trusts and divorce
Introduction: the impact of divorce on Cayman Islands Trusts
The landmark decision in the UK House of Lords in the case of White v. White emphasised the 'equality' principle in financial relief divorce proceedings; the needs of a spouse were to play a secondary role to that of fairness.
The judgment has since had a significant impact on the resources available from trusts. As a result, Cayman trusts have become increasingly embroiled in foreign divorce proceedings.
In the event the trustee does not submit to the foreign jurisdiction, any foreign order made would not be enforceable against the trustee; the trustee would not be bound to follow the guidance of the foreign court, since that court would not have the jurisdiction to direct the exercise of the trustee's power.
Therefore, the party seeking to enforce the foreign judgment would have to make an Application to the Cayman Islands' Grand Court which has the discretion to consider the matter and to act in the beneficiaries' best interest.
This includes a foreign order to vary the terms of the trust. A trustee has a duty to carry out the trust according to its terms, and can only be varied by the Cayman Court in accordance with the Trusts Law (2011 Revision).
Trustees: the protection of beneficary interests is primary
When a spouse issues divorce proceedings in a foreign court, the trustee of a Cayman Islands trust has to make the decision as to whether they will submit to the jurisdiction of the foreign court. In reality, what is being asked by the foreign court is for the trustee to disclose trust information and potentially vary the terms of the trust under foreign court order.
This is likely to present immediate difficulties:
1. The trustee owes a fiduciary duty to beneficiaries not to divulge confidential information even if so ordered by a foreign court. This principle is enshrined by statutory footing by Section 3 of the Confidential Relationships (Preservation) Law ("CPRL");
2. Departure from section 3 CPRL can be exercised only if there is a corresponding Order from the Grand Court of the Cayman Islands or, the principle of the confidential information consents to its disclosure;
3. Section 4 of the CPRL provides that whenever a person intends or is required to give evidence relating to any confidential information, Directions from the court must be obtained.
So what, will the Grand Court consider in making such a decision? Public policy pays its part as the confidential nature and aspect of the jurisdiction as a whole is a major factor as to why individuals settle trusts in the Cayman Islands. Furthermore, the Court will give regard to the interests of beneficiaries, particularly, innocent third party beneficiaries.
The implications of a trustee in the Cayman Islands submitting to a foreign jurisdiction in matrimonial proceedings potentially conflicts the trustee in acting in the best interest of all beneficiaries as against placing the trustee under an obligation to obey a foreign court order. Furthermore, once submission to a foreign court jurisdiction has taken place, under the rules of private international law, any Orders by the foreign court would potentially be enforceable in the Islands without reconsideration by the Cayman court: In the Matter of the B Trust RBS Coutts (Cayman) Limited v. W and others  (2) CILR 348.
Refusal to submit provides the Grand Court to decide the enforceability of the foreign order
Since the decision in White, there has been a significant increase in Orders relating to trust assets in foreign divorce proceedings. Trustees in the Cayman Islands must be aware of their obligations and duties under the trust but equally, have regard to their statutory obligations of confidentiality under local Cayman law.
Trustees must be mindful that in acceding to the jurisdiction of a foreign court - without seeking guidance from the Grand Court of the Cayman Islands - may constitute a breach of trust and/or the laws of the Cayman Islands.
foreign divorce proceedings and trusts in the Cayman Islands
In Re: H Trust  JLR 280, a decision of the Jersey Royal Court, it was said:
“It follows that, in most circumstances, it is unlikely to be in the interests of a Jersey trust for the trustee to submit to the jurisdiction of an overseas court which is hearing divorce proceedings between a husband and a wife, one or both of whom may be beneficiaries under the trust. To do so would be to confer an enforceable power upon the overseas court to act to the detriment of the beneficiaries of a trust when the primary focus of that court is the interests of the two spouses before it. It is more likely to be in the interests of a Jersey trust and the beneficiaries thereunder to preserve the freedom of action of both the trustee and this court to act as appropriate following and taking full account of the decision of the overseas court. We have said that this is likely to be the case in most circumstances. In some cases, e.g. where all the trust assets are in England, it may well be in the interests of a trustee to appear before the English court in order to put forward its point of view because, by reason of the location of the assets, that court will be able to enforce its order without regard to the trustee or this court”.