As professional trustees, we pride ourselves on being able to make difficult decisions in an efficient manner to best serve our beneficiaries. Notwithstanding this effective use of judgement, there are certain times that a competent trustee should consider if it is appropriate to seek the Court’s advice and direction. 

Section 48 of the Cayman Islands Trusts Act provides trustees with the right to access the Cayman Islands’ judiciary, in addition to the protection of being able to rely on a statutory indemnity provided the trustee has applied in good faith. These type of applications to the Court are known as Cooper applications following the English case of Public Trustee v. Cooper.

A brief summary of the case

In Public Trustee v. Cooper [2001] W.T.L.R. 901 (Ch D) (“the Coopers Case”), the trustee of an Employee Benefit Trust held 73% of the shares in a holding company, which owned a brewery for the benefit of past and present employees of the brewery. The trustee received an offer to buy the underlying business. The current brewery employees were concerned that they would lose their jobs as a result of a sale and suggested they may take legal action against the trustee if it sold its shares.  The other shareholders wished to sell their shares to a larger brewery. The trustee received professional advice. It was determined that the capital benefit to the beneficiaries would exceed the value of the distributions that they could reasonably expect if the business remained within the Trust. In addition, the potential purchaser had provided reassurances that it would not reduce the workforce. The trustee, after much deliberation, concluded that a sale was the appropriate course of action. For such a major decision, the Trustee applied to the Court to seek its blessing for the proposed action i.e. before the shares were actually sold – The blessing was granted.

The judge that heard the Coopers case relied on an earlier judgment in an unreported 1995 case, which held that trustees may seek direction from a Court in four categories.

Cooper Applications

The four categories upon which the trustee may seek the Court’s blessing are;

• Category 1

The trustee seeks the Court’s confirmation as to whether some proposed action is within the trustees’ powers.

• Category 2

The trustee seeks the opinion  of the Court on whether the trustees’ proposed course of action is a proper exercise of the trustees’ powers in circumstances where there is no real doubt as to the nature of the trustees’ powers but the decision is of particular significance (“particularly momentous”). This will provide protection for the trustee from any claims that may arise by beneficiaries in the future for taking those decisions.

• Category 3

The trustee seeks surrender of its discretion. The Court will only accept this application for a good reason – for example where the trustee is deadlocked (so much so that the matter cannot be resolved by removing one trustee rather than another) or disabled due to conflict of interest.

• Category 4

The trustee seeks the Court’s retrospective blessing where the trustee has already taken action and that action is attacked as being either outside their powers or an improper exercise of their powers i.e. breach of trust.

Preparation for the Court

A trustee should be well prepared and they must provide all relevant facts to the Court in support their application. The level of information to be provided to the Court will of course vary depending on the particular case under review.  In certain circumstances, the Court may even send the trustee away to produce more evidence if necessary. 

For example, in a Category 2 (“a momentous decision”) the Court will seek to determine if;

• the trustee has the power  to enter into the proposed action
• the trustee has genuinely formed the view that the proposed transaction is in the interests of the Trust and its beneficiaries
• a reasonable trustee could properly have arrived at this decision
• the trustee has any conflict of interest, and if so, does this conflict prevent the Court from approving the trustee’s decision

In formulating its decision, the Court will act as a reasonable trustee could be expected to act having regard to all the available material circumstances. It is important to remember that the Court has no greater powers than the trustee has under the trust instrument and/or under the applicable law.

Confidentiality

The hearing of trust matters are often very sensitive and should be dealt with in a discreet manner. This can of course be quite the challenge when litigation and the Courts are involved. It is very reassuring to know that a trustee, when making its Cooper’s application to the Cayman Court, may also apply for certain confidentiality orders.  If granted, the Court hearing may be held in a private setting rather than public, ensuring that privacy of clients’ affairs are maintained.

Conclusion

A trustee should carefully consider whether their particular circumstances warrant an application to the court for its approval. A trustee must always exercise its discretion independently, taking into account all relevant factors, in order to reach a fair conclusion. It is paramount that a trustee demonstrates a high level of record keeping, the significance of which is especially brought to light when it comes to making informed decisions. Furthermore, a trustee should ensure that comprehensive minutes are prepared setting out the deliberations, as well as all the pertinent factors taken into account in the decision-making process, together with a full suite of supporting documentation. The better prepared the trustee is, the easier the Court may find it to grant its blessing in favour of the momentous decision.

Original Article: https://stepcayman.ky/insights/a-momentous-occasion/