The treatment of trusts in divorce proceedings has become increasingly important since the landmark decision of the House of Lords in White v White  1 All ER 1.
Since the White decision, there has been an emphasis on the 'equality' of the division of assets rather than providing for the reasonable needs of the spouse. Courts in some jurisdictions, such as Hong Kong and England, have broad discretionary powers to impose tailor-made outcomes in divorce proceedings and to divide assets including those held in trust.
As a result, Cayman trusts have become increasingly embroiled in foreign divorce proceedings and trustees have been asked to either submit to the foreign proceedings, to disclose trust information or to vary the terms of the trust. Before acceding to these requests from the foreign courts, trustees must bear in mind the following.
Firstly, the trustee owes fiduciary obligations to the beneficiaries not to divulge confidential information except in accordance with Cayman law which governs the trust. Trustees are not permitted to disclose confidential information relating to a trust even where ordered by a foreign court unless released in accordance with section 3 of The Confidential Relationships (Preservation) Law ("CRPL"). Confidential information may be disclosed if the Grand Court of Cayman makes such an order or the principal of the confidential information consents to its disclosure. Section 4 of the CRPL provides that whenever a person intends or is required to give evidence on or in connection with any proceeding by any court, tribunal or other authority, whether within Cayman or otherwise, relating to any confidential information, he shall before doing so apply for directions from the Grand Court. Even where the principal consents, the trustee may be well advised to seek an order of the Cayman Grand Court as it is now settled law that an acquiescence, non-objection or expressed consent, if given under pain of penalty may not be accepted by the Cayman courts as valid consent or authorization. In Re ABC Ltd [1984–85] CILR 130 and Re H  CILR 237.
The Courts in considering an application for disclosure pursuant to foreign proceedings will consider matters of public policy and the interests of the beneficiaries, particularly, the interests of innocent third party beneficiaries.
Secondly, it would generally not be recommended for a trustee to submit to the jurisdiction of a foreign court in matrimonial proceedings in which one or both spouses were beneficiaries under the trust. This could put the trustee in a situation in which its duty as a trustee to act in the best interest of all beneficiaries is in conflict with an obligation to obey a foreign court order. Furthermore, if it were to submit to the foreign court jurisdiction, a foreign court order relating to the trust, would under the rules of private international law, 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.
Conversely, if the trustee were not to 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. On a subsequent application to the Cayman court, the court would have the discretion to consider the matter and to act in the beneficiaries' best interest.
Finally, the trustee has a duty to carry out the trust according to its terms, unless deviation from those terms was sanctioned by the Cayman court. A trust in the Cayman Islands can only be varied in accordance with the law of the Cayman Islands and only by a court of the Cayman Islands.(Trusts Law (2011 Revision)). Therefore, an order of a foreign court varying the terms of the trust pursuant to divorce proceedings will have no effect until sanctioned by the Cayman courts.
In light of the increase in orders relating to trust property being made in foreign court proceedings, trustees must be mindful of the above principles as it may be in breach of trust and/or the Cayman laws if it complies with the foreign court orders or accedes to the foreign court jurisdiction.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.