Introduction
In 1996, the Nevis Island Assembly enacted the Nevis International Exempt Trust Ordinance, Cap. 7.03 (“NIETO”), to bring certainty and clarity to international trust planning. A number of provisions in the NIETO catered to the needs of lawyers and their clients engaged in asset protection planning, including:
- Preclusion of the Statute of Elizabeth principles governing the determination of a fraudulent transfer;
- Statutory presumptions against the finding of a fraudulent transfer in certain circumstances;
- A strict requirement that a creditor prove the fact of a fraudulent transfer “beyond a reasonable doubt”; and
- In a first of its kind, an explicit requirement that a creditor post a bond with the Nevis court.
After twenty successful years of trust establishments under the NIETO, the Nevis Island government decided in early 2015 to revisit the NIETO in hopes of modernizing the legislation and extending the protections afforded under the NIETO more broadly.
Select Committee for the 2015 Amendments
Telbert Glasgow, Managing Director of the Nevis office for Lighthouse Trust, formed a select committee of American lawyers to review and make recommendations to the Nevis Island government on amendments to the NIETO. The select committee was chaired by Shawn Snyder, a lawyer and Adjunct Professor of Law at the University of Miami who also served as a past chair of the Will, Trusts, and Estates Certification Committee of the Florida Bar. The committee included several accomplished estate and asset protection planning attorneys from around the United States, including drafters of trust and LLC legislation in various states and select offshore jurisdictions.
Summary of Changes
The committee reviewed a comprehensive package of amendments advanced in 2014 by Jonathan Gopman, an attorney with Akerman LLP in Naples, Florida. The committee then proceeded to incorporate the 2014 proposal into a more comprehensive set of “2015 Amendments” designed to address the following concerns:
- Technical corrections;
- Substantive flaws in the way in which § 23 of the NIETO was modeled after § 13B of the Cook Islands International Trusts Act (which itself is seriously flawed);
- Creditor remedies that have emerged in common law jurisdictions since the NIETO was first proposed;
- Lack of a provision governing duress; and
- Bond requirements for a creditor to proceed against an international trust governed under the NIETO.
The culmination of the committee’s work was a set of proposed amendments submitted to the Nevis island government in the spring of 2015. These amendments were enacted into law largely intact in May 2015.
Key Amendments
- § 23(4) – Transfers made in trust before a creditor’s cause of action accrues are deemed not to be fraudulent transfers.
Perhaps no other provision of the NIETO has drawn more attention than § 23, intended to deal with fraudulent transfers. The original text was modeled after the Cook Islands International Trust Act (“ITA”), which underwent significant revision after the NIETO had been enacted.
Subsection (3) of the ITA deems a transfer in trust to be not fraudulent as against a creditor if the transfer takes place two years from when the creditor’s cause of action accrues. If the transfer takes place within two years of the cause of action accruing, the ITA nevertheless deems the transfer to be not fraudulent if the creditor fails to commence a court action within one year. The public policy justification for these two rules is that a creditor should only have a limited period of time within which to bring a claim. If the creditor fails to diligently pursue the claim in a timely manner, the settlor should later be able to transfer assets in trust free of creditor claims.
Similarly, subsection (4) of the ITA deems a transfer in trust to be not fraudulent as against a creditor if the transfer takes place before the creditor’s cause of action accrues. This is a codification of the principle, first arising in the courts of the Isle of Man, that a transfer cannot be fraudulent as against a creditor unless there is a “present debt” at the time of the transfer. See Corlett v. Radcliffe, 14 Moo PCC 121, 15 ER 251 (1859); see also Re the Petition of Christopher Jollian Heginbotham, 2 ITELR 95 (1999) (“present debt” in Corlett v. Radcliffe refers to creditors whose claims exist at the time of the transfer).
In what appeared to be a substantial scrivener’s error, subsections (3) and (4) of § 23 of the NIETO were originally drafted to the exact opposite effect. The Nevis island government concurred with the committee’s recommendation and amended § 23 of the NIETO. Specifically, subsection (3) was reworded (and more detail is provided on this point below). Meanwhile, subsection (4) was changed to make clear that transfers in trust before a creditor’s cause of action accrues cannot be set aside as fraudulent transfers.
- § 23(3) – The Cook Islands 3-Year “Sliding Window” of vulnerability has been replaced with a fixed 1-year window for fraudulent transfers in Nevis.
In conjunction with the technical corrections described above, the committee recommended that subsection (3) of § 23 be further revised to eliminate what was a three-year window for a creditor to bring a claim against an international trust. This “sliding window” was first introduced in § 13B(3) of the Cook Islands ITA, after which subsection (3) of § 23 of the NIETO was modeled.
While paragraph (a) was intended to protect a transfer in trust made more than two years after a creditor’s cause of action accrues, paragraph (b) gave the creditor up to one more year to bring a claim if the creditor’s claim happened to arise before the expiration of the two year period referenced in paragraph (a).
This “sliding window” had been misconstrued by many experienced practitioners and remains widely misunderstood by the public at large. Even the most experienced asset protection lawyers are surprised to learn that a Cook Islands trust gives a creditor three years to bring a claim.
Committee Chairman Shawn Snyder recommended that Nevis trust law would offer greater protection by eliminating the ambiguity over interpretation of the “sliding window.” Eliminating the “sliding window” altogether would also help differentiate the NIETO from legislation in competing jurisdictions.
The revision to subsection (3) of § 23 proposed by the committee, and approved by the Nevis island government, now calls for a fixed one-year window beginning with the date on which the creditor’s cause of action accrues. Instead of a “sliding window,” subsection (3) is a “fixed window.” Transfers made after one year from when the creditor’s cause of action accrues are now protected under the NIETO.
- § 55 – Creditors must post a bond of EC $270,000 (US $100,000) before bringing a claim against a Nevis trust.
The NIETO has enjoyed a favorable reputation for its bond requirement imposed on claimants. The public policy aim of this particular statute is to deter a prospective creditor from bringing litigation in the Nevis court absent a firm belief in the merits of a claim, lest the bond proceeds be used to award fees and costs to the trustee-defendant.
Since the bond requirement was first introduced in 1996, the legal climate concerning international trusts has evolved. The committee found that the bond requirement had been rendered inadequate with time and needed to be increased. However, the committee identified two competing concerns: (i) providing an effective barrier to specious litigation where the amount at stake is significant while (ii) not foreclosing court access to meritorious claims.
The committee recommended that the bond requirement be changed to a sliding scale formula, with a minimum bond amount of EC $100,000. However, the Nevis island government chose to go with a flat amount that was significantly higher. § 55 of the NIETO now requires that EC $270,000 be posted as bond with the Nevis court before the creditor may bring a claim against a trust registered in Nevis.
- § 23(9) – Mareva Injunctions and Anton Piller orders are not available remedies under the NIETO.
Earlier proposals recommended a number of useful amendments to further clarify creditor remedies under the NIETO, including a provision that would limit the availability of Mareva injunctions in the Nevis court. See Mareva Compania Naviera S.A. v. International Bulkcarriers S.A., 2 Lloyd’s Rep 509 (CA) (9175).
The committee agreed that the Nevis court should not entertain or issue Mareva injunctions in respect of international trusts so as to sidestep the limits on creditor remedies under § 23 of the NIETO. However, Inga Ivsan, Committee Secretary, determined that many cases in which a Mareva injunction is sought also involve the issuance of an Anton Piller order or similar interim measures. See Anton Piller v. Manufacturing Processes, Ch. 55 (1976). The committee recommended that the prohibition on Mareva injunctions be expanded to more comprehensively proscribe similar and complementary forms of interim measures.
The Nevis island government concurred with this approach, opting for a narrow statement of principle in subsection (9) of § 23 of the NIETO. The statute now provides that:
[T]he remedy conferred by subsection (1) [of § 23 of the NIETO, which does not void a fraudulent transfer but permits a recovery against available trust property] shall be the sole remedy available in such an action or proceedings to the exclusion of any other relief or remedy against any party to the action or proceeding.
- New § 13 – Interested persons may disregard instructions given under duress.
It is generally regarded in many international trust jurisdictions that instructions given in regard to an international trust should be free of duress. The NIETO, by comparison, did not historically contain such a requirement.
In litigation in American courts concerning international trusts, oftentimes the settlor or beneficiary is ordered by a judge to try and effect a repatriation of trust assets. The settlor or beneficiary faces the burden of convincing the American court that repatriating the trust assets is prohibited under applicable trust law. Yet, this “impossibility defense” would be difficult to maintain in the absence of an express provision in the NIETO governing duress.
Committee member Robert Danielsen recommended that § 13 of the NIETO be replaced in its entirety with a general duress provision applicable to all international trusts. The Nevis island government concurred, and the new law requires those with power over an international trust to disregard instructions given under duress. Notwithstanding this prohibition, a trustee or other person would remain free to abide by such instructions if necessary in order to avoid personal liability or personal exposure.
Additional Changes
The 2015 Amendments brought about additional changes to the Nevis trust law, including – at the recommendation of Jonathan Gopman – provisions explicitly accommodating the formation of charitable remainder trusts, charitable unitrusts, grantor remainder trusts, and grantor unitrusts in Nevis. Further revisions clarify the role of the trust protector, the discretionary nature of trustee powers, the retention of control by a trust settlor, and the interplay of community property laws.
Comparison to Other Jurisdictions
Lighthouse Trust is pleased to have played an integral part in drafting and securing the passage of the 2015 Amendments. The drafting process exposed a number of flaws in the asset protection trust laws (or lack thereof) in a number of well-known jurisdictions, including the Cook Islands, the Isle of Man, and the Channel Islands.
We can now definitively say that Nevis offers some of the most secure asset protection trust laws of any jurisdiction in the world. Settlors of trusts in other jurisdictions, especially the Cook Islands, are encouraged to consider migrating their trusts to Nevis in order to avail themselves of the greater protections offered under Nevis law.
Footnote
Lighthouse Trust wishes to thank Committee Chairman Shawn Snyder for advancing the select committee’s work and seeing through the ultimate passage of the 2015 Amendments. We also wish to extend our gratitude to Inga Ivsan, Committee Secretary, for her insight on Mareva injunctions and Anton Piller orders.