Statutory Hastings-Bass in the Cayman Islands: the Grand Court sets aside a deed of exclusion

In the recent decision of The Trustees v AB and Ors (Re the D Trust) the Cayman Grand Court granted relief under section 64A of the Trusts Act (2021 Revision) (the Act) to set aside a deed of exclusion (Deed of Exclusion) executed by previous trustees in reliance on erroneous UK tax advice. The decision adds to the growing body of authority on the statutory Hastings-Bass jurisdiction in the Cayman Islands, and includes guidance on the good faith requirement, standing by successor trustees, notification to tax authorities, and whether section 64A applications should be dealt with on the papers. Background The D Trust is a Cayman Islands discretionary trust with a broad class of beneficiaries. It was originally governed by New Zealand law, but its proper law and forum were changed to the Cayman Islands in November 2019. The trust formed part of a wider estate planning structure. When the D Trust was settled in 2011, the Settlor transferred non-UK situs property into it. A connected trust (the H Trust, governed by Guernsey law) borrowed those funds to purchase a residential property in England. The arrangement was designed to ensure the loan owed by the H Trust to the D Trust remained "excluded property" for UK inheritance tax (IHT) purposes, shielding the value of the UK property from any charge on the Settlor's death. In early 2017, proposed changes to the IHT regime threatened to undermine that planning. The previous trustees instructed a specialist London firm, which recommended (among other options) executing a deed of exclusion to declare the Settlor an "Excluded Person" under the trust deed. The Deed of Exclusion was executed on 30 March 2017, shortly before the new rules took effect on 6 April 2017. In January 2025, a different London firm reviewed the arrangements and concluded that the original advice had been incomplete and in places erroneous. It had failed to consider: (i) the risk that section 102 of the UK Finance Act 1986 would treat the Settlor as having incurred the H Trust's liabilities; (ii) whether the charge over the UK property was an "incumbrance created by a disposition made by [the Settlor]" within section 103 of that Act; and (iii) how the General Anti-Abuse Rule might apply to the 2017 arrangements. The D Trust faced the very IHT exposure the Deed of Exclusion was supposed to prevent. The issues The current trustee applied by originating summons for a declaration that the Deed of Exclusion was void ab initio under section 64A of the Act. The application was dealt with on the papers. The principal issues were: (i) whether the current trustee had standing; (ii) whether the statutory conditions in section 64A(2) were satisfied; (iii) the scope of the court's residual discretion (including the good faith requirement and notification of HMRC); and (iv) whether it was appropriate to determine a section 64A application without an oral hearing. The judgment The applicable law Justice Segal adopted the analysis of Justice Kawaley in Maples Trustee Services v AB (In Re Settlements), describing it as "a clear and authoritative summary of the applicable law". Justice Kawaley had identified three strands of the statutory language: 1. the power must be a fiduciary power; 2. but for the mistake the power would not have been exercised in the same way, at the same time, or at all; and 3. the person exercising the power must have failed to take into account relevant considerations, or taken into account irrelevant ones. Justice Segal adopted Justice Kawaley's tentative view (that section 64A contains an implied good faith requirement), reasoning that such a qualification is necessary to keep the jurisdiction within proper bounds and avoid what Lord Neuberger extrajudicially described as giving trustees a "get out of jail free card". He disagreed, however, with Justice Kawaley's observation that the circumstances required for section 64A relief are "likely in many (if not most) cases to be indistinguishable (legal lab...