A new arbitration law is part of how the Cayman Islands seeks to make itself a more appealing offshore centre. Ogier, the law firm, examines trusts and disputes resolution issues in the jurisdiction.

Jurisdictions, as readers of this publication know well, are constantly battling to convince corporates and individuals they have the most suitable offerings, whether they are trusts, foundations, insurance structures or bank accounts. Industry figures have said they expect consolidation in the total number of offshore centres, with those that can deliver a varied offering, clear specialisms and value-added services coming on top. One of the most vigorous jurisdictions when it comes to making its case is the Cayman Islands. The Caribbean centre hasn’t always had an easy ride. The jurisdiction is, like another centre, the British Virgin Islands, fearful about UK proposals for a public register of beneficial ownership, which some centres fear could compromise legitimate client confidentiality. These centres are also anxious that they do not get frozen out of markets such as the European Union due to the latter’s recently enacted regime governing the marketing of alternative investments, for example. But with thousands of funds and other structures registered, the Cayman Islands remains one of the most significant in the IFC landscape. 

An important measure for judging the strengths of a jurisdiction is its legal system and how efficiently disputes can be resolved. Trust disputes are an inevitable part of such work. In this article, Ulrich Payne, partner, and William Jones, senior associate, in Ogier’s Cayman Islands dispute resolution team, examine how trust disputes can be resolved in the Cayman Islands, and give consideration to the jurisdiction’s new Arbitration Law and how it might apply to trust disputes. The views of the authors are not necessarily endorsed in full by the editors of this publication but are an important addition to debate. Readers are invited to respond.

Keeping in mind that “an ounce of prevention is worth a pound of cure”, those setting up a new trust structure should consider at the outset how to reduce the risk of disputes arising and drafting with a view to limiting the scope and costs of a dispute should one occur.

One of the first considerations for a potential settlor of a new trust structure is the issue of selecting the jurisdiction (i.e. the proper law) of the trust. There are a number of factors which should be taken into account when choosing the proper law of a trust:
- The courts: the first, and perhaps most important, factor is whether the courts of the jurisdiction in question have experience in dealing with trust disputes and whether they are able to facilitate the quick and cost effective resolution of such disputes; 
- Expertise: a would-be settlor should take into account the quality of the legal assistance which is available in the jurisdiction and the question of whether specialist trust advocates can be admitted to appear before the courts to conduct trials, should the matter ever need to be litigated; and,
- Legislation: the settlor should also consider whether the jurisdiction has firewall legislation such that the effect of potentially relevant (but “disruptive”) foreign laws (such as forced heirship legislation) can be avoided.   

The Cayman Islands’ Grand Court established a dedicated Financial Services Division (FSD) in November 2009 for the purposes of managing complex commercial disputes, including most trust disputes. The FSD has a panel of highly experienced commercial judges, who are assigned to specific cases for the duration of the proceedings. This allows the FSD’s judges to take an active role in case management, with the aim of ensuring that disputes are resolved as quickly and as efficiently as possible.

Furthermore, Cayman Islands law is based on English law and benefits from the wealth of English common law precedent. There is a considerable body of experienced legal professionals in the Cayman Islands, and specialist advocates are commonly admitted to appear in complex and high value matters.  

The substantial talent pool is a particular benefit in trust disputes, as there are typically multiple parties including the trustee and the various beneficiary classes – each of whom is likely to require separate representation.

Finally, the Cayman Islands was the first jurisdiction to enact firewall legislation, which essentially requires any disputes in relation to Cayman law trusts to be resolved in accordance with Cayman law, to the exclusion of any foreign matrimonial laws or foreign heirship rights which are not consistent with Cayman law.

Having chosen the Cayman Islands for all of the reasons described above, the settlor can take further comfort from the fact that the Cayman Islands' law offers helpful choices with regard to the way in which a trust dispute can be conducted.

First, there is often a desire to include a “no contest” clause in the trust deed which has the effect of forfeiting the interests of any beneficiary who attempts to challenge the trust. Unlike several other jurisdictions where there have been questions as to the validity of such clauses as a result of their inherent conflict with a beneficiary’s power to enforce a trust, in the Cayman Islands there are a number of judgments which clearly show that a properly drafted no contest clause is valid and enforceable.

Secondly, a settlor has the option to include an arbitration clause. Although the majority of trust disputes in the Cayman Islands have been traditionally resolved through litigation in the courts, there is a growing interest in arbitration, particularly following the enactment of the new Arbitration Law in 2012, which contained revisions featuring an increased focus upon impartiality, party autonomy, limited judicial interference and wider tribunal powers.

In fact, the powers given to an arbitral tribunal appointed under the Arbitration Law are wide enough to enable it to award any interim or final remedy that the Cayman courts could grant. However, note that arbitration would not be the appropriate procedure where the relief sought needs to bind third parties – such as court sanction for a trustee to take a momentous step or Beddoe relief. 

Perhaps the most significant benefit of the parties agreeing to resolve a trust dispute through arbitral proceedings is that the Arbitration Law imposes a duty of confidentiality on the parties and that the proceedings will be conducted in private. As a result, the proceedings will not be found on the court’s publicly available register of writs and originating processes, and there will be no publicly available judgment at the conclusion of the dispute. Furthermore, arbitration proceedings are often more flexible, can be more cost-effective, and will typically preclude the possibility of an appeal – noting of course that that can be a disadvantage in certain circumstances. 

Therefore, when setting up a trust structure in the Cayman Islands, it is worth bearing in mind that there are a number of significant advantages obtained simply by including an arbitration clause in the deed.