The professional trustee

29 Oct 2020

A recent Grand Court of the Cayman Islands decision provides valuable guidance on the expectations of a trustee in complex cases.

Key points

What is the issue?

The Grand Court of the Cayman Islands recently blessed a trustee’s momentous decision to distribute the trust fund to a small number of the discretionary beneficial class, who were the Shari’a heirs of the deceased settlor.¹

What does it mean for me?

The courts are prepared to bless momentous decisions of a trustee, including on such issues as the interplay between Shari’a law and the respective trust law.

What can I take away?

Trustees must demonstrate diligence, skill, independence, professionalism and accountability at all times, particularly when considering and making the decision and preparing for the court application.

A trustee’s work is seldom straightforward and perhaps never truly ends. The professional trustee is frequently called upon to meet complex, wide-ranging and time-critical needs. High-value, multi-jurisdictional assets may be involved; settlors’ and beneficiaries’ specific wishes and circumstances should be taken into account; and a variety of different laws, obligations and expectations navigated. The proper use of discretionary powers, underpinned by diligent administration, care and close attention to specific nuances and sensitivities, is vital to ensure robust decision-making.

A recent judgment in the Grand Court of the Cayman Islands (the Court) highlights these important requirements and reinforces the use of Public Trustee v Cooper applications as a route for trustees to secure judicial ratification of their decision-making.

Although the case concerned, AA v BB & Colin Shaw (as amicus curiae),² had several unique features, it contains important lessons for other trusts and trustees in the Cayman Islands and, more broadly, across other jurisdictions.

Complex and conflicting requirements

In this case, the application related to the trustee’s decision, after the settlor of the trust’s demise, to undergo an orderly asset sale process in order that distributions be made in accordance with his wishes to the heirs of the settlor under Shari’a law, who formed part of a wider class of beneficiaries, and to then wind up the trust.

This high-value discretionary trust was established several decades earlier and comprised the UK, international and non-standard assets of the patriarch of a Middle Eastern family (the settlor). A devout Muslim, it was the settlor’s express wish that on his death, his assets should be dealt with in accordance with Shari’a inheritance laws as they applied in the family’s home country. These laws have significant implications for succession planning, under which the heirs (named as his surviving wife and adult children) were officially identified. The trust’s assets were to be distributed among his heirs as soon as reasonably possible, given his experience with estates of previous wives taking decades to finalise.

However, the settlor’s wishes regarding his heirs posed a potential conflict with the governing law of the discretionary trust, which provided, in principle, for a very large pool of beneficiaries from his extended family. Moreover, the application of Shari’a law (which provides strict guidance on how relatives should inherit, prioritising spouses, parents and children in specific proportions) to the trust would have been incompatible with the large beneficial class.

Given these sensitivities, the Court’s blessing was sought on the trustee’s ‘momentous’ decision,³ in order to validate its actions and minimise the risk of future disputes. The Court’s role was to confirm whether the trustee had acted within its remit, had come to a reasonable conclusion based on objective evaluation of the facts and with respect to the trust deed, and that no conflict of interest existed.

Exhaustive enquiries

At the heart of this lay questions regarding whether it was necessary to identify, enquire into and consider the material circumstances of all the members of the wider class of beneficiaries, or rather
to benefit only the named heirs with differing Shari’a proportions on the basis of the enquiries already made and in accordance with the settlor’s stated wishes.

Enquiries had to be thorough and forensic. They included investigations into the settlor’s written and verbal wishes (which had been clear and consistent); the background to the trust’s creation and subsequent administration (with which the trustee was not originally involved); the significance of the settlor’s Muslim faith; and the application of Shari’a law.

The trustee enquired extensively into the size and identities of the entire beneficial class, including meeting with the heirs individually in person, mapping out family trees for each heir’s family, and researching and analysing publicly held information, often navigating the challenge of inaccurate or incomplete records.

In its judgment, the Court referred to Lewin on Trusts, which points to a judgment by Harman J from Re Gestetner, a notable historic trust case, which absolves trustees from having to ‘survey the world from China to Peru’, in terms of the scope of their enquiries. Despite this, the lawyer representing the attorney for the heirs of the trust pointed out that the trustee had, nonetheless, metaphorically done just that in the extensiveness of its research.

The Court also acknowledged that further enquiries into all individuals comprised within the wider beneficial class (and their financial affairs) would be impractical, intrusive and could damage the trustee’s relationship with the heirs.

Other factors taken into account included:

  • that the trust deed granted the trustee discretion to benefit some members of the beneficial class and not others; and
  • that the wide definition of the beneficial class had been intended to give the settlor freedom to decide who should inherit, rather than contradicting his wishes.

Wider implications

The Court unequivocally approved the application, satisfied that the trustee had acted diligently, taking all due care and paying attention to detail, and, in exercising its discretionary powers properly, that its decision was sound. The case provides valuable insight for other trusts and their trustees.

Administering complex trust structures, applying settlors’ personal, specific wishes, and considering the position of beneficiaries … is a highly responsible and often challenging task’

Thorough preparation is vital

The case underlines that such applications should not be made too early and not without proper justification supported by record-keeping and other evidence, nor should Public Trustee v Cooper applications be used as a means of transferring a trustee’s decision-making duties onto a court. Expert project management is required to ensure the rationale for the decision (and therefore the application) is watertight prior to filing.

Taking a textbook approach

In this case, it was noted by the judge that:

“The Trustee has arrived not simply at a rational decision, but one which follows very careful deliberation and inquiry … an approach which may be described as a “textbook” approach to the issues.” However, summarising the judgment, Macfarlanes, who advised the trustee, went further, saying:

“Although the Trustee was described during the hearing and in the written reasons as taking a ‘textbook’ approach to the issues, this case may in fact be better seen as an example of a trustee looking beyond the textbook in order to ensure the proper exercise of its powers in a situation where novel circumstances meant it was not able to take the conventional approach…”

Clarifying the position on conflicts

The judgment highlights the rigour required on the part of trustees when administering trusts where different and/or conflicting laws and obligations apply. Here, the trustee had to be mindful of several issues: among them, the potential discrepancy between Shari’a principles and trust law, and the interplay between personal wishes and cultural expectations. Also at issue was a situation many trusts could face, namely where a jurisdiction’s legislation contains provisions designed to protect trusts from heirship claims imposed by foreign laws. It clarifies that a settlor’s clearly stated dispositive intentions must be duly considered and carry their full force.

Going the extra mile

Extensive research is essential when considering decisions affecting the nature and future direction of a trust, particularly in complex or unusual cases. So too is taking care to cover all bases; for instance, by contacting all relevant parties (including lawyers) and securing expert advice where required (in this instance, regarding Shari’a law). Engaging the right advisors at the right time is also vital, particularly where specific expertise is required on highly complex issues such as matters involving multiple jurisdictions or religious/cultural factors. In this case, securing the input of legal advisors with expertise in both trusts and Shari’a law was fundamental to the success of the application.

Sensitivity and discretion

Trustees must balance their duty to obtain proper legal advice from other professionals with a considered and sensitive approach when dealing with clients, especially where proceedings require an appreciation of cultural and religious nuances.

A trusted family advisor

In circumstances like these (and indeed all others relating to the administration of trusts), the watchwords for trustees are diligence, skill, independence, professionalism and accountability. The role of trustee encompasses all these things and more.

Administering complex trust structures, applying settlors’ personal, specific wishes, and considering the position of beneficiaries (all while paying proper attention to trustees’ own professional duties) is a highly responsible and often challenging task. It requires deep expertise, excellent management, meticulous research skills, comprehensive record-keeping, assiduousness and sensitivity.

AA v BB & Colin Shaw (as amicus curiae) demonstrates that the trustee must manifest all this in order to not only perform its fiduciary duties responsibly, but also to build long-standing relationships established on a foundation of trust with the families they serve.

¹ The author is lead trustee director of the trust concerned.
² FSD Cause No. 137 of 2019 (ASCJ). The proceedings were subject to a ‘confidentiality order’ made by the Grand Court on 7 August 2019.
³ Via a Public Trustee v Cooper application.