from lay trustees to a trust company, the new trustee took tax advice (which the original trustees had not done) and was advised that the settlement of the trusts triggered substantial tax liabilities.  The Court accepted that it was obvious that, had appropriate tax advice been taken at the relevant time, the trusts would not have been established.

In giving its reasons for the decision to make the order sought, the Court:

• confirmed that s64A makes it possible for the Court to grant relief without considering the principles established by the UK Supreme Court in Pitt v Holt [2013] UKSC 26 (which case substantially narrowed the English courts' equitable jurisdiction by requiring that inadequate deliberation by a trustee must be sufficiently serious as to amount to a breach of fiduciary duty);
• confirmed that the Court's statutory jurisdiction is more liberally available than its equitable jurisdiction and that it is intended to facilitate a flexible approach to setting aside the flawed exercise of fiduciary powers;
• confirmed that the flawed exercise of a fiduciary power is void and not merely voidable (as has been suggested in England and Wales); and
• tentatively suggested, subject to further analysis, that s64A relief can only be obtained when the applicant has acted in good faith in relation to the impugned transaction and has not deliberately pursued a course of conduct designed to gain some undisclosed and impermissible onshore tax advantage or, indeed, designed to procure any other improper benefit.

Conclusion

Section 64A and the subsequent decision of the Court are a welcome enhancement to Cayman Islands trusts law, clarifying and simplifying the previous common law position in relation to trustee mistakes.

If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.