¶ 901
Overview
Scope of the chapter. This chapter examines the persons and provisions that determine who controls a Cook Islands international trust after it has been settled: the protector, the powers the settlor may reserve, the settlor's position as a beneficiary, and the duress provisions that govern what happens when a court outside the Cook Islands orders the settlor or another office holder to bring the trust assets home. The International Trusts Act 1984 addresses each subject. It defines the protector and sets the default rules for the office, it provides that a trust is not invalid because the settlor retains or acquires powers and benefits; and it permits the governing law to change automatically on a defined event. It contains no statutory duress provision of the kind found in Nevis, so the duress clause in a Cook Islands trust is a term of the instrument alone. The creation and validity of the trust, including the decision of the Privy Council in Webb v. Webb, are examined in chapter 6 (see supra ch. 6); the trustee company's office and duties are examined in chapter 7 (see supra ch. 7); the beneficiaries' interests and the spendthrift provisions are examined in chapter 8 (see supra ch. 8); and the proceedings that American courts bring against settlors of Cook Islands trusts are examined in chapter 25 (see infra ch. 25).
Two questions about control. Every provision examined in this chapter raises two separate questions, and the answers often point in opposite directions. The first is whether the provision is valid and effective under Cook Islands law, which governs the trust and which a Cook Islands court will apply. The Act answers that question generously: a settlor may be trustee, protector and beneficiary of his own trust, may keep powers to revoke and amend it and to direct the trustee, and the trust remains valid. International Trusts Act 1984, § 13C (Cook Is.) (as inserted 1989 and amended 1995–96). The second question is whether the provision leaves the settlor with a power that a court in his home country can order him to exercise. A court that cannot reach the trustee can still reach the settlor, and every power the settlor holds, directly or through a protector who acts on his instructions, is a power that court can compel. The planning of a Cook Islands trust for a client from the United States therefore uses only a small part of what the Act permits.
Sources. No official consolidation of the International Trusts Act 1984 was available for this edition. The text of each section discussed below has been taken from the Act as enacted and from the amending Acts of 1985, 1989 (two Acts), 1991, 1995–96, 1999, 2004 and 2013, as published by the Financial Supervisory Commission (see supra ¶ 590 and ch. 6). The protector provisions have been amended three times, in 1989, 1995–96 and 1999, and the versions differ in ways that matter to trusts settled at different dates. The citations in this chapter identify the amending Act for each provision. The cases on protector powers come from England, Jersey, Bermuda, the Cayman Islands and the Isle of Man, because no reported Cook Islands decision has construed the protector provisions of the Act. The cases on duress clauses come from the United States, where those clauses have been tested in contempt proceedings.
Organization. Paragraph 910 sets out the statutory scheme of control: irrevocability, retained powers and benefits, and their relation to the fraudulent-disposition rules. Paragraphs 920 to 940 examine the protector: the statutory office and its history, the character of protector powers as fiduciary or personal, and the selection and replacement of the protector. Paragraph 950 examines the settlor's reserved powers under section 13C and the limits of that section. Paragraph 960 examines the settlor as beneficiary. Paragraphs 970 and 980 examine duress provisions and the change of governing law on an event, and the treatment of those provisions by courts in the United States. Paragraph 990 collects the planning and drafting points and sets out model provisions.