¶ 2501
Overview
The subject of the chapter. The earlier chapters of this Part examine what a creditor must prove in the Cook Islands to reach property held in an international trust: the conditions on suit (see supra ch. 22), the substantive test for a fraudulent disposition (see supra ch. 21) and the refusal of the Cook Islands courts to recognize foreign judgments (see supra ch. 23). Most creditors of a settlor who lives in the United States never bring proceedings in Rarotonga. They proceed against the settlor at home. A court with personal jurisdiction over the settlor can order the settlor to bring the trust assets back, can confine the settlor until the order is obeyed, can treat the settlor's interest in the trust as property of a bankruptcy estate, can deny the settlor a discharge, and can divide the value of the trust in a divorce. None of those steps requires a Cook Islands court to do anything. This chapter examines how Cook Islands trusts and limited liability companies have fared when the settlor or member is before a foreign court, and what the record of those cases means for design and administration.
The two halves of the record. The reported decisions divide into two groups. In the first, the Cook Islands structure held as a matter of property: the trustee, applying the International Trusts Act 1984 and the trust instrument, declined to return the assets, and no Cook Islands court ordered it to. In the second group, which overlaps the first, the settlor did not hold: the settlor was held in civil contempt and confined, denied a discharge, ordered to pay the value of the trust from other assets, or convicted. The leading appellate decision, FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999), belongs to both groups. The assets stayed in the Cook Islands and the settlors went to jail. The lesson of the cases is that the Act protects property and does not protect people.
What the Cook Islands statute contributes. The International Trusts Act 1984 does not, and could not, prevent a foreign court from acting on a person within its jurisdiction. Its contribution is indirect. Section 13D prevents a foreign judgment from being enforced or recognized against the trust in the Cook Islands to the extent that it rests on law inconsistent with the Act or concerns a matter governed by Cook Islands law (see supra ch. 23). Section 13I excludes foreign law from the questions the Act governs and bars relief under section 13B on a claim founded on foreign law (see supra ch. 23). The trustee and the protector, if they are outside the foreign court's reach, can therefore decline a request to return the assets without exposing the trust to liability at home. Whether the settlor can then persuade the foreign court that compliance is impossible is a question of the foreign court's law. The Act has no statutory duress provision; any direction to the trustee to disregard instructions given under compulsion is contractual, in the trust instrument (see supra ch. 9).
Plan of the chapter. Section 2510 describes the orders a foreign court can make against a settlor within its jurisdiction. Section 2520 states the law of civil contempt and the impossibility defense. Section 2530 examines the reported decisions on Cook Islands trusts and limited liability companies, and section 2540 the decisions on other offshore trusts that the courts have applied to Cook Islands structures. Section 2550 turns to the trust's side of the dispute: what the Cook Islands trustee and protector should do when a request arrives. Section 2560 examines bankruptcy, section 2570 divorce, the validity of self-settled trusts in the settlor's home forum and criminal exposure, and section 2580 compares Nevis and Belize. Section 2590 draws the planning lessons together and offers model provisions and a checklist. United States tax and reporting consequences of Cook Islands structures are examined in chapter 29 (see infra ch. 29).