Mediating trust disputes in Cayman

    Read our article in the Cayman Financial Review Magazine, eversion 

    The use of alternative dispute resolution (ADR) in the Cayman Islands is gaining momentum. In 2011 the Cayman Islands Association of Mediators and Arbitrators (CIAMA) was established. Its stated aim being “to facilitate the development…of mediation and arbitration as forms of dispute resolution and to create a focal point for the promotion of such services…”1.

    On 2 July 2012 the Arbitration Law, 2012 came into force, paving the way for Cayman to be recognised as an international arbitration centre.

    In other jurisdictions, such as England, mediation is a common form of ADR used to settle trust disputes. Why is mediation so successful as a means of settlement of this type of dispute?
    Mediation is a confidential process in which an independent third party assists the parties to a dispute to reach a consensual resolution of the claim. Together the parties choose the identity of the mediator, venue, timing and format the mediation will take.

    The mediator facilitates discussion and negotiation between the parties, often acting as a “go-between” delivering offers of settlement and encouraging the parties to consider areas of concession and compromise. Unlike arbitration, the mediator does not impose a resolution upon the parties but if a resolution is reached, subject to the points below, it will be binding upon the parties.

    Trust structures are often established in a family context with family members being appointed beneficiaries, protectors and even trustees. It is against this background that the benefits of mediation are readily identifiable.

    Benefits of mediating trust disputes

    Often one of the primary concerns of a family in dispute contemplating litigation is the prospect of having their “dirty laundry” aired in public. Save for strictly limited exceptions, a copy of every new claim issued in Cayman is placed in the Register of Writs and other Originating Process and is open to public inspection on payment of a nominal fee. For high profile families in particular, the risk of the family’s affairs being subject to even limited public scrutiny is simply unacceptable. Mediation is a confidential process and any settlement reached can be agreed subject to strict confidentiality requirements.

    Mediation can take place at any time before or after a claim has been issued, up until a final order has been made by the court. If a resolution is reached, it can bring an immediate end to the proceedings, or, if mediation was entered into prior to proceedings being issued, the compromise can avoid the need to commence proceedings altogether.

    Whilst the progress of proceedings in the Cayman courts is more efficient than in many other jurisdictions, the nature of the dispute and the number of parties involved can result in trust disputes taking a year or more before a final determination is made by the court. The ongoing stress and tension caused by litigation can cause irreparable damage to relations between the parties who may all be family members. Mediation, on the other hand, can take just weeks to arrange and a settlement could be reached in a matter of hours.

    The formality of the court room environment and the prospect of cross-examination fills almost every non-lawyer with dread. In mediation, the parties can choose the layout of the rooms and format of the mediation in collaboration with the mediator. For example, if it would be conducive to settlement for the parties never to be in the same room, they can agree with the mediator at the outset that there will be no plenary sessions. Alternatively, if negotiations have reached an impasse, getting everyone around a table to thrash out the final details might do the trick. This lack of rigidity in the process allows the parties and the mediator to adapt the format of the mediation to meet the particular circumstances of the case.

    So often the legal issues pleaded in trust litigation are not in fact at the heart of the dispute. Whereas the court can only adjudicate upon legal matters, mediation can be structured so as to allow the parties to “have their say” and deal with emotional tensions and grievances for which there may be no legal solution. The process of reaching a consensual agreement can also assist in healing personal relationships, thereby making the future administration of the trust, for example, more harmonious.

    Further, the settlement options available at mediation are not limited to solutions which may be imposed by the court. This flexibility, coupled with the safeguard of confidentiality, makes mediation an ideal means of resolving what are often sensitive issues between the parties.

    Practical considerations

    Since the purpose of the mediation is to bring about a compromise which will put an end to the dispute, all parties who will be affected by the outcome of any settlement will need to attend the mediation or have their interests represented. The nature of trust structures are such that there are often many parties to trust disputes and gathering everyone together can cause logistical difficulties. Any adult party who has capacity can appoint a representative with authority to attend and settle the claim on their behalf.

    This is particularly useful where there are several classes of beneficiary, for example, whose interests need to be represented. One representative from each beneficial class can be appointed to attend and negotiate on behalf of that class, keeping the number of participants to a manageable number. Formal documentation, such as a power of attorney, might be required by the parties to ensure that the appointed representative has authority to compromise the claim on behalf of the entire class, assuming they are all adult and of full capacity.

    Where the beneficiaries include minors, unborn or incapacitated beneficiaries, the compromise will need to be approved by the court on their behalf before it can be put into effect. Independent counsel should be instructed to represent their interests at the mediation and subsequently commend the compromise to the court.

    In family structures, the beneficiaries of a trust often include the trustees of another related trust. Like all other beneficiaries to be affected by the compromise, they will need representation at the mediation. In difficult cases or circumstances where the decision will be particularly momentous, the trustees may wish to seek the direction of the court as to approval of the compromise.

    This can be achieved by making the compromise conditional upon court approval, in the same way that it will be for minors, unborn or incapacitated beneficiaries.

    Whilst the costs of mediation are likely to be significantly less than protracted litigation, provision will need to be made for the payment of costs including those of the mediator and legal advisors.

    Before entering into mediation, the parties are required to sign a mediation agreement which includes, amongst other matters, provision for payment of the mediators’ and parties’ costs.
    In most cases, the mediator’s fee is divided equally between the parties and the parties agree to bear their own legal costs, subject to the terms of any compromise dealing with payment of the parties’ costs. How does this work in trust disputes?    

    If the claim is for breach of trust against the trustees they must not pay their own legal costs out of the trust fund, save where this forms part of the terms of the compromise2. If the dispute is between the beneficiaries, for example, and the trustee has taken a neutral position, the trustee’s costs should be recoverable from the trust fund.

    Where minors, unborn or incapacitated adults require representation, subject to the powers contained in the trust deed, the trustee may decide to exercise his powers to pay for their representation out of the trust fund. Where all the beneficiaries are adults with full capacity, they could agree with the trustee that the entire costs of the mediation should be paid out of the trust fund.

    Which trust disputes are suited to mediation?

    Trust litigation takes many different forms and not every dispute is suitable for mediation. Matters where the trustee is seeking the court’s guidance, for example, might not be suitable for mediation. Consider the example of a trustee who is minded to sell the most valuable asset of the trust to bring liquidity to the trust fund. The trustee consults with the beneficiaries, who cannot come to a consensus as to whether the sale should take place.

    Whilst the trustee might seek the direction of the court on the sale, the underlying issues causing disagreement amongst the beneficiaries could be mediated, hopefully resulting in a less hostile application.

    Conclusion

    Whilst mediation and other forms of ADR may be encouraged by the court in furtherance of the overriding objective to “deal with every cause or matter in a just, expeditious and economical way”4, the court cannot order the parties to enter into mediation. In England ADR is considered so important that an unreasonable refusal to mediate can result in costs sanctions against the parties4. Whilst mediation is still a developing area in Cayman, the benefits within the trust dispute context are, however, clear. 

    Endnotes: 

    1. 1 See: www.ciama.ky
    2. Just as trustees cannot use the trust fund to defend proceedings for breach of trust against them, until the claim is discontinued or dismissed by the court; Armitage v Nurse [1998] Ch. 241 (C.A.)
    3. The Grand Court Rules 1996, preamble, paragraph 1.1
    4. Gill v RSPCA [2009] EWCH 2990 (Ch)

     

     

     

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    Lucy Diggle

     Lucy specialises in both contentious and non-contentious trusts and disputed estates work.  After qualifying with Cripps Harries Hall LLP in 2005, she joined Speechly Bircham LLP, London, in 2007 and then Charles Russell LLP in 2008 where her practice focused on complex multi-jurisdictional trust and estate litigation. She arrived in Cayman in May 2011 and is a member of the ACTAPS and a student member of STEP.

     

    Lucy Diggle
    Senior Associate
    Mourant Ozannes
    Cayman Islands

    T: +1 (345) 814 6332
    E: lucy.diggle@mourantozannes.com
    W: www.mourantozannes.com 

     

     

     

    Suzanne Marriott

    Suzanne specialises in cross border and UK tax
    planning, wills, trusts, contentious trusts and probates, Inheritance Act
    claims, estate and succession planning, international wills and trusts, non
    domiciliaries, mental incapacity and Court of Protection work, heritage
    property, art, landed estates and charitable trusts.  Suzanne acts as Trustee, Executor, Deputy,
    Attorney and Charitable Trustee for many well known clients. She is a member of
    STEP, ACTAPS and the CLA.

     

    Suzanne Marriott
    Partner
    Charles Russell
    London
    United Kingdom

    T: +44
    20 7203 5096
    E: suzanne.marriott@charlesrussell.co.uk
    W: www.charlesrussell.co.uk