At the 28th Annual Transcontinental Trusts Conference in Geneva, Switzerland last June Cayman Islands Chief Justice Anthony Smellie gave another presentation of his “Balancing the Requirements of the Trust with Fairness and Probity – A Perspective from the Cayman Islands Courts”. This was a similar presentation to the one he gave in October 2012 at the Mourant Ozannes Trust and Private Client Conference at The Ritz-Carlton, Grand Cayman.

He said, “While participants in the offshore financial industry understand the need for innovation and flexibility to meet the legitimate diverse objectives of clients, others regard the offshore   legislative agenda with suspicion.    These detractors have argued, that in their drive to maintain flexibility and utility of the offshore trust; some jurisdictions are obstructing the leading economic powers in their quest to increase and protect their revenue base.  Amidst the fall out from the 2008 financial collapse, a consensus seems to have emerged; and this is that there must be a shift in perspective on both sides, both in the way that offshore jurisdictions promote their efforts to strengthen regulation and fiscal transparency, as well as a change in the expectations of those who wish to do business offshore.

“The utility of the trust is central to the debate and any discussion of these ideas, must begin with recognition to the fact that the concept of the trust is inherently malleable.  Its ability to adapt to changing social and economic circumstances without altering its “irreducible core”, is central to the notion of what a trust has been from inception.”

He pointed out, “that while the international financial centres have led the way in the evolution of modem trust law in the last 20 or 30 years, some commentators have expressed a concern, that they are in danger of leaving the core concept of the trust, as it is recognised in English law, too far behind, in the drive to attract new business and meet the demands of clients. This debate which has been over the movement away from the beneficiary principle and the “irreducible core”, to the introduction of STAR and the non-charitable purpose trust, has proven to be as fierce as it is fascinating.”

Talking about disputes, the Chief Justice said, “Disputes and questions arising in the administration of the trust, can arise from families based and involve assets located, almost anywhere in the world. They can involve highly complex and sensitive issues, as well as significant sums of money and their effective disposal involves a partnership between the local and international legal community, including the judiciary here and abroad and court staff in the Cayman Islands; all to ensure that the cases are run smoothly and cost effectively.   Proceedings do not involve only the parties to the dispute.   They can involve expert witnesses of law from other jurisdictions; they can involve applications to courts abroad, visits here from overseas by advocates and QC; they can involve valuers, forensic accountants and scientific experts in many fields, from medicine to handwriting and ink dating.”

“Everyone who transacts here, needs to have confidence that their business disputes will be handled professionally, efficiently and cost effectively by the courts, its attorneys and the other professionals who practice here,” he said.

Talking about transparency he said, “The OECD has also thrown its weight behind transparency and exchange of information for fiscal purposes, establishing a Global Forum (of which the Cayman Islands is a member), tasked with ensuring the implementation of an international standard in tax information exchange and co-operation. Since its establishment in 2009, Tax Information Exchange Agreements between, nations have proliferated and phase two of the peer reviews undertaken by the Global Forum, is underway.

“This is the current context in which the judiciary of the Cayman Islands, as part of their inherent supervisory jurisdiction over the administration of trusts domiciled here, must achieve what has been described by one local commentator as a ‘fine balance’. A fine balance between on the one hand, individuals who may wish to protect their assets legitimately or who may seek to minimize their tax bills in compliance with their local tax laws, and on the other; creditors, including government revenue agencies, who wish to recover debts or revenues owed to them and of course, the obligations to co-operate in the fight against international crime.”

Chief Justice Smellie belied “the myth of the existence of absolute secrecy or confidentiality.  While the CR(P)L has at its heart the principle of the maintenance of  confidentiality of  a  principal ‘s  financial  affairs,  the statute  makes  provision  for  numerous  exceptions,  consistent  with  the Islands’ international obligations. These relate to:

a.         The investigation of criminal offences here and abroad;

b.         Regulatory matters through the auspices of the Cayman Islands Monetary Authority, the Financial Secretary or the Governor;

c.          The vindication of rights in civil proceedings whether here or abroad; and

d.         Information provided under a request made through the Tax Information Authority established under the Law passed in 2009, specifically to enable the   implementation of the Islands’ tax information exchange agreements.

“The treatment by the Cayman courts of applications for disclosure has been consistent over many decades and illustrates the manner in which the jurisprudential ‘balancing exercise’ has been undertaken.    It is plain however, that there is amply scope for issues of conflict of laws to arise in the future, as they have occasionally in the past, particularly in view of the stated intention of regulators outside the Cayman Islands to assert their jurisdiction over disputes relating to, amongst other structures, Cayman Islands trusts.”

In closing he said, “And so it is that I believe, our courts will continue to strive to maintain the proper balance.

“I would like to end this talk on a positive note by reaffirming that, in my view, the trust concept remains and will remain a legitimate and important estate and succession planning tool, in the panoply of options available in the world of international finance.  The process of innovation in the development of the trust concept has had its foundation in careful attention by the local judiciary to statutory advancements.   These have been construed in the context of the longstanding   and   fundamental legal principles which breathe life into the trust concept.    The success of the offshore trust industry, growing as it has from its roots in English law, has depended on the willingness of the English courts and those in the leading offshore jurisdictions, to develop common law and equity to ensure that those who might seek to exploit the “dark side” of the trust concept, will soon discover that they are most unwelcomed and will find no haven in our jurisdictions.”

The original Mourant Ozannes presentation that the majority of Hon. Chief Justice Anthony Smellie speech was made can be found at: http://www.judicial.ky/wp-content/uploads/publications/speeches/Speech-CJ-5Oct2012-IntTrustandPrivateClientConf.pdf