Category Archives: HSM LAW

There is no doubt the COVID-19 pandemic has turned the world — and many lives — upside down. Certainty has been replaced by uncertainty, and many plans for the future are now in doubt. One may feel a loss of control and helplessness as the pandemic continues to wreak havoc on finances, relationships, employment, and just about every other thing imaginable.

While some things are outside our control, we should all take comfort in knowing that we still have powerful things within our control, such as (finally) getting our estate plan in order.

Robert Mack, HSM’s Head of Private Client & Trusts, provides his top five recommendations for getting your estate plan in tip-top condition. Robert also recently gave a presentation on this (in partnership with the Cayman Islands Chamber of Commerce) and provided further guidance on the private client industry by discussing wills, estates and succession planning with COVID-19 in mind. You can watch a recording of this presentation here.

Tip 1: What’s the plan?
The first question to ask yourself is whether there’s a plan in place; if so, does it reflect your current wishes? As a basic, a Will is a key part of any estate plan. Failure to have a valid Will means the law decides who gets your property and in what shares after you die (known as an “intestacy”). In some cases the intestacy formula can work well as the law seeks to distribute your assets equitably to the persons most closely related by blood or marriage. However, in many cases the intestacy formula does not produce the result one would have wanted and intestacy does not deal with the issue of guardianship of minor children.

Although a Will is a vital tool to ensure your wishes are respected there are alternatives to Wills, including placing assets/property into joint names so they pass outside of your estate automatically on death. Life insurance, trusts, and foundation companies are also powerful tools which can allow you to implement more complex estate plans so you can be confident your loved ones will benefit precisely as you wish them to.

Whatever your plan is, review it. If there is no plan, there is no time like the present to put one in place. Illness, whether caused by COVID-19 or otherwise, can sometimes impair your mental faculties, which can prevent you from taking the necessary steps to put your affairs in order so it’s best not to delay.

Tip 2: Where are your assets located?
If you have valuable assets located outside of the Cayman Islands, then its best to speak to an estate practitioner in that place, in addition to a Cayman-based attorney to ensure your foreign assets pass the way you want them to. Often it is necessary to have multiple Wills in each country as each country will have its own rules and regulations on succession.

If you’re unsure of how to find a foreign estate lawyer, a good place to start is the Society of Trust and Estate Practitioners, which is a global association of professionals who specialise in this type of work (www.step.org/for-the-public).

Your local Cayman trust and estates attorney should also be able to recommend a suitable foreign estate attorney to assist and both attorneys should work in tandem to ensure your global estate passes in the way you want it to.

Tip 3: How much are your assets actually worth?
Global personal wealth has taken a collective nosedive across the entire spectrum. As a result, the value of estates will inevitably suffer.

Therefore, it’s a good idea to review your Will (if you have one) to see whether any gifts to loved ones are now in need of adjustment, as gifts that were highly valuable just a few months ago (eg, quoted shares) may be less valuable now. This is important in order to achieve a sense of balance and fairness with loved ones, and to stave off any estate disputes from those who feel they were not treated fairly, which is one of the primary causes of estate litigation.

Although nobody has a crystal ball, it is more likely than not global markets will improve over the course of time, and ‘paper losses’ may be recovered. Until that happens, however, those who are seeking to spread their wealth fairly amongst their loved ones should take a sober look at their current net wealth and adjust their plans accordingly. Those who do not yet have a succession plan should take this into consideration when creating their estate plan.

Tip 4: Who are you?
This may seem an odd question to ask, but it’s important to understand what sort of connections you may have with other countries as this could affect payable taxes (outside of the Cayman Islands only), and claims on your estate.

For example, in Cayman it is not uncommon for persons, especially the older generations, to have been born in the United States despite never living there or never obtaining a US passport. The United States assigns citizenship to any person born on its soil, and since it also taxes its citizens no matter where they reside it’s very important that your estate attorney takes that point into consideration and works in tandem with a US-based estates attorney to ensure your estate is as tax-efficient as possible and that all necessary IRS forms are filed.

Also, your estates attorney will need to ascertain your ‘domicile’ status, which is a technical legal test which requires your advisor to identify connections to other countries (including but not limited to citizenship) to ascertain whether (or not) the laws of that country may affect your estate. This can often be an issue for expatriate workers in the Cayman Islands on work permits who maintain strong links to their country of origin, as some expatriate workers may remain ‘domiciled’ abroad despite residing in Cayman and therefore may subject to tax and succession laws in those countries.

In addition, many countries such as the United States seek to tax individuals if they spend a certain number of days within the country. It is therefore possible for a non-US taxpayer to inadvertently fall into the US tax net through no fault of your own if they happen to be stranded in the US due to travel restrictions imposed by COVID-19. This could have a knock-on effect on estates if such individuals die while tax resident in a foreign country. If such persons are concerned, they should consult a local tax professional and take such legal steps as soon as possible to lessen the tax payable, and if necessary, adjust their succession plan accordingly.

Tip 5: Be kind, be charitable
For those fortunate enough to have preserved their wealth throughout this crisis, there is a great opportunity to make a social impact by making a gift to worthy causes for those most impacted by COVID-19. It is a sad reality that many people are suffering in the Cayman Islands and many will continue to suffer as the pandemic unfurls and employment becomes scarce. There are a multitude of good charities to choose from in Cayman which could deploy such gifts for the benefit of the wider community, or you could select charities which focus on particular types of charitable activities such as provision of food for persons who are failing to make ends meet, or even animal charities for our furry friends. A charitable legacy is one of the noblest gestures an individual can make, and the world needs such selfless gestures at this moment to remain hopeful and optimistic in these most challenging of times.

With recent developments concerning the global spread of COVID-19 and the impact it has had on the economy, the Cayman Islands Government (CIG) has implemented a series of amendments to what is commonly referred to as the Islands’ Immigration Regime. Amongst the changes first formally communicated were directives issued by Workforce Opportunity and Residency Cayman (effectively a policy statement) on 15 April 2020. These have since been followed by the Immigration (Transition) (Work Permit Exemptions) Regulations, 2020, the Customs and Border Control (Amendment) Bill, 2020, and the Immigration (Transition) (Amendment) Bill, 2020. The Guidance and Regulations are now in effect, whilst the Bills are yet to receive formal passage and become Law. All are described more fully below.

WORC Guidance/FAQ
Dated 15 April 2020, the Workforce Opportunities & Residency Cayman (WORC) Frequently Asked Questions can be found here. In essence they have confirmed a new and streamlined methodology by which various applications can continue to be made notwithstanding the physical closure of WORC’s offices. The guidelines also provide for various other requirements being simplified or even waived. They brought into operation Electronic Funds Transfer (“EFT”) payment mechanisms, and confirmed that in so far as Work Permit applications are concerned, only 3 month Temporary Work Permit applications would be considered at this time.

Whilst not having the force of Law, they provide a pragmatic and helpful interim solution for those needing various permissions and seeking the assistance of the authorities. In limited cases they may not be appropriate to everyone’s circumstances, but those exceptions are (and we expect will continue to be) rare. Several of the “loose ends” created by the Guidance are tidied up by the Immigration (Transition) (Amendment) Bill, 2020 as described below. For now we continue to make all manner of immigration applications and the authorities are continuing to deal with urgent matters.

Amongst key aspects of the guidance are:

A variation of the visitor extension process.
A waiver of any requirement to provide a medical for work permit applications filed between 20 March 2020 and 20 May 2020.
An ability to continue working (temporarily) post expiry of a work permit in limited circumstances, including (for so long as “shelter in place” restrictions continue), past any expiring term limit.
A waiver of the requirement to provide wet-ink signatures, police clearance certificates; photographs and accommodation forms.
A waiver of any requirement to advertise, however with an expectation that all vacancies be duly published via the JobsCayman portal with an expectation that all vacancies be registered and good faith efforts to employ a Caymanian on a priority basis still be demonstrated.

Particularly notable is the policy direction that no new Work Permit Grant applications can be made, and that no cover letters are required. There will nevertheless be circumstances where both may appropriate, and we are making such applications (and indeed renewals) where appropriate. We are conscious of the fact that at present the Law requires renewals or even applications for the Grant of a Work Permit, RERC’s as the Spouse of a Caymanian, Permanent Residence and Permission to Continue Working to be made prior to the expiry of any existing permission. We are accordingly continuing to seek to comply as fully as possible with all the requirements of the existing Law, where practicable. Applications for Permanent Residence and the Right to be Caymanian are being filed by us weekly, and annual declaration and variation applications continue to be accepted. Not everyone has however been able to maintain every aspect of their immigration permissions and there will plainly be substantial “cleaning up” to be done in the future, and likely within a short (30 day) timeframe. New forms are expected but (it appears) are yet to be published.

These FAQ’s appear largely to be crafted so as to endure only for so long as the “shelter in place” suppression measures continue, although they will be replaced by new and updated approaches to various applications, including in consequence of the Immigration (Transition) (Amendment) Bill, 2020, described below.

The Immigration (Transition) (Work Permit Exemptions) Regulations, 2020
These were passed by Cabinet on 21 April 2020 and are already in effect. They are of immediate relevance only to those operating in the healthcare field, and operate so as to permit non Caymanians to be recruited by the Health Services Authority or any private hospital without the constraints which may otherwise apply under the Work Permit/Immigration Regime. A primary effect will be to exempt persons, subject to specific conditions, from having to have a work permit. They appear intended to allow the rapid deployment of medical personnel (including from overseas subject to quarantine controls) wherever required should a need arise. The regulations are intended to be limited in duration, although their expiry will be at a date to be specified by Cabinet and notified by Gazette, official Government website or other official means of communication.

The Customs and Border Control (Amendment) Bill, 2020
This was published on 22 April 2020 and is expected to pass through the legislative process in the coming weeks. It will amend the Customs and Border Control Law, 2018 to provide for the giving of directions by Cabinet to the Director of Customs and Border Control. This is anticipated to provide the Government with greater flexibility in its management of the entry and departure of individuals (and materials) in the weeks and months ahead.

The Immigration (Transition) (Amendment) Bill, 2020
Like the above this was published on 22 April 2020, and is expected to pass into legislation in the coming weeks. It is substantial and will formalize aspects of the Frequently Asked Questions Guidance published by WORC on 15 April 2020. It will bring into force a number of new requirements and formalize aspects of the Guidance issued by WORC. In particular:

With effect from the commencement of this Law, the longstanding requirement to advertise in two issues of a newspaper (unless exempted by Cabinet, the Board, or the Director of WORC), will no longer apply. It is formally replaced (unless exempted) with a long-anticipated requirement for any vacancy to which a full work permit relates to be registered “in an electronic portal established and managed by WORC for fourteen days before the submission of an application…” Advertising in a newspaper remains an option, but only in addition to registering in the “electronic portal” understood to be the jobs.ky website. The registration is confirmed to be for the purpose of ascertaining the availability of a Caymanian, Permanent Resident, or other person already lawfully resident for any position (in that order of priority). The former preference for Spouses of Caymanians over other Permanent Residents will no longer exist, with all Permanent Residents with Residency and Employment Rights Certificates issued under section 37(5) or 37 (16), and those issued under s. 38 being afforded equal protection.
Section 58 of the existing Law will also be amended by the deletion of the word “willfully” in the context of describing the offence of withholding information as to whether a local resident has applied for any position; or providing inaccurate or incomplete information in an attempt to deceive the authorities in an application for a work permit. It follows that the offence now becomes one of strict liability, making it easier to prosecute and in effect placing the burden of proof on the applicant for the work permit. It will no longer be a defence if a local applicant for a position that is subsequently the subject of a work permit application was overlooked by mistake. Employers and HR professionals (in particular) should take particular note. The penalties for the offence remain unchanged (a fine of CI$20,000 and a year in prison for a first offence, and CI$30,000 and imprisonment for two years for a second or subsequent offence).
A series of transitional measures are introduced. If the Bill passes in its current form, it confirms that where a work permit expired on or after 27 March 2020, and the employer or self-employed worker was unable to make an application for the renewal of the work permit due to the closure of WORC, the worker is deemed not to have committed any offence under the Immigration (Transition) Law by continuing to work under the same terms and conditions PROVIDED an application for a renewal of the work permit is (as matters stand) made within 30 days of the commencement of the Bill. Interestingly, no corresponding protection is provided to employers in the present draft. That does not appear to us to be deliberate, and may change before passage. The Bill does however confirm that if no application is made within the 30 day window to be made available, then the worker must cease working. If employment nevertheless continues, both the worker and the employer will have committed an offence and be liable on conviction to a fine of CI$5,000 and/or imprisonment for one year. If an application is made within the 30 day window then the right to work (and to employ) by operation of Law is preserved pending determination, or any appeal.
Where a worker’s term limit has expired on or after 27 March 2020 and an employer is thereby unable to make an application for the renewal of a work permit, and the worker has nevertheless continued in employment, neither the worker nor their employer will be deemed to have acted in contravention of the Immigration (Transition) Law where the worker continues to work on the same terms and conditions as applied to the final work permit, during the period between 27 March and ninety days after the commencement after what will be the Immigration (Transition) (Amendment) Law, 2020.
Finally, the proposed legislation confirms that where a worker has continued in employment after the expiry of their work permit on or after 27 March 2020, they are deemed not to be in contravention of the Law for the period until their employment ends. It is assumed that the legislative intent of this provision is not that such persons be permanently excused from holding a work permit and that it will only apply for up to 30 days following commencement of the amending legislation.

Any applications filed before the future commencement date of this amending legislation will be dealt with under the Laws in place on the date of their application (for example relying on newspaper advertisements to determine the availability of local persons for any positions). Both employers and employees should pay close attention to these developments.

It remains to be confirmed how the interplay between workforce opportunity, border control, employment and even pensions will ultimately resolve (including how WORC will treat periods of extended layoff).

For the immediate we recommend that all employers with work permit needs in the coming months register themselves and any vacancies (which would include any position for which a work permit is or will be required) on the jobs.ky portal. Doing so now will enable employers the benefit of a full 30 day window within which to regularize any renewal applications which may be made “out of time.”

We are advising clients and assisting in the making of all manner of applications, including registration of employers and positions on the jobs.ky portal.

With recent developments concerning the global spread of COVID-19 and the impact it has had on the economy, the Cayman Islands Government (CIG) has implemented an amendment to the Labour Law (2011 Revision) (the “Law”) and enacted the Labour (Extension of Severance Pay Period) Regulations, 2020.

The Labour (Amendment) Law, 2020
The amendments that have been made to the Law are largely procedural and will have a minimal impact, if any, on the day to day working relationship between the employer and employee.

The Law has made an amendment to the procedure relating to the service and sending of documents by adding provisions under s.84 of the Law that allow a person that is required to serve any document required under the Law to be able to properly affect service by electronic means. Not only is this amendment a welcome addition due to the effect of the Government’s stay at home regulations but it also recognises the role that email and other forms of electronic communication now play in modern society.

The other change to the Law is the inclusion of a power to allow the Cabinet in the time of emergency or calamity, to grant, on a case by case basis, extensions or exemptions in relation to any prescribed period of compliance set out in the Law. This new power is then transferred to the Director of the Department of Labour enabling him to issue temporary certificates reflecting the grants and setting out any necessary conditions or procedures in relation to the grant made by the Cabinet. These grants can be made retrospectively if the Cabinet decide that the best way forward is to turn the clock back or if necessary stop it from running all together.

The Labour (Extension of Severance Pay Period) Regulations, 2020
Under s.42 (2) and (3) of the Labour Law (2011 Revision) an employer has the power to temporarily terminate or lay-off an employee for a certain amount of time without the need to pay that employee. During this lay-off period the employer/employee relationship continues, including the requirement to continue the employee’s health insurance coverage.

This means that in circumstances of a temporary lay-off under s.42 (2) of the Labour Law (2011 Revision) the employer is not required to pay severance at the time when the contract of employment is temporarily terminated. The notification of temporary termination sent to the employee must state that the termination of employment is on a ‘temporary basis’, and state the intention to recall the employee at a future unspecified date or specify a specific date on which the employee must return to work. Under s.42 (2) of the Labour Law (2011 Revision) the maximum permitted time allowed for an employee to be temporarily “laid off” is 30 days, except for those employed in the construction or agriculture industries where the maximum permitted time allowed for a temporary lay-off is 6 months (s.42 (3) of the Labour Law (2011 Revision)). If the employee is not recalled on or before day 30 or within 6 months as the case may be the employer is then obliged to pay severance pay to the employee (provided they have been employed for 12 months). Severance pay is calculated at the rate of one weeks’ pay for each completed year of service.

In recognition of the adverse economic impact of COVID-19 and the implementation of Government policies and regulations whose objective is to suppress the local transmission of the COVID-19 virus, the Government has enacted the Labour (Extension of Severance Pay Period) Regulation, 2020 to extend the period of permitted lay-off from 30 days to 60 days, which now means that, for employees that do not fall under s.42(3), that as long as the recall date is less than 60 days from the temporary termination date, no severance pay is due to be paid to the employee. For employees that fall within the scope of s.42 (3) as long as the recall date is less than 7 months from the date of termination, no severance pay is due to be paid to the employee. The extension of the lay-off period can only be relied upon by the Employer if the extension of the lay-off period is COVID-19 related.

If, for whatever reason, the employer is unable to specify a recall date, severance will now be payable 60 days’ after termination if the employee has not been ‘recalled’ within that period; and, the employee will also be entitled to interest on the amount of severance pay due at the rate of 10% per annum for the interval between the date of temporary termination date and the date of actual payment of the severance pay.

It should be noted that provided the employee is recalled within 60 days of termination, continuity of employment is preserved for the purposes of future employment rights. If, however, severance is paid and the employee is subsequently re-employed by the employer, the employee is treated as if he/she has been newly hired and the commencement date of his/her employment (for the purposes of future employee rights under the Labour Law) shall be from this date.

We are advising clients on the proper way to implement temporary terminations and the extension of existing lay-offs already in progress. A number of questions have arisen between the interaction of s.42 with contractual provisions and the redundancy provisions set out in the Labour Law. Any employer seeking to implement a s.42 temporary termination should obtain legal advice.

UPDATE (30 April 2020): Following our review of the National Pensions (Amendment) Bill 2020 (Cayman Pension Update April 23), the National Pensions (Amendment) Law, 2020 (Law) was passed by the Legislative Assembly but contains two important changes from the original Bill:

The temporary suspension of pension contributions (the pension holiday period) which applies to both employers and employees, continues to commence retroactively from 1 April 2020, but will now continue through to 30 September 2020 and not 30 November 2020; and,
The remaining provisions of the Law concerning the emergency withdrawal of pensions will now expire on 31 October 2020.

However, these dates may be extended by an Order made by Cabinet.

Withdrawals from private pensions by Public Servants
We previously took the view that section 52I(3)(b) meant that Public Servants could not make any withdrawal from any private pension plan which they may hold. Section 52I(3)(b) is open to a number of interpretations and our view was in part driven by the Premier’s comments during the COVID-19 press briefings, in which he stated that the amendments to the pension law (then a bill not law) would not benefit public servants as a matter of policy because public servants remained fully employed and their pension contributions were continuing. However, during the COVID-19 briefing on 27 April 2020, the Premier in answering a direct question from a member of the press, stated that public servants could make withdrawals from a private pension plan provided that contributions to that plan did not come from a statutory authority or a government company, as defined in section 2 of the Public Authorities Law (2020 Revision).

Frequently Asked Questions and Answers
To provide further guidance, we have prepared a briefing on frequently asked questions (FAQs). Click here to download this briefing.

The National Pensions (Amendment) Bill, 2020 (“Bill”) has now been released. Its foremost purpose is to provide for the ‘temporary suspension of pension contributions’ and ‘to enable specified members of a pension plan to withdraw a single lump sum amount from their account in the pension plan’.

During the daily COVID-19 press conference on April 20 2020, the Premier announced proposals to amend the National Pensions Law (2012 Revision) (the “principal Law”) of which there were two key provisions:

there would be a 6 month pension ‘holiday’ which would operate retroactively from April 1 2020; and,
‘eligible’ persons would be permitted to withdraw up to 100% of the value of their pensions which would be capped at CI$10,000. However, those persons with a pension value over CI$10,000 would be able to withdraw an additional 25% of their remaining pension pot.

The following briefing covers key aspects of the Bill which amends and repeals certain parts of the principle Law. It is important to note that the Bill is intended to be a temporary measure. Upon coming into force as the National Pensions (Amendment) Law, 2020, it will expire on November 30 2020 (unless extended by an Order of the Cabinet), the effect of which will be as though the principal Law had not been amended. Please keep in mind that this is a preliminary review and items are subject to change upon becoming Law.

Temporary suspension of pension contributions by the introduction of the ‘new’ Part 1A
By virtue of section 5A, a ‘pension holiday period’ is introduced which commences retroactively from April 1 2020 (“commencement date”).

In combination with section 5B, in practice this means that from the commencement date, pension contributions by both employees and employers are suspended until either November 30 2020 or any date extension subsequently ordered by Cabinet. This provision equally applies to self-employed persons who hold individual retirement accounts.

This is a default measure but upon careful reading of the wording of section 5B, the section essentially places a choice on both the employee and employer (individually) to suspend pension contributions – it is not a mandatory provision. Thus, there is no prohibition on an employee making voluntary contributions into a pension plan but the section provides that for the pension holiday period, the employer would not be obliged to contribute to the plan (and vice versa).

Notwithstanding, a note of caution should be exercised. The statutory amendments to the principal Law do not expressly prevail over any contractual arrangements between the employee and employer. There may be, for example, a term in the employee’s contract of employment which contractually obliges an employer to ‘match’ pension contributions made by the employee. Consequently, if an employee were to continue making contributions to a pension plan during the pension holiday period, the new statutory provision would not necessarily protect the employer from a breach of contract claim.

Pension arrears

It is clear by section 5C(2) that any arrears of pension contributions which accrued before April 1 2020 remain ‘payable’ and an employer will be liable to pay interest on those unpaid funds in accordance with section 50 throughout the pension holiday period.

Sections 25(1), (2), (3), (5) and (6) are not affected by the pension holiday and shall continue to apply. In essence, this means that should an employer recruit any ‘new’ employees during the pension holiday period, those employees will still be required to be members of a pension plan (with full contributions paid) subject to any exceptions set out under sub-section(2). Section 25 applies equally to self-employed individuals who set up a business during the pension holiday period.

Finally, in circumstances where a Caymanian has previously made a withdrawal from his/her pension either for the purposes of using that amount as a deposit for a residential dwelling or to pay-off an existing mortgage, the requirement to contribute an additional 1% into a pension scheme is also suspended for the duration of the pension holiday period in accordance with the introduction of sub-section (5) to section 52(D).

The emergency withdrawal by ‘members’ of pension funds by the introduction of the ‘new’ Part VIIB
Section 52I (2) recognises the distinction between defined contribution plans and defined benefit plans in which the value of the former will depend on factors such as the amount that is paid into the pension and the fund’s investment performance; whereas the value of the latter is determined by more dynamic circumstances such as age at retirement, years of service, and level of salary during the final years of employment. This is important as the value of defined contribution plans is aligned to the financial markets and are now the most common type of pension schemes.

Notwithstanding, in either case, the provisions for emergency withdrawal of pension funds are essentially the same:

Where the balance in a members’ defined contribution account or the commuted value of the members accrued benefits under a defined benefit –

does not exceed CI$10,000, the member may withdraw up to 100% of the balance; or,
if the balance exceeds CI$10,000, the member may withdraw CI$10,000 and up to 25% of the remaining balance.

For example, a member who has ‘pension pot’ of CI$100,000, may withdraw CI$10,000 + (25% x CI$90,000) = CI$32,500.

Any such withdrawals shall be taken as a single lump sum payment.

Eligibility for pension withdrawal under Part VIIB

Those eligible to apply for a withdrawal of pension in accordance with Part VIIB must:

either be presently in the Cayman Islands; or,
departed the jurisdiction between February 1^st 2020 and November 30^th 2020 (unless otherwise extended).

However, by virtue of section 52I(3), the ability to withdraw does not apply to a member who:

has claimed benefits under normal or early pension entitlement; or
is a public servant as defined by section 2 of the Public Authorities Law (2020 Revision) with pension contributions under this Law which were paid by a statutory authority or a government company as defined by section 2 of the Public Authorities Law (2020 Revision), is not entitled to apply and shall not apply to withdraw an amount from the member’s account in a pension plan in accordance with this Part.

Thus, in respect of section 52I(3)(a), those members who are currently drawing on their pension will not be able seek a lump sum pension withdrawal. Furthermore, the prohibition on public servants in (b) not only applies to withdrawals from their public service pension fund but also extends to any private sector pension they may have from previous employment. This is likely to be a ‘public policy’ decision owing to the fact that public servants are not yet facing redundancy or any reduction in pay and therefore, there is no legitimate need to access any of their pension funds.

There are strict penalties for any member referred to in sub-section (3) applying for a withdrawal of pension under Part VIIB. Any such application is deemed to be a criminal offence which carries a fine of CI$10,000 and/or a term of imprisonment of one year.

The application process

Any eligible member of a pension scheme seeking to make a withdrawal in accordance with Part VIIB is required to submit an application to his/her relevant pension administrator by way of a prescribed form. As far as we are aware, the application form has yet to be approved by the Director of the Department of Labour and Pensions (“Director”).

At the same time, it will be necessary to submit original government-issued photo identification or otherwise notarised (or certified) copies. The Director may require other documents upon request.

Sections 52I(8) & (9) thereafter provide a timetable in which the administrator is required to render a decision on the application. In summary, the timetable is as follows:

Within 7 days of receiving the application, the administrator is required to notify the applicant of receipt;
Within 14 days of notifying the applicant of receipt, the administrator shall notify the applicant of the decision to either approve or refuse the application;
If the application is ‘approved’, within 45 days from receipt of the application, the Administrator shall notify the applicant that either a cheque for the amount applied for has been prepared or a payment has been made by direct deposit to a financial institution as directed by the applicant. The applicant may choose either of the two forms of payment.

An application may, however, be refused by the administrator on two grounds:

where the administrator is not satisfied that the applicant qualifies to make a withdrawal under Part VIIB; or,
if any other requirement(s) under Part VIIB have not been met by the applicant.

Where an application has been refused, the administrator shall notify the applicant accordingly within 14 days of having notified the applicant of receipt of the application and provide reasons in writing. However, an applicant has the right to refer the administrator’s decision (in effect, an appeal) to the Director for reconsideration. In the event that the Director overturns the administrator’s decision, this will bind the administrator unreservedly.

The government clearly expects a pension administrator to adhere strictly to its obligations and the timetable set out in the legislation. Penalties are severe and non-compliance is an offence for which liability on summary conviction bears a fine of CI$10,000 and/or a term of imprisonment of one year.

Additional Voluntary Contributions

Section 47 has also been amended which now permits members, on becoming unemployed, to withdraw any additional voluntary contributions (“AVCs”) which have been paid into a pension plan.

As there is a general right for eligible members to withdraw from their pensions under section 52I(2), the section 47 amendment should be read as a separate and additional measure restricted to benefit those persons who are unemployed.

The legislation is ‘silent’ however, in respect of the applicable time period as to when the member became unemployed. Does the section 47 amendment only apply to those who become unemployed from the date of the amended section, or, does it apply to a person who may have been unemployed for many years? The position is not clear but given the text of the Memorandum of Objects and Reasons which preface the legislation, we are of the view that provided a member is unemployed at the date of application, the amendment to section 47 permits the withdrawal of AVCs:

“Clause 3 seeks to amend section 47 of the principal Law to allow a member to access the member’s additional voluntary contributions, upon providing the administrator with evidence of the member’s unemployment.”

There are no prescribed constraints on the amount of AVCs that may be withdrawn in these circumstances although the pension administrator will need to be satisfied of the member’s unemployment. The application

process is self-contained in section 11 and shall be made to the pension administrator in the manner designated by the Director.

Conclusion
This is a dramatic piece of legislation in an attempt to boost the local economy and assist those primarily, who have been dismissed from their employment in the current COVID-19 crisis. However, the wide-ranging effect is to also permit those in the private sector – who remain employed on full-salaries – to access their pensions for a lump sum withdrawal.

Critically, those individuals who are considering a withdrawal should, in the first instance, contact their respective pension administrators to ascertain current pension values. The recent extraordinary falls in the stock market will undoubtedly affect the majority of pension values significantly.

If you have any questions or need assistance, please reach out to a member of our team or contact us at info@hsmoffice.com.

In what will be seen by some as a welcome measure by the Cayman Islands’ Government, the Premier announced two proposed legislative changes to the National Pensions Law (2012 Revision) during the daily COVID-19 press conference on April 20 2020.

Firstly there would be a 6 month pension ‘holiday’ which would operate retroactively from April 1 2020. This means that pension contributions paid by both the employer and employee would be suspended during the period until November 1 2020.

Secondly, ‘eligible’ persons will be permitted to withdraw up to 100% of the commuted value of their pensions which will be capped at CI$10,000. Those persons with a commuted pension value of over CI$10,000 may withdraw an additional 25% of their remaining pension pot.

For example, an individual who has a commuted pension value of CI$100,000, may withdraw CI$10,000 + (25% x CI$90,000) = CI$32,500.

Withdrawals will be taken as a single lump sum and the proposed scheme applies to anyone contributing to a private pension. It does not, however, apply to those persons currently drawing on their pensions.

Cabinet will be considering the proposed changes and the corresponding legislation will be placed before the Legislative Assembly on Wednesday (April 22 2020)/Thursday (April 23 2020) before passing into law. The mechanics of the application process has not yet been set out.

As communities at large look towards their physical health, businesses are looking at their financial health. One question which has arisen is whether a contract containing a Force Majeure clause is, or can be, triggered by the COVID-19 pandemic. Further, if there is no such clause in the contract can one of the common law doctrines apply, such as frustration and illegality, due to a supervening event.

Force Majeure Clause
Force Majeure clauses are usually contained in commercial type leases, but not always. The contract/lease should be considered in the first instance and, if present within the contract, then it will become a question of construction. These types of clauses are generally recognizable but they do not always state what they are. These clauses are generally present to alter one or various rights and obligations of the contracting parties when one of the events detailed in the clause occurs or, depending on the construction of the clause, some other supervening event occurs. The event prevents the parties from complying with their obligations under the contract and the clause may set out what is supposed to happen at that point between the parties.

These types of clauses can be drafted very differently and, the consequences of this, can result in various possible outcomes for the parties. The clauses can be written broadly and/or be more specific.

Force Majeure is contract based as opposed to a general common law doctrine, described in 1902 in Lebeaupin v Richard Crispin and Company [1920] 2 K.B. 714 as:

“… a “force majeure” clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument”.

The general approach taken by the Courts is one which is viewed as fairly restrictive, which likely stems from the Courts’ general restrictive approach throughout the years to exemption type clauses. In the Cayman Islands, this may still be the approach because, unlike in some other jurisdictions, Cayman does not necessarily have the statutory restrictions placed on these types of clauses. If they are not restricted by implied statutory provisions then the Courts will likely maintain the restrictive approach, when considering reliance on the clause. It is highly likely that in Cayman the Courts will first look to the common law doctrine of frustration and how it has been applied and then interpret the Force Majeure clause. Certainly the Courts would have no shortage of case law to refer to from other jurisdictions, given that Force Majeure clauses have been well litigated.

The burden of proof lies with the party who seeks to rely on the clause. They will have to prove:

That the clause should apply in light of COVID-19
It is beyond the control of the parties
Inability to mitigate – this will be timing and fact specific
Foreseeability may or may not be a consideration (depending on the contract)
Relevant Notice (whether there is a requirement to serve notice when seeking to rely on the force majeure clause)

There is no reason, unless the contract specifically provides something else, why the parties cannot agree to suspend performance on both sides during this pandemic or ‘forgive’ non-performance for a period without specifically bringing the lease to an end. Whereas the other common law doctrines bring the contract itself to an end.

Going forward parties to a contract may wish to be more specific with the allocation of risk in the lease as well as when the clause could be triggered.

No Force Majeure Clause
If there is no such clause in the contract then the question no longer focuses on the construction of the contract. Instead the focus reverts back to legal principles and common law cases applying the other doctrines.

Frustration
This doctrine has only been applied in a limited way by the Courts historically. The case of Davis Contractors Ltd v Fareham UDC [1956] AC 696 is still the defining case in relation to what constitutes frustration, being that:

it was a supervening event – neither party defaulted (no blame on either party)
parties have become incapable of performing because performance would be radically different from what was originally undertaken by the parties under the contract.

The lease/contract should be explored at this point.

There are similarities to Force Majeure in that:

foreseeability is a component (the event must be unforeseen)
it renders the contract impossible to perform or changes the main purpose of the contract
there must be a supervening event for which neither party is responsible

Whereas a Force Majeure clause can end a contract in a specific way (allocating risk and loss in a specific way between the parties), the doctrine of frustration will likely mean that losses incurred will crystalize at termination and the respective parties will shoulder whatever the loss is, at that point. Landlords in this scenario are more likely to shoulder more of the financial loss e.g. unpaid rent/utilities and so on.

In some jurisdictions, including Cayman, there are statutes which protect parties from the ‘fall out’ of the application of the doctrine of frustration e.g. statute allocating obligations and losses. It may still be possible to recover monies or have the Court address apportionment of risk and loss/costs when a contract has been found to be frustrated or impossible to perform. In Cayman there is the Contracts Law (1996 Revision) under which a statutory claim may be made. Sections 5 and 6 of the Contracts Law potentially allow for claims for monies owed, prior to discharge of the contract and claims for non-monetary benefits as a result of the contract having been found to be frustrated. This is an unsettled area of common law and certain types of contracts are excluded e.g. insurance contracts. However, the common law may again come into play, via a claim for unjust enrichment, when a certain type of contract is excluded under this law.

There is much case law surrounding the application and extent, not only of Force Majeure clauses but the other doctrines as well. It must be borne in mind that every case will turn on its own facts and the length of the COVID-19 pandemic compared to the length of the lease will be a factor considered.

Illegality (some other supervening event)
The doctrine of illegality, if the supervening event results in a contract being illegal – then performance is illegal. However, the facts of the case are important. If a contract is merely partially unable to be performed or the contract is more difficult to perform – this is not adequate to satisfy the strict criteria which would allow the reliance on this doctrine. Again there is much case law surrounding the application of this doctrine.

Practical Considerations
The Landlord at this time should:

Look to the Lease
Is there a Force Majeure clause and what does it say?
What are the Landlord’s obligations and what are the Tenant’s usual remedies in relation to these?
Explore the possible areas where the Tenant may seek to rely on any such clause
Consider cover under any insurance policy
If the property is mortgaged – speak to the lender

The Tenant at this time should:

Look to the Lease
Is there a Force Majeure clause and what does it say?
What are the Tenant’s obligations and what are the Landlord’s usual remedies in relation to these?
Explore the possible areas where the Landlord may seek to rely on any such clause
Consider abatement clauses and other restrictions clauses e.g. where it is illegal to carry on business in this case due to Government restrictions
Other clauses which allow cessation or reduction in rent payable and the circumstances surrounding the use of such clauses
Consider cover under any insurance policy (may cover loss of income)
If the business has a loan – speak to the lender

Conclusion
If there is no Force Majeure clause in the lease, we strongly suggest you seek legal advice and our team is ready to assist you through this time of uncertainty.

Key Contact
Shula Sbarro
HSM Associate
Tel: 1 345 936 7417
ssbarro@hsmoffice.com

HSM’s Head of Private Client & Trusts, Robert Mack, discusses the impact of COVID-19 on the trusts and private client industry in the Cayman Islands – setting out what practitioners could be doing now to prepare for potential issues in the future.

Robert was interviewed by Katharina Byrne from LexisNexus. This was first published by LexisPSL Private Client.

How has the Trust and Private Client in the Cayman Islands reacted to COVID-19?
The industry has reacted swiftly by implementing work-from-home policies and procedures across the board, maintaining a high level of client service despite temporary office closures due to ‘shelter-in-place’ orders and curfews implemented by the Cayman Islands Government.

The local council of the Society of Trust and Estate Practitioners (“STEP”), of which I am a member, has continued to function and hold virtual meetings. They have been focusing their efforts on entering into dialogue with the Cayman Islands Government and the local regulator, the Cayman Islands Monetary Authority (“CIMA”) to address the various challenges brought on by the COVID-19 pandemic impacting the local industry.

What is the current state of the Trust and Private Client Industry in the Cayman Islands?
Private client practitioners are reporting an increase in estate planning instructions as clients seek to get their affairs in order partially out of fear of COVID-19 and partially due to the fact that many clients are in self-isolation and therefore have more time to dedicate to personal matters.

There is a noticeable increase in lifetime planning instructions using trusts and foundation companies, while some reports indicate that clients are putting matters on hold while they await global developments on COVID-19.

Trustees are experiencing increased client contact on a number of fronts, including tweaking existing structures and considering techniques to improve tax efficiency of their structures; for example, by taking advantage of recent stock market losses to capitalise on losses.

Sadly, it is expected there will be an increase in estate work, especially given the global nature of the client base in the Cayman Islands and the fact that COVID-19 is now present in the vast majority of countries in the world. While the virus is present in the Cayman Islands the numbers infected are very modest at present, and it is hoped the measures taken by the Cayman Islands Government, which include closure of the borders, curfews, and social distancing will halt the spread of the virus allowing the local economy to re-open.

What are the current challenges facing the Trust and Private Client industry in the Cayman Islands?
The primary challenge is the uncertainty COVID-19 has introduced into the market, and the resulting decease in wealth felt at all levels of society, including high-net-worth individuals and families, particularly those with a large exposure to the global equity markets who have suffered historical losses. It is impossible to predict what effect this will have on the industry as a whole, but most practitioners agree that wealth and estate planning remain vital tasks for their clients despite the state of the economy. That said, activity in the commercial trust sphere (such as investment unit trusts) are likely to see a decrease in the short to medium term while the global economy remains unstable.

There are also practical problems with respect to the collection and verification of client due diligence and the execution/notarisation of documents, particularly Wills which require two witnesses to be present at the time of execution to be formally valid as a matter of Cayman Islands law. Will practitioners are having to become creative to overcome such limitations, but it certainty remains possible to comply with the current formalities by taking precautions, such as ensuring witnesses wear suitable protective equipment (gloves, masks) and by maintaining a certain distance (six-feet minimum) from the testator/testatrix and the other witness at all times.

Face-to-face meetings with clients have ceased and have been replaced with teleconference or video conferencing meetings. This has introduced some challenges dealing with elderly clients who may not be familiar with teleconferencing and may be more used to face-to-face meetings, as well as making it more difficult for private client practitioners to detect the presence of undue influence or lack of mental capacity in their clients.

Clients who are hospitalized for COVID-19 present a particular challenge and would require private client practitioners to exercise extreme caution when taking instructions to ensure such clients have the requisite mental capacity to provide instructions, and would also require special procedures to be observed to ensure the witnessing of documents is compliant with local formalities as previously mentioned. It should be possible for medical staff to act as witnesses on documents such as Wills (if they are permitted to do so by their employers) so long as they are given sufficient coaching by the private client practitioner.

Has the Cayman Islands Government responded to these challenges?
CIMA have been in regular dialogue via video conferencing with the local branch of the Society of Trust and Estate Practitioners (“STEP”), and CIMA is in separate dialogue with the Cayman Islands Government on the concerns raised by STEP. It is possible the Cayman Islands will follow other jurisdictions to allow virtual witnessing of Wills and other documents, however, that is not yet confirmed.

CIMA continues to function well despite staff working from home. There are several reports from practitioners that CIMA has been highly responsive during this period, which is reassuring.

The Court continues to function well and has implemented several new polices such as video-link hearings to enable its business to carry on.

The General Registry remains open and is fully functional.

As a result of COVID-19, the Cayman Islands Government has extended the 2019 FATCA reporting deadline to 16 November 2020 in response to the US Government relaxing its deadlines.

The Cayman Islands Government has also extended the 2019 CRS reporting deadline to 18 September 2020.

What should private client practitioners and professional trustees be doing now to prepare for potential and current issues in the future as a result of COVID-19?
There should be a recognition that the global COVID-19 crisis will continue to have powerful and unpredictable effects on the way private client and trust business is done during the crisis and in the foreseeable future. Even as the pandemic subsides, clients and service providers may be more reluctant to conduct face-to-face meetings, with virtual meetings likely becoming the preferred option.

Working from home will likely become more commonplace, so it is important for our industry to invest in the necessary infrastructure to enable its workers to adapt to this new reality.

I expect to see a bump in trust and estate litigation in the medium term to address losses to trusts and estates arising as a result of the collapse in global equity markets. Trustees and other fiduciaries with investment responsibilities should be implementing steps to mitigate losses as well as being extra vigilant in the management and deployment of assets until global markets settle.

Dialogue is continuing with CIMA and the Cayman Islands Government to ensure that appropriate legislation and regulations are introduced in a timely manner to further enhance the position of the Cayman Islands as a premier trusts and private client jurisdiction. Practitioners will need to be aware of changes as they arise so they can be put into practice quickly.

Lastly, we have to be able to anticipate the needs of our clients in advance and listen carefully to our clients’ needs to ensure we continue to deliver a high level of professional service despite any challenges COVID-19 brings. The Cayman Islands has weathered many challenges in the past and we have learned to adapt and overcome adversity. The Cayman Islands remains very much open for business and we will continue to take such steps as are necessary to maintain our position as a premier financial center, and we hope to play a key part of reviving the global economy once the pandemic passes.

The coronavirus (COVID-19) is causing economic concerns around the world and our home-base in the Cayman Islands is no exception. Our lawyers are carefully monitoring and complying with the guidelines as set by the Cayman Islands Government. We make it our mission to keep abreast of these changes and how they may affect you, our valued clients.

As Cayman’s go-to legal experts, HSM has put together a guide to help advise a number of persons and businesses as to the requirements/expectations of the Law, covering areas under corporate and commercial, debt solutions and recovery, employment and immigration, insolvency, insurance, private client and property.

Ultimately we are all in this together and HSM is on-hand to assist you during these unprecedented times.

This situation and its effects are ever-changing so we will be updating this guide on our website. If you have a question that is not covered in this guide, please reach out to a member of our team. Our expertise enables us to provide clear, sound and timely advice on any concerns that you may have.

Click on the icon below to download this guide.

Last updated: May 4, 2020.

This guide is intended only to provide a summary of the subject matter. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this guide without first obtaining specific professional advice. Alternative solutions also exist which may better suit the requirements of a particular individual or entity.

HSM’s Employment and Immigration lawyers are advising a number of persons and businesses as to the requirements and expectations of the Cayman Islands Law during COVID-19, in particular where businesses may be required to make staff redundant.

Redundancy is defined in Cayman Islands Law as “a situation in which, by virtue of a lack of customers or of orders, retrenchment, the installation of labour-saving machinery an employer’s going out of business, force majeure or any other reason, tasks which a person was last employed to perform no longer exist.”

Cayman Islands Labour Law

A redundancy is a form of “fair dismissal” provided it is carried out in accordance with the Labour Law. The Law provides for preference in employment. If a group of persons carrying out a specific role within an organization are to be made redundant, the Law requires that preference be given according to immigration status. It follows that work permit holders are expected to be made redundant before permanent residents, permanent residents are expected to be made redundant before the spouse of a Caymanian holding a Residency and Employment Rights Certificate, and Caymanians are expected, by Law, to be the last to face redundancy. This is entirely academic if a business is closing down. All persons (without regard to immigration status) will likely be made redundant together. That is perfectly lawful.

Given that a redundancy constitutes a form of termination, it triggers a series of entitlements.

These include severance pay, notice pay, and accrued (but untaken) vacation pay.

Severance Pay is calculated as being one week’s pay, at the latest “basic wage”, for each completed year of service. “Basic wage” means the ordinary wage due to an employee under his or her contract of employment. It does not include such matters as future anticipated gratuities and commissions. Accordingly, for many, the basic wage will be CI$6.00 (or such other higher number set out in their contract of employment. Where no formal contract exists, the amount can be determined by reference to the conduct of the employer and employee – i.e. what is the basic wage that has in fact been paid.

Notice pay is determined by reference to the contract of employment. Where no notice period is prescribed it is deemed to be the interval between pay days.

Accordingly (by way of example) an employee who is made redundant on 31 March and who:

has been employed by that employer for 3 years and 2 months
earns CI$6.00 per hour at basic wage for a 40 hour week (CI$12,480 per annum); and
has a 10 day annual vacation entitlement and has taken none this year;

would generally expect to be entitled to payment on redundancy of:

3 weeks severance of CI$720
One month’s notice pay of CI$1,040 (assuming the employee is not asked to work during their notice period); and
2.5 days accrued but untaken vacation pay of CI$120.

A person in this situation would accordingly expect payment on redundancy of CI$1,880. Such payment is payable immediately on termination.

National Pensions Law
There is generally no entitlement to access pension monies prior to retirement. However, severance payments made on redundancy are not pensionable, but accrued untaken vacation pay, and any payment due in lieu of notice, are considered to be pensionable under the National Pensions Law. Also it should be noted that any additional voluntary contributions made by the employee can be withdrawn due to unemployment.

Health Insurance Law
All residents in the Cayman Islands are required to have “adequate” health insurance. As a general rule the obligation to ensure that health insurance is in place rests with employers. Upon termination of employment employers are generally required to ensure that health insurance is maintained for 3 months following the termination of employment. Employers are however entitled to charge those premiums to the employee. The employer’s obligation to maintain health insurance ends upon the person becoming employed elsewhere, being covered by an alternative qualifying policy of insurance, upon the expiry of 3 months, or upon the person leaving the Cayman Islands (whichever happens first). It follows that it may be of direct economic benefit for persons who held work permits, but who have been made redundant (or otherwise terminated), to leave the Islands as soon as practicable.

Immigration Law
Regulation 9 of the Immigration Regulations provides that where a person on a work permit is no longer employed, any work permit ceases to be valid, and the employer must forthwith notify the Department of Workforce Opportunities & Residency Cayman. Redundant employees who were on a work permit to be in Cayman have no right to remain once their employment ends. In normal circumstances that means that persons are expected to register as tourists and remain in accordance with permissions extended by WORC/Customs and Border Control. Customs and Border Control have announced that where a permission to work in Cayman ends before 22 March persons can simply proceed to leave before the anticipated 22 March, 2020 closure, without first having to “regularize” their permission to be in the Islands.

As matters stand, no expatriate can work in the Cayman Islands without express permission or exemption from requirements. It will not be impossible for an expatriate made redundant to seek and obtain alternative employment without first having to leave, and if normal rules continue to apply, Caymanians, Spouses of Caymanians and Permanent Residents will be given preference for any opportunity.

Rent
The obligation to pay rent will be based on the terms of any applicable lease. In normal circumstances appropriate notice will need to be given, and deposits may be forfeited if notice is not given or there is damage to the rented unit. Some leases may provide for the lease to end upon the termination of a work permit.

Repatriation
Unless provided for by contract, there is no obligation on an employer to ensure that an expatriate employee is able to return to their home country. It is worthy to note that employers have paid substantial “repatriation fees” to the Cayman Islands Government in the expectation that those funds could be applied towards the costs associated with workers getting to their homeland. For some, returning home is not a reasonable possibility. It requires closed third party borders to be crossed, even if flights are available. They may be stuck in Cayman, perhaps for an extended period. The Government has recognized this and it, employers, and the community will have to come together (maintaining social distancing) to ensure that everyone’s basic needs can be met.

We are ultimately, all in this together.

This article is intended only to provide a summary of the subject matter. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this article without first obtaining specific professional advice. Alternative solutions also exist which may better suit the requirements of a particular individual or entity.

Key Contacts

Alastair David
Senior Associate
adavid@hsmoffice.com

Hilary Brooks
Senior Associate
hbrooks@hsmoffice.com

HSM is proud to welcome Associate Oscar DaCosta to their law firm in the Cayman Islands.

Oscar has worked with several local law firms across Grand Cayman and has gained a wide-range of experiences in Litigation, Employment, Banking/Commercial and Property Law.

Oscar obtained an LLB (Hons) Degree from the University of Liverpool (Truman Bodden Law School) in 2014 and also received a Commendation in the Professional Practice Course in 2017. Oscar is also an Accredited Civil and Commercial Mediator by the ADR Group – Civil Mediation Council (CMC) in London.

Addressing the court, Oscar shared his passion for the law and his desire to make a positive impact in the community.

Oscar is a qualified lawyer in the Cayman Islands and will be assisting HSM’s property team with development transactions, acquisitions and disposals as well as landlord/tenant matters across residential and commercial properties.

Managing Partner, Huw Moses, OBE notes, “We are thrilled to have Oscar on our team and with Cayman’s enticing property market, we are equipped to provide a high quality of service to this industry.”

(L-R): Oscar DaCosta (HSM Associate) and Justice Margaret Ramsay-Hale

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