2015 Nevis Trust Law: Even Greater Asset Protection

In 1996, the Nevis Island Assembly enacted the Nevis International Exempt Trust Ordinance, Cap. 7.03 (the “NIETO”), to bring certainty to international trust planning. The original NIETO already contained a set of asset-protective features: a preclusion of the Statute of Elizabeth, statutory presumptions against finding a fraudulent transfer in defined circumstances, a beyond-reasonable-doubt burden on creditors, and — first of its kind — an explicit creditor-bond requirement.

After twenty years, the Nevis Island government decided in early 2015 to revisit the NIETO. The firm’s Nevis office formed a select committee of American lawyers, chaired by Shawn Snyder, to make recommendations. The committee included drafters of trust and LLC legislation in several U.S. states and offshore jurisdictions. The starting point was a comprehensive package of amendments advanced in 2014 by Jonathan Gopman of Akerman LLP. The committee’s proposals were enacted into law largely intact in May 2015.

No provision of the NIETO has drawn more attention than § 23. The original text was modeled on § 13B of the Cook Islands International Trusts Act (the “ITA”), which itself underwent significant revision after the NIETO was enacted.

The ITA, in subsections (3) and (4), deems a transfer in trust to be notfraudulent if it occurs more than two years after a creditor’s cause of action accrues (with a one-year window for a timely claim), or if it occurs before the cause of action accrues at all. The latter codifies the principle from the Isle of Man that a transfer cannot be fraudulent against a creditor unless a present debt exists at the time of the transfer. See Corlett v. Radcliffe, 14 Moo PCC 121, 15 ER 251 (1859).

Through what appears to be a substantial scrivener’s error, the original NIETO drafted subsections (3) and (4) of § 23 to the exact oppositeeffect — deeming transfers fraudulent that the comparable Cook Islands and Isle of Man rules deemed protected. The 2015 amendments corrected the error. Subsection (4) now makes clear that transfers in trust before a creditor’s cause of action accrues cannot be set aside as fraudulent.

The Cook Islands “sliding window” in § 13B(3) of the ITA — replicated in the original NIETO — gives a creditor as little as one year or as much as three to bring a claim, depending on the timing of the transfer. The ambiguity is widely misunderstood. Even experienced practitioners are surprised to learn that a Cook Islands trust may give a creditor up to three years to act.

The committee, on Mr. Snyder’s recommendation, proposed eliminating the sliding window altogether. The Nevis Island government adopted the proposal. Subsection (3) now prescribes a fixed one-year window beginning with the date on which the creditor’s cause of action accrues. Transfers made after one year are protected.

The original NIETO bond requirement, intended to deter specious litigation, had been rendered inadequate with time. The committee recommended a sliding scale with a minimum of EC $100,000. The Nevis Island government chose instead a flat amount substantially higher: EC $270,000 (approximately US $100,000), to be posted with the Nevis court before a claim against a Nevis-registered trust may proceed.

Earlier proposals would have limited 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) (1975). The committee’s secretary, Inga Ivsan, observed that many cases in which a Mareva injunction is sought also involve an Anton Piller order or other interim measure. See Anton Piller v. Manufacturing Processes, Ch. 55 (1976). The committee recommended a comprehensive prohibition. The Nevis Island government adopted a narrow statement of principle in subsection (9):

In American litigation concerning international trusts, a court will sometimes order the settlor or beneficiary to repatriate trust assets. The settlor or beneficiary then bears the burden of showing the order cannot be performed. The impossibility defense is difficult to maintain in the absence of an express duress provision. The committee recommended that § 13 be replaced in its entirety with a general duress provision applicable to all international trusts. The Nevis Island government concurred. Trustees and other persons with power over a Nevis trust must now disregard instructions given under duress, while remaining free to honor such instructions where necessary to avoid personal liability.

The 2015 amendments place the Nevis trust regime among the most secure available. The drafting process exposed flaws in competing jurisdictions — the Cook Islands, the Isle of Man, the Channel Islands — that practitioners had long either ignored or imperfectly understood. Settlors of trusts in those jurisdictions, and particularly the Cook Islands, have grounds to consider migrating to Nevis.