Tag Archives: Cayman Islands Law

Following the recent removal of the Cayman Islands from the FATF grey list, the Cayman Islands has published the Beneficial Ownership Transparency Act, 2023 to better align the beneficial ownership regime more closely with the Cayman Islands’ anti-money laundering regulations. While the Act provides that Cabinet may make regulations extending access to beneficial ownership registers to the general public, public access would only be implemented once further regulations are made and approved by Parliament and will be subject to a “legitimate interest test.” This will include access to parties who are genuinely seeking information so as to prevent or combat money laundering and terrorist financing (for instance media and civil society organisations under specific circumstances).

With implementing regulations to be introduced in a phased approach during 2024, the new law will bolster the Cayman Islands’ continuing commitment to transparency while also protecting privacy and confidentiality in line with evolving global standards and best practices.

The primary changes are to:

  • introduce a new definition of beneficial owner;
  • bring additional forms of legal entity within scope;
  • remove and replace existing exemptions; and
  • introduce additional line items for reporting purposes.

Affected entities and their corporate service providers will need to update their systems and processes urgently in order to satisfy these new requirements.

As is currently the case, ordinary resident companies, not engaging a corporate services provider for the provision of registered office services, must establish and maintain their own beneficial ownership registers.

Beneficial Owner
The overall objective of the regime is to ensure transparency of the beneficial ownership of Cayman Islands entities. Under the new law, a Beneficial Owner in relation to a legal person means an individual who either (a) ultimately owns or controls, whether directly or indirectly, 25% or more of the shares, voting rights or partnership interests in a legal person; or (b) otherwise exercises ultimate effective control (through a chain of ownership or other than by direct control) over the management of the legal person; or (c), where there is no individual fitting within (a) or (b), an individual who exercises control of the legal person through other means (for example as a director or a CEO), but does not include an individual acting solely as a professional advisor or professional manager as defined in the new law.

If no individual meets any of the criteria with respect to a legal person but the trustees of a trust meet one of the Beneficial Owner criteria, in their capacities as trustees of a trust, those trustees are then the beneficial owners of the legal person if they have ultimate effective control over the trust.

Extended Scope
The meaning of ‘legal person’ has also been amended to include partnerships (excluding foreign partnerships registered in the Cayman Islands) and extends to all companies (excluding foreign companies registered in the Cayman Islands); limited liability companies; foundation companies; limited partnerships; limited liability partnerships and exempted limited partnerships.

Removal and Replacement of Exemptions
Former automatic exemptions for listed entities (or their subsidiaries), for entities licenced under a Cayman Islands regulatory law and for private and mutual funds will be replaced. Such legal persons will be required to provide written confirmation to their corporate services provider in order to show an alternative route to compliance as follows:

A licensed fund administrator or contact person for private or mutual funds will be required to provide the Registrar of Companies with the requested beneficial ownership information within 24 hours of a request being made or at any other time as the Registrar may reasonably stipulate.

All other exemptions will be removed.

Additional Required Particulars
Additional line items added to required particulars for individuals include nationality and the nature in which the individual owns or exercises control of the legal person.

Similarly, required particulars of a reportable legal entity will include the nature of the reportable legal entity’s ownership or its exercise of control of the legal person.

Conclusion
As a leader in ongoing anti-money laundering initiatives, the Cayman Islands continues to show its commitment to transparency with the publication of the Beneficial Ownership Transparency Act, 2023 in line with international standards.

With the Cayman Islands’ continued focus on quality, innovation and expertise, it seems reasonable to expect that the changes brought about by the Act will be absorbed by the market and in no way hinder the Cayman Islands’ continued success.

HSM can assist with all beneficial ownership matters and provide the necessary advice as to the application of the new beneficial ownership regime. Please connect with the key contacts below for any enquiries.

The HSM Group specialises in Corporate and Commercial Law, Litigation, Restructuring, Insolvency, Private Client, Immigration, Employment Law, Family Law, Property, Debt Solutions and Intellectual Property in addition to providing comprehensive corporate services through HSM Corporate Services Ltd.

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

Key Contacts:

Christian Victory
Partner / Head of Corporate and Commercial
Tel: 1 345 815 7360
cvictory@hsmoffice.com

Kathy Macdonald
Associate
Tel: 1 345 815 7356
kmacdonald@hsmoffice.com

With effect from 8 January 2021, the Honourable Chief Justice via Practice Direction 11 of 2020 (“PD”) implemented an electronic filing and service platform (the “Platform”) pursuant to Order 1, rule 12(1) of the Grand Court Rules 1995 (Revised) (the “GCR”).

The Platform enables parties to issue proceedings and file Court documents electronically by uploading the same to the Platform, departing from the traditional practice of physically filing hard-copy documents at Court and the temporary post-COVID-19 practice of emailing the same to the registry. According to the PD, the objective of the Platform is to “improve access to justice by increasing efficiencies, timeliness and reducing costs.”

Until recently, use of the Platform was limited to all new matters commenced in the Financial Services Division of the Grand Court issued on or after the commencement date of the PD. However, use of the Platform has been extended to all divisions of the Civil Registry (in both Summary and Grand Court) and it is anticipated that the Platform will be extended to the Criminal Registry in the near future.

In order to file documents using the Platform, a party must register an account via the Judicial Administration website www.judicial.ky and click onto the e-filing Platform.

The effect of this PD impacts the manner in which parties interact with the Court and by extension each other. Subject to the GCR requirements for personal service of documents in the first instance, in addition to the methods of substituted service set out in GCR Order 65, the PD permits the electronic service of documents via e-mail and SMS or text message. A party is deemed to consent to electronic service by, inter alia, registering an account on the Platform and the email address provided during registration shall be presumed valid unless the party files and services a notice indicating otherwise. Similarly, the Court may also serve any notice, order or Judgment on a party to a case via electronic service.

The implementation of the electronic filing system in the jurisdiction presents a most welcome modernization to the procedures, in line with other jurisdictions around the world, which will hopefully bring material benefits to litigations in the long-term.

HSM’s newest lawyer Stephanie Mills became a qualified attorney-at-law in the Cayman Islands on 17 November.

Stephanie’s admission was moved by HSM Partner, Sarah Allison, who summarised her qualifications for Justice Richard Williams.

During her admission, Stephanie expressed her gratitude to the Court as well as her family and friends, and is thrilled to put her experience to use in her homeland.

Stephanie has over five years of experience in the legal field and prior to joining HSM, she practiced as a paralegal and subsequently as a solicitor at a UK law firm before returning to the Cayman Islands. Whilst working in the UK she was exposed to a wide range of practice areas and gained considerable experience in residential conveyancing matters.

Stephanie successfully completed her Legal Practice Course at Manchester Metropolitan University in 2015 and received a Bachelor of Laws (Hons) degree from the Truman Bodden Law School in 2014. During her studies she represented the Cayman Islands Law School in the Caribbean Law Clinic in Florida and their team received an ovation from the judges. Stephanie was admitted as a solicitor of the Superior Courts of England & Wales in 2020.

Stephanie is a part of HSM’s Litigation team and specialises in Debt Solutions and Recovery by providing assistance to a variety of banks and leading businesses enforcing secured/unsecured loan agreements, credit facilities and contracts for the supply of goods/services.

Managing Partner, Huw Moses, OBE notes, “We are proud to witness this significant milestone in Stephanie’s career and are delighted to see our firm grow with the addition of another qualified Caymanian professional. Congratulations Stephanie.”

Cayman Islands Litigation Lawyer

Photo (L-R): Justice Williams, Stephanie Mills (HSM Associate) and Sarah Allison (HSM Partner)

The Cayman Islands Parliament has taken a significant step towards improving access to justice in the Cayman Islands by passing for a second reading, the Private Funding of Legal Services Bill, 2020 (“Bill”).

The key elements of the Bill are as follows:

  1. Attorneys and their clients will be permitted to enter into a Contingency Fee Agreement (“CFA”) for legal services to be provided where the attorney’s fees are contingent, in whole or in part, on the successful disposition or completion of the matter. CFA’s will be permitted for all types of legal services except for proceedings under the Penal Code (2019 Revision), any other criminal or quasi-criminal (i.e. traffic offences) proceedings, or legal services relating to the care of a child or any order under the Children Law (2021 Revision); and
  2. Third-party litigation funders will be permitted to fund, in whole or in part, the provision of legal services by an attorney to a client outside of the liquidation context (third party litigation funding is permitted within liquidation proceedings due to a special statutory exemption).

Contingency fee arrangements and litigation funding agreements are currently illegal in the Cayman Islands pursuant to the doctrines of maintenance and champerty and are contrary to public policy, thus limiting an impecunious litigant’s ability to pursue legitimate legal actions.

Maintenance involves the act of a person directly or indirectly providing monetary assistance to another person where the person providing the financial assistance lacks any lawful interest in a legal action or lawful justification to interfere in a legal action (i.e. an attorney working for a client on the basis where their fees were contingent upon the results of the legal action). Champerty is similar to maintenance but involves the act of a third party providing financing and sharing in the proceeds of the litigation (i.e. litigation financing).

The Bill will repeal the common law offences and torts of maintenance and champerty.

Contingency Fee Agreements

In its present form (as of 18 December 2020), the Bill sets out the following key features and requirements for contingency fees:

  1. Attorneys can charge a success fee which is a fee higher than an attorney’s normal fees, as long as the success fee does not exceed 100% of the attorney’s normal fees (i.e. if an attorney charges $500 per hour, the success fee can be no more than an additional $500 per hour, for a total of $1,000 per hour inclusive of the success fee).
  2. Attorneys will be permitted to charge fees based on a percentage of the total dollar amount awarded or the value of property recovered in an action or proceedings which shall not exceed the maximum prescribed percentage (it is expected the regulations accompanying the Bill will set the maximum prescribed percentage at 33.33%).
  3. Attorneys may be permitted to charge a higher fee or percentage (up to a maximum of 40%) than those outlined in items 1 and 2 only upon approval of the Grand Court which will consider various factors including the nature and complexity of the action or proceedings, the expense or risk involved, and any other factors the Grand Court considers relevant.
  4. The CFA must be in writing and signed by the attorney and the client or the client’s appointed guardian, trustee, attorney under a power of attorney, or the client’s authorised personal representative.

The Bill provides various protections and mechanisms for clients and attorneys related to a client’s withdrawal from the CFA, restrictions on contracting out of liability and professional obligations, the determination of disputes under the CFA, and the enforcement of a CFA.

Litigation Funding Agreements

The Bill permits parties to enter into a litigation funding agreement (“LFA”) where a funder agrees to fund, in whole or in part, the provision of legal services by an attorney to a client, under which the client agrees to pay a sum to the funder as set out in the LFA.

LFA’s must be in writing and comply with the prescribed requirements (as set out in the regulations, if any). Unlike with the provisions for CFA’s, the Bill does not place a limit on the fees to be charged or measures of compensation payable.

The Bill is subject to further revisions and debate by the Parliament of the Cayman Islands. Our team at HSM Chambers will update you as and when the Bill is enacted.

The European Union has on the 18th of February, ‘blacklisted’ the Cayman Islands as a non-cooperative jurisdiction for tax purposes. This action was taken despite concerted efforts of the Cayman Islands Government to comply with every European Union initiative, including enacting more than 15 separate pieces of legislation designed to comply with EU criteria over the past two years alone.

It appears the ‘blacklisting’ arose as a result of two recent pieces of legislation, the Private Funds Law and the Mutual Funds (Amendment) Law which came into force on the 7th of February 2020, however, the passage of these laws came three days later than expected by the European Union’s Code of Conduct Group who met on the 4th of February. On the basis those two particular laws were not yet enacted into law, the European Union’s Code of Conduct Group recommended to the European Finance Minsters that the Cayman Islands be ‘blacklisted’ for failing to “…deliver on their commitment on time..” with respect to such legislation.

The Cayman Islands Government has to date issued two public statements on this matter since the ‘blacklisting’ occurred. They are fully committed to working closely with the European Union to remove the Cayman Islands from the ‘blacklist’ as soon as possible.

If you have any concerns on the above please direct your inquires to Huw Moses, HSM’s Managing Partner at hmoses@hmsoffice.com. We will continue to provide updates as and when they occur, but we do not expect this event to negatively impact our clients and are confident the jurisdiction will be removed from this list in due course.

HSM’s Immigration team explain why the population numbers don’t add up in the Cayman Islands.

Much has been stated in the press of Cayman’s growing population. The Economics and Statistics Office’s Compendium of Vital Statistics estimates the year-end population (as at December 2018) as being 65,813 persons. Of those, an estimated 29,108 are expatriates, and 36,705 Caymanian.

Notwithstanding the statistics (which relate to population), the actual total number of persons physically resident in Cayman may in fact be substantially higher. As reported in the Cayman Compass on 16 May, 2019 (using actual numbers provided by the Department of Immigration) there were 27,263 expatriates holding valid work permits or under government contract as at 6 February 2019 (some 5 weeks after the date of the ESO estimate).

That 27,263 does not include any Permanent Residents or the holders of RERC’s as the spouses of Caymanians, nor the dependents of work permit holders and government contracted workers.

Information received from the Department of Immigration and reviewed by us indicates that there were, last year, approximately 3,000 approved dependents of work permit holders and government contracted workers, and of the order of 5,000 other persons resident by virtue of some form or other of a certificate of residence (whether in their own right, as a dependant, or as the spouse of a Caymanian).

If we allow for some expatriates who are institutionalized (whether in prison, seeking asylum, or in hospital), throw in persons with student visas (there were 300 in that category alone last year), Cabinet permissions, Snow Birds spending more than 6 months a year in their beachfront condos, and some over stayers), it appears clear that there are more than 36,000 non-Caymanians “living” in Cayman.

If we add back in the reported 36,705 Caymanians, the number of residents may have already passed 72,000 in the last year. It is perhaps helpful to note that ICTA has reported there being 103,274 local cell phones in 2018. Certainly, some persons have more than one cell phone, but thousands (including young children) have none.

Informal indications (ranging from traffic to the availability of rental properties and the increasing height of Mount Trashmore) are that the population (and number of residents) has continued to grow this year.

Part of the reason for the disparity in numbers provided by the ESO, and those provided by The Department of Immigration (now WORC), is the methodology used by each. Persons who intend to leave the Cayman Islands within 6 months are simply not counted by the ESO, but are counted by WORC.

Accordingly, although persons are in fact resident for immigration purposes, they do not necessarily form part of the population for statistical purposes. That is understood to be entirely consistent with international standards. Those standards may not always be relevant to our domestic considerations, in particular given the very large transient workforce and the reality that (at least historically) when work permit holders leave, they tend to be replaced immediately by another work permit holder.

The result is that whilst statistically we had a population of 65,813 at the end of last year, the number of people living here was greater. We may now already have as many as 75,000 residents using our roads, sewerage systems, garbage facilities and other infrastructure.

If true, we have no need to wait 10 years to find out 100,000 people physically in Cayman looks (and feels) like.

This winter, a good cruise ship day, coupled with high hotel and condo occupancy (we had 6,720 rooms available at the end of last year) will (at least momentarily) push the total number of people physically present in the Islands above 100,000.

Even then, the number of residents will of course be less, and the population smaller still. The detail will depend on who is asked, on what day and why, and the statistics.

The HSM Group has once again opened its doors for their summer internship programme and has welcomed four students from the Cayman Islands Further Education Centre (CIFEC).

Paula Brown, Amelia Lamie, Xylina Ritch and Yanina Montero have joined HSM’s team. As a full-service law firm in the Cayman Islands, HSM is able to offer them a wide-range of experiences including Corporate Services, Debt Collection, Immigration and Finance.

This internship comes off the heels of a 10-month work experience stint with the CIFEC programme, where these students along with 12 others came to work at HSM twice a week during school hours. HSM’s summer internship will allow them to hone in on the skills they have learned thus far and make meaningful contributions as regular members of the team.

“Their ambition and willingness to learn inspires us,” shares HSM Managing Partner, Huw Moses OBE. “Our team looks forward to this experience each year and we are proud to be able to help mold Cayman’s next generation of leaders.”

HSM is an avid supporter of the CIFEC programme and will be participating at CIFEC’s annual career fair in September. At this time, they plan to take on at least 10 students who are looking for a dynamic experience in the legal field. HSM has supported the CIFEC programme since they opened their doors in 2012 and employs six CIFEC graduates full-time.

Summer Interns Cayman

(L-R): Paula Brown, Amelia Lamie, Huw Moses (HSM Managing Partner), Xylina Ritch and Yanina Montero.

The Cayman Islands, consisting of Grand Cayman, Cayman Brac and Little Cayman, are a British overseas territory located in the western Caribbean Sea.

Cayman is a major world offshore centre and a tax neutral environment, which, in conjunction with the Cayman Register being rated as a “Category 1 Aviation Regulatory Authority” by the US Federal Aviation Administration, makes it an attractive choice for many owners and management companies with corporate aircrafts.

The Cayman Islands, since 1976, has been attracting a number of Aircraft Registrations and presents a viable alternative to the US, and other registration jurisdictions.

The Cayman Islands acts under the purview of the British Civil Aviation Authority.

The process of registration generally takes 2 to 3 weeks to complete.

The Cayman Islands aircraft register is highly respected and recognised throughout the international aviation industry. The majority of the aircraft on the Aircraft Register are private exclusive jets but there is also increasing interest in the Cayman Register to register commercial aircrafts.

The Cayman Register can be used to register an aircraft in the “private” category, and this has been expanded to include all turbo-jet aircraft, all other aircraft above 5,700kg and helicopters that are based on yachts.

Benefits of Cayman Registration

  • Tax Neutrality
  • Low Profile Registration Mark
  • Compromise Jurisdiction where an owner and financier reach an agreement to register in a neutral jurisdiction.
  • Efficient Regulation
  • Type Certifications – By registering on the Aircraft Register the expense of being the first to register a given type of aircraft elsewhere can potentially be avoided
  • The Cayman Islands Civil Aviation Authority are efficient at responding to owners and operators’ queries

Why HSM?

HSM is a law firm in the Cayman Islands that can guide you on how to register an aircraft in the Cayman Islands and is listed as a service provider by the Civil Aviation Authority of the Cayman Islands.

For more details on our aircraft registration services, visit https://staging.hsmoffice.com/law/aircraft-registration.

Register an aircraft in the Cayman Islands

HSM explores the requirements for Economic Substance in the Cayman Islands and what it means for this jurisdiction. For a full overview on whether or not your business may be affected by this new Law, download our client guide here.

“I know it when I see it.” With those words Justice Potter Stuart, in the United States Supreme Court, unravelled the most Gordian of knots, with the most Gordian of ease. He was called upon to define that which commentators what was potentially undefinable – what constituted “obscene” in the context of hard-core pornography. Not an easy task for any judge, particularly one in the United States in 1964, but that was his solution. It was beautiful, and simple, and for many, at least for a while, it worked.

The Tax Cooperation (Economic Substance) Law has created a similar dilemma. It requires legal practitioners to advise, and government officials to determine, whether or not an entity is a relevant entity, and if is a relevant entity, whether or not it is carrying out a relevant activity.

What is and what is not a relevant entity can be readily determined on a case-by-case basis, as can a determination as to what constitutes a relevant activity. For those interested, these may include banking business, distribution and service centre business, finance and leasing business, headquarters business, fund management business, holding company business, insurance business, intellectual property business, and shipping business (all defined). It expressly does not include investment fund business.

Any relevant entity carrying on a relevant activity is generally required to satisfy ‘the Economic Substance Test’. That test is satisfied if the relevant entity conducts Cayman Islands core income generating activities in relation to the relevant activity, is directed and managed in an appropriate manner in the islands in relation to that relevant activity; and has an adequate number of full-time employees or other personnel with appropriate qualifications in the Islands.

Whilst the Law is vague as to what constitutes ‘adequate’ and ‘appropriate’, it itself defers to Guidance Notes as to the meaning of those words for the purposes of the Law.

The problem that confronted authors of those Guidance Notes, and must now confront Cayman legal advisors and the Tax Information Authority is uncannily very similar to that which confronted Justice Potter. They may similarly have been expected to define the undefinable. When requiring an entity to demonstrate ‘adequate’ and ‘appropriate’ mean in the context of physical presence, we could regret that lack of specificity in any guidance (though I would think us wrong to do so). Instead we should take a lesson from the US Supreme Court. We will know it when we see it.

Whether the Economic Substance is adequate or appropriate should be obvious, and if it is ever not, the Cayman courts may be asked to sort it out.

Until then, we must know it when we see it. Affected businesses will be advised to employ people, rent premises, spend money and hold meetings here, all to the level they think appropriate to meet the expectations of the legislation. Real estate agents, IT service providers, contractors, restauranteurs and indeed most existing businesses and individuals in the Cayman Islands should probably be delighted. That the core activity is actually being carried out in the Islands should be readily apparent.

Of course, issues will develop. William T. Goldberg described that “I know it when I see it” can be “paraphrased and unpacked as: ‘I know it when I see it, and someone else will know it when they see it, but what they see and what they know may or may not be what I see and what I know, and that’s okay.’”

For now, we should see opportunity, for our islands and our customers, and know it for what it is. That’s okay.

Physical Presence

The idea that a business should have a physical presence in order to claim that it has its seat of operations in a particular jurisdiction is not new. The brass nameplate era, exacerbated by the virtual presence age, has been the subject of chagrin from many western leaders. These criticisms date from well before President Obama found fit to comment on the size of a particular office building in George Town housing some 12,000 companies (and omitted to note the fact of a much smaller building in Delaware (1209 North Orange Street) housing many more companies. Indeed, as Cayman’s companies registry has grown to more than 100,000 companies in the intervening decade, 1209 North Orange Street was recently reported as having some 300,000 companies registered there, three times the number of companies registered at every office building and residential home in the Cayman Islands combined.

Whatever the arguments, the tide has shifted. We can lament the apparent passing of a golden age, and dwell on the hypocrisy of foreign politicians, or look forward with excitement to the opportunities this changing current brings.

All change brings challenge and even fear. That latter sentiment often proves baseless (albeit too often with 20:20 hindsight). Yes, we are going to lose some business, including perhaps to 1209 North Orange Street, but these changes will also affect key competitors, including the BVI and Bermuda. With a level playing field (at least against those jurisdictions) Cayman’s size, depth and range of world class financial services industry professionals, sets us apart.

However, we also have an ace up our sleeve –  our immigration regime.

Although frustrating to many, and even confounding to some, most aspects of our immigration regime work well. It does something that other territories fail at. It asks if a local person stands ready to fill a role at an appropriate standard and if not, subject to sensible checks as to such things as health and character, the permit is yours. Yes, there is a price to pay and other cost associated with administration, but the government is actively working to streamline processes. What is more, with a relatively nominal express fee paid, a work permit can be available in less than 72 hours. Where the business is international in nature and does not compete locally, the answer is not only yes, but often enthusiastically so.

We are also fundamentally very good at assimilating large numbers of foreign nationals into our community, allowing them to advance towards becoming Caymanian, and even encourage them to purchase (or build) their own homes here.

These are not optimistic statements as to how the Cayman Islands will address the challenge of foreign executives wishing to move here. This is a statement of what has pertained for decades. Anyone contemplating such a move can ask one of the numerous executives who have already, before there was any Economic Substance Test, established their mind management and control firmly on our soil. Their experience has overwhelmingly been positive.

As a new generation of executives arrive, perhaps in significantly increasing number, they will do so under a tried and tested system. The opportunities for the Caymanian people will be many. The real challenge will be ensuring that they participate as fully as they should for many years to come.

This article can also be seen in The Journal – May 2019 issue.

On March 8 2019, the Legislative Assembly approved a broad series of enhancements to the Trusts Law of the Cayman Islands as described in the Trusts (Amendment) Bill, 2019. Our Head of Private Client and Trusts, Robert Mack, shares that while some of the enhancements are highly technical in nature, there are four key changes to be aware of.

Statutory “Hastings-Bass”

The Courts of the Cayman Islands now have statutory powers to rectify mistakes in relation to the exercise of fiduciary powers where:

  • The person who exercised the power (typically a trustee) failed to take into account one or more considerations that were relevant to the exercise of the power; or
  • Where such person took into account one or more considerations that were irrelevant to the exercise of the power; and
  • But for acting the way they did in the light of these relevant considerations the power holder would not have exercised the relevant power at all, or would have exercised it on a different occasion or in a different way.

Such a procedure is typically deployed by trustees where an unforeseen onshore tax consequence has arisen as a direct result of the exercise, or rather mis-exercise, of a fiduciary power. It is useful where the effect of the exercise of the power is not what was expected. It can be viewed as a ‘get out of jail free card’ as it allows trustees and other power holders to reverse what might otherwise be very negative and unintended outcomes. Although the Cayman Islands Courts have applied Hastings-Bass principles in the past, the fact that the principle is now codified should provide an extra layer of comfort to every holder of a fiduciary power.

Variation of Trusts by the Cayman Court

The Cayman Islands Courts have long held statutory powers to vary the terms of Cayman Islands trusts provided the circumstances were right, however, for such applications to be successful it had to be shown that such variation(s) would be for the ‘benefit’ of the beneficiaries who were unable to speak up for themselves – typically minor beneficiaries and beneficiaries who have yet to be born. To put this into context, many trust instruments are drafted in such a way to benefit a large group of family members over long periods of time. As such, it is possible, and very common, for some of the beneficiaries to be under the age of majority, in the womb, or not yet born. In such circumstances where a trust variation is ongoing, separate legal counsel will usually be appointed to represent this group. Since many trust variations are necessary to create family harmony, settle some dispute, or achieve some form of onshore tax advantage(s) these would often be viewed as a ‘benefit’ to the minor and unborn beneficiaries, but in some cases it may be difficult to locate a ‘benefit’ at all as some trust variations are neutral in effect, and as a result lawyers had to get creative in order to make their applications successful. The term ‘benefit’ in this context is not limited to financial benefits, but may also include wider social benefits, such as achieving family harmony.

The recent change now only requires that such variation(s) are not to the ‘detriment’ of such persons.

Compromise of Trust Litigation
As with the variation of trusts, the endorsement by the Cayman Islands Courts to compromise or settle trust litigation no longer requires the presence of any ‘benefit’ but rather the ‘no detriment’ test is also to be applied in relation to beneficiaries even in circumstances where there is clearly no ‘benefit’ present. This is certainty helpful in a litigation context as the settlement of litigation inevitably requires some ‘give and take’ and it is often the case that the only benefit to be had is the extinction of protracted and expensive litigation.

Firewall ‘Beefed Up’
The so-called ‘firewall’ provisions of the Trusts Law of the Cayman Islands, which are the provisions which seek to repel claims which attack the validity of a Cayman Islands trust (and Foundation Companies) on the basis that its creation did not conform to or offended some provision of foreign law, have been enhanced by expanding the class of persons offered protection from such claims. Previously this group included persons who have a “personal relationship with the settlor” (whether by way of blood or marriage) but now includes “any beneficiary (whether discretionary or not)”. The end result is that the revised Trusts Law now provides enhanced protection from such attacks.

Conclusion
Whilst there are some other minor amendments not discussed, such as the inclusion of controlled subsidiaries and private trust companies in the definition of “trust corporations” these points are really left for the trust nerds amongst us to ponder. Otherwise, all of the refinements should be welcomed by practitioners, fiduciaries, and beneficiaries alike and will certainty keep the Cayman Islands on the cutting edge of progressive trust jurisdictions worldwide.

This article can also be seen in The Journal – May 2019 issue.


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