Cayman court makes landmark mental capacity ruling

The Cayman Islands Grand Court has, for the first time, ruled that the essential requirements for establishing capacity when making a will are the same as for the exercise of powers reserved to a settlor of a discretionary trust.

The case in question – In the Matter of the O Trust – concerned a discretionary trust. The settlor of the trust had the power to amend the trust deed to change the beneficiary of the trust, subject to the trustee providing its consent. When the settlor tried to make that change, the trustee refused to provide its consent, as it had doubts about her mental capacity.

Unfortunately, the settlor died before the appropriate medical examination could occur, resulting in the trustee applying to court for the question of capacity to be determined.

The Grand Court heard from a number of witnesses and was ultimately satisfied that the settlor did, in fact, have mental capacity at the time she sought to make amendments to the trust deed.

In determining the question of capacity, the court held that the legal test had two dimensions: first, what does the law recognise as the essential requirements for establishing capacity; and secondly, how should the test be applied based on the factual circumstances of the case.

The confirmation that the court will conduct a subjective, rather than an objective, assessment of the facts and circumstances of each case, is a good outcome for trustees. In future, the decision could well become the pre-eminent authority on this particular issue.

Mourant Ozannes acted for the successful second defendant, who had the onus of proving that the settlor had mental capacity when she exercised various powers.