Proposed Amendments to Trust Law in the DIFC

Authored by: Hadef & Partners, Sector Groups

Members of the Hadef Corporate team were recently asked to join a working group commissioned by the Governor of the Dubai International Financial Centre (“DIFC”). The purpose of the Wealth Management Working Group (“Working Group”) was to consider the present status of the wealth management industry and the relevant legislation and regulation in the DIFC. The Working Group was requested to formulate and propose amendments, strategies, policies and objectives relating to the current law governing trusts in the DIFC, and submit these to the DIFC Authority (‘DIFCA”) by way of a white paper for consideration. A new law on trusts is expected to be published by the DIFC this year (“Trust Law”), in which we expect that the following key findings and recommendations of the Working Group in relation to the Trust Law will be reflected:

1. Common Law and Principles of Equity

The Working Group recommended that the DIFCA take the following steps:

1. Remove references to principles of English statute law;

2. Trust Law should be governed exclusively by DIFC law except where the original settled property is outside the DIFC and the settlor does not have power to dispose of it;

3. Expressly confirm that the Hague Convention applies to the Trust Law; and

4. Expressly state that the common law of trusts and principles of equity should supplement the Trust Law, except to the extent modified by any laws of the DIFC or the DIFC courts.

2. Relief from Consequences of Mistakes

The Working Group recommended that the Trust Law should include provisions to relieve trustees and others from the consequences of mistakes including:

1. Clarification of the applicability of the discretionary remedy of rectification;

2. Conferability on the courts to provide discretionary relief where beneficiaries are prejudiced materially by a decision of a trustee, regardless of whether the trustee was at fault; and

3. Rectification should readily be available to achieve a settlor’s intent, particularly in relation to Shari’a compliance.

3. Authorisation of Dealings with Trust Property

The Working Group recommended that additional powers be conferred on the courts to authorise particular transactions, which might otherwise be in breach of the trust, without changing the terms of the trust itself.

4. Incapacity of Settlor or Protector

The Working Group suggested that express provision in the Trust Law be made to the effect that:

1. If the settlor becomes incapacitated his rights or powers may be exercised during any such incapacity by either: (i) the protector, (ii) such person designated by the trust instrument, or (iii) such person appointed by the court.

2. If the protector becomes incapacitated his rights or powers may be exercised during any such incapacity by either: (i) such person designated by the trust instrument, or (ii) such person appointed by the court.

5. Variation and Revocation of Trusts

The Working Group suggested that the Trust Law confirm the following:

1. the power of the courts to rectify trusts; and

2. that by default trusts are irrevocable in the absence of an express statement the contrary.

6. Trust Arbitrations

The Working Group suggested that the arbitration of trust disputes be provided for and that the following recommendations be followed:

1. Provide in the Trust Law that trust arbitrators have all of the powers of a judge in hearing such disputes;

2. Provide a statutory right to arbitration of trust disputes where this is in compliance with the trust instrument; and

3. Confer ability on the courts to refer a matter to arbitration should some or all of the parties so request.

For more information, please contact us on sectors@hadefpartners.com.

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