Chief Justice Anthony Smellie presented a paper on Cayman Trust Law at the International Trust and Tax Summit in Miami.

The main purpose of the conference was to bring together leading professionals and practitioners to exchange and share their ideas and views on conference subjects.

Chief Justice Smellie spoke on the approach of Cayman’s courts in dealing with the consequences of mistakes of trustees or settlers in the management or administration of trusts. The panel in which the Chief Justice participated was entitled “View from the Offshore Bench,” and was moderated by renowned trust law expert, Justice David Hayton, who sits on the Caribbean Court of Justice.  The third panellist was Chief Justice Ian Kawaley of Bermuda.

In his paper Chief Justice Smellie recognised the “firmly established principle that the courts will not ordinarily interfere with the exercise of discretion vested in the trustee once it is exercised in good faith.”  He discussed the local cases where the court intervened nonetheless to avoid detrimental consequences for beneficiaries that would otherwise have arisen from their trustees’ acting upon erroneous legal or other professional advice or failing to act upon proper advice.

The basis upon which courts should intervene was the subject of a recent judgment from the UK Supreme Court, in which that court strongly argued against courts’ intervening to reverse what may have been erroneous decisions of trustees seeking to avoid adverse tax consequences. Decrying “artificial” tax avoidance as a “social evil,” the Supreme Court declared that trustees should instead be left to face the consequences of their mistakes, including being sued by their beneficiaries.

Against that background, nevertheless, the Chief Justice explained that the socio-political context of offshore jurisdictions like Cayman is a context in which legitimate tax avoidance is not regarded as “artificial” in the way it more routinely is regarded in the current climate of the high tax environment of other states. As such, a number of the cases that have come before the Cayman Court and in which remedial orders were made involved matters that carried unwarranted and unintended tax consequences for the beneficiaries of trusts.

While such cases bring their complexities and while the Court guards against its process being abused to salvage artificial arrangements, the Cayman Court would not be thwarted in its supervisory and remedial role by the notion that it is simply unorthodox to assist beneficiaries by relieving them of the “unintended and unforeseen tax consequences arising from erroneous decisions of trustees,” the Chief Justice said.

So, while the UK Supreme Court’s decision is to be respected, noted the Chief Justice, it is not binding in Cayman (not being a decision of the Privy Council) and “it is likely that the Cayman jurisprudence will continue to develop to ensure that there are just outcomes in these cases as they arise before the Court.”

The full text of the Chief Justice’s presentation can be accessed at http://www.judicial.ky/publications/speeches