Cayman Islands trusts

Read our article in the Cayman Financial Review Magazine,


Mourant Ozannes’ trust symposium, run recently
in the Cayman Islands and Jersey by members of their international trusts team,
looked at issues in relation to mental capacity, discussing some of the
problems which might face a trustee in the event that a settlor began to show
what might be signs of deterioration in his mental health. The seminar focused too on the Cayman Islands
case of In Re D1.   

The Cayman Islands did not undergo the fundamental
reform of their mental health legislation that occurred in England and Wales
with the passing of the Mental Capacity Act 2005, nor do the Islands have an
equivalent to the English Court of Protection. However, the Grand Court has a
number of procedures available to it in the event it is called upon to make a
decision in the management of the property and affairs of a person who no
longer has the capacity to look after his own finances and in the case of In Re
D, it considered the test which should be applied when doing so. 

The Cayman Islands
Mental Health Law (1997 Revision) gives the Grand Court wide powers to assist
in the event that a person loses capacity to deal with their own affairs.
Section 13 of the Mental Health Law provides for the court to do or secure the
doing of “all such things as appear desirable for the maintenance or
benefit” of three categories of persons:  

a)  the patient 

b)  his family or  

c)  those
for whom he might be expected to provide if he were not mentally disordered 

and where it would
otherwise be desirable in the administration of the patient’s affairs. 

Under the Mental
Health Law, “all such things” can include arranging for a person to
manage, sell, acquire, charge or deal with property; entering into any
settlement; providing for the management of a business; dissolving a
partnership; completing a contract; conducting legal proceedings; acting as a
trustee or appointing a receiver. It does not, on the face of it, extend to the
making of a will for a patient. 

Because the Cayman
Islands’ mental health legislation did not undergo the root and branch reform
which happened in England and Wales, one might reasonably assume that the test
when considering what is “desirable” for the purposes of s13 of the
Mental Health Law, would follow the old pre-MCA “lucid intervals”
test set out in older English cases2.
However, the Grand Court moved away from the old “lucid intervals”
test to embrace a more modern approach. 

The English MCA sets
out a new approach to decisions taken on behalf of a patient; decisions must be
made in the patient’s “best interests” subject to certain conditions
which are set out in the statute. The person making the decision must consider
whether and if so when, the patient is likely to recover his capacity and must,
as far as is practicable, encourage the patient to participate in the
decision-making process. Consideration must be given to the patient’s past and present
wishes and feelings, any letters written by him
expressing his wishes while he had capacity, his beliefs and values and any
other factors which he would consider were he able to do so. There must be
consultation with anyone named by the patient as someone who ought to be
consulted in decisions of that nature, as well as any attorney under a relevant
power of attorney, known as an LPA in England, or a deputy appointed by the
court, about what would be in the patient’s best interests. 

The facts of In Re D
were this: Mrs D had lost capacity and as a consequence, a committee of
guardians had been appointed by the Grand Court to look after her financial
affairs, in this instance, her interest as primary beneficiary of a Cayman
Islands family trust. Before she lost capacity, Mrs D entered into a settlement
agreement with her family settling many years of litigation in the Cayman
Islands and elsewhere, but a question had since come up about the requirement
for an indemnity as a consequence of the settlement. Two of the committee of
guardians (the other members of the committee were conflicted by reason of
their own interest in the settlement agreement) applied to the Grand Court
seeking directions to enter into the proposed indemnity agreement on behalf of
Mrs D; the issue for the guardians being that the potential liability under the
proposed indemnity was to be entirely assumed by Mrs D or her estate. 

Chief Justice
Smellie accepted that the Grand Court had jurisdiction to direct the guardians
to enter into a settlement agreement on behalf of Mrs D. He considered the test
to be applied in deciding whether it was appropriate to do so.  

In his reasoning,
the Chief Justice distinguished the facts of the case before him, namely the
maintenance or benefit of the patient and her immediate family, from older
authorities dealing with maintenance or benefit of those for whom a patient
might be expected to provide, described as “collateral” members of
the family, like nephews and nieces. He found that the lucid intervals test
“was developed in the context of [the Judge] seeking to devise a
settlement which reflected the notional views and wishes of a settlor as to the
bestowing of his bounty upon collateral relatives”3. For that third category of
persons, he held, the court would be required to identify a period during which
“it must be assumed that the patient became of sound mind for a sufficient
time to review the situation but knew that after a brief interval he would
relapse into his former condition”4, the
so-called “lucid interval” test. 

The Chief Justice
went on to elucidate the “counterfactual nature of the assumption explicit
in the lucid interval test” when considering benefit to a patient’s
immediate family, the assumption being that a patient would at least on the
face of it, wish to benefit them. For that reason, the Chief Justice was not
persuaded that he ought to follow the decision of Megarry VC in Re D(J). The
Chief Justice described Megarry VC’s decision as “problematical”,
having extended the “lucid intervals” test from the consideration of
maintenance or benefit of the “collateral” members of the family to
consideration of what was desirable for the maintenance or benefit of the
patient’s immediate family. That decision could be distinguished from the task
facing him, as Megarry VC’s decision was reached in the context of making a
statutory will for a patient.  

The Chief Justice
held that the starting point in the case before him must be the assumption that
a patient would wish to benefit her immediate family and the test which follows
should be whether what is proposed is “desirable”, being both “reasonable
and in the best interests of the patient and her family”. In so doing, he
expressed some sympathy with the judicial scepticism that has attended upon the
lucid interval test and the “mental gymnastics” that the test
involves, commenting that “it does not commend itself, to my mind, as
being the most logical or practical way of doing so”, given its
“purely imaginary” nature. 

The Chief Justice
found the “wide ambit” of the Cayman Islands Mental Health Law to be
“entirely accommodating” of the test set out in the English MCA,
concluding that “there is no reason to think that any of the many factors
helpfully identified in the English Act of 2005 for consideration must be
precluded”. He found that this more modern approach was to be preferred
and concluded that in the absence of binding or persuasive Cayman authority, it
was open to the court to adopt it on the wording of s13 of the Mental Health

This does
beg the question of what would happen if the Grand Court were to be faced with
taking a decision on behalf of a patient, which would benefit those for whom
the patient might be expected to provide. Although the Chief Justice, obiter,
expressed sympathy with the judicial scepticism attendant upon the lucid
intervals test, In Re D has not changed the test in the Cayman Islands for
consideration of benefit to that third category of persons. Indeed the Chief
Justice acknowledged that had he been faced with that question, he would have
been obliged to participate in the “mental gymnastics” required in effecting
the “lucid intervals” test.

Nonetheless, while not every jurisdiction
will have the need, the resources or the infrastructure to support reform of
the depth or nature of the English MCA, as the case of In Re D amply
demonstrates, where an opportunity lies to develop the law and take a more
modern approach, the Cayman Islands Grand Court will be open to doing so. 



1 [2009] CILR 432
2 For example, Re D(J) [1982] 1 Ch 237
3 Quotes come from the Chief Justice’s judgment In Re D [2009] CILR 432, unless otherwise indicated
4 In Re L (WJG) [1966] Ch 135

Cayman Islands Trust
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Morven McMillan

Morven is a partner based in Maples and Calder's Cayman Islands office, where she is head of the Cayman Islands Trusts group. Her expertise includes contentious and non-contentious international trusts and private client work.


Morven McMillan
Maples and Calder
Cayman Islands

T: +1 (345) 814 5356
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Maples and Calder

Maples and Calder was formed in the Cayman Islands almost 50 years ago and today is the largest law firm in the Cayman Islands. We are also acknowledged by clients and competitors alike as being the market leader in each of our principal practice areas, in particular funds, finance and corporate.  Our Cayman office also provides, through our regulated affiliate, incorporation and registered office services.

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