The Duress Clause in Cook Islands Trusts

The duress clause is the central defensive mechanism in a Cook Islands asset protection trust. It is the provision that instructs the trustee to refuse compliance with any direction given by the settlor, protector, or beneficiary while that person is acting under legal compulsion. Without it, a creditor who obtains a court order directing the settlor to repatriate trust assets could simply force the settlor to instruct the trustee to comply. The duress clause breaks that chain of command by making any instruction given under duress legally ineffective under Cook Islands law.

Every properly drafted Cook Islands asset protection trust includes a duress clause. It is not optional, and it is not a secondary feature—it is the provision that makes the trust’s protective structure function under adversarial pressure.

How the Duress Clause Works

The duress clause operates by defining a category of events, called events of duress, and specifying the consequences that follow when one occurs. When a defined event of duress takes place, the clause typically triggers two responses simultaneously. First, the trustee is prohibited from complying with any instruction, request, or direction given by a person who is subject to the duress event. Second, governance powers held by that person are suspended or transferred to a successor who is not subject to the duress. This includes the protector’s authority to remove and replace the trustee and any advisory role the settlor holds over trust investments.

The combined effect is that the person under court pressure loses the ability to direct the trust’s actions, and the trustee is affirmatively prohibited from following any directions that person gives. The trust continues to operate, but it operates under the control of persons and entities that are beyond the reach of the court issuing the order.

Example Provision Language

While the specific wording varies across trust deeds, a typical duress clause contains several interlocking components. The following illustrates the structure of a standard provision:

Definition of Event of Duress:

“An Event of Duress shall mean any event, including but not limited to the issuance, making, or entry of any order, decree, judgment, demand, or other process by any court, tribunal, or governmental authority, whether within or outside the Cook Islands, that in the opinion of the Trustee does or may directly or indirectly: (a) compel, purport to compel, or attempt to compel any Interested Party to take or refrain from taking any action with respect to the Trust, the Trust Fund, or any part thereof; (b) restrict or purport to restrict the free disposal of any property of the Trust Fund by the Trustee; or (c) result in the attachment, seizure, sequestration, or other legal process being levied against any property of the Trust Fund.”

Effect on Trustee Obligations:

“Upon the occurrence of an Event of Duress, the Trustee shall disregard and shall not be bound by any direction, instruction, wish, or request given or purported to be given by or on behalf of any Interested Party who is subject to, affected by, or acting under the influence of such Event of Duress.”

Governance Transfer:

“Upon the occurrence of an Event of Duress affecting the Protector, all powers, rights, and discretions vested in the Protector shall immediately and without further action be suspended and shall vest in the Successor Protector named herein, and such Successor Protector shall thereafter exercise all such powers, rights, and discretions as if originally named as Protector.”

These provisions work together. The definition captures a broad range of legal proceedings and court orders. The trustee obligation provision ensures that any instruction given under compulsion is void. And the governance transfer provision removes the affected person from the trust’s decision-making structure entirely.

The example language above is illustrative rather than prescriptive. Actual trust deed language should be drafted by counsel familiar with Cook Islands law and tailored to the specific trust’s structure and the settlor’s circumstances. But the core architecture is consistent across properly drafted Cook Islands trusts: define the triggering event, nullify instructions given under duress, and transfer governance to an unaffected successor.

What Constitutes an Event of Duress

The definition of “event of duress” is one of the most important drafting decisions in the trust deed. A definition that is too narrow, limited to the entry of a final judgment, may fail to activate when a creditor obtains a preliminary injunction, temporary restraining order, or discovery order that effectively pressures the settlor before any judgment is entered. A definition that is too broad may activate in response to routine legal proceedings that do not actually threaten the trust, creating unnecessary governance disruptions.

Most well-drafted duress clauses define events of duress broadly enough to capture any legal process directed at the trust, the trust assets, or any interested party in connection with the trust. Common triggering events include the filing of a lawsuit asserting claims against the settlor or trust assets, the entry of a temporary restraining order or preliminary injunction, the issuance of a turnover order or repatriation order by any court, the commencement of bankruptcy proceedings involving the settlor, the service of a subpoena or discovery demand directed at trust records or trust governance, and any governmental action seeking to freeze, attach, or seize trust property.

The phrase “in the opinion of the Trustee” in many duress clause definitions gives the trustee discretion to determine whether a particular event qualifies. This discretion is intentional. It allows the trustee to invoke the duress provisions proactively rather than waiting for a court to formally characterize a proceeding as one that triggers the clause.

The Anderson Case

The most prominent litigation testing the duress clause is FTC v. Affordable Media, LLC—the Anderson case—decided by the Ninth Circuit in 1999. The Andersons had established a Cook Islands trust with Asiaciti as the Cook Islands trustee. When the FTC obtained a preliminary injunction requiring the Andersons to repatriate trust assets, Asiaciti invoked the trust’s duress provisions, removed the Andersons as co-trustees, and refused to comply with the repatriation order.

The duress clause functioned as designed. The trustee refused to follow instructions given under legal compulsion, and the Andersons’ governance roles were suspended. But the case also exposed a critical structuring flaw: the Andersons had served as both co-trustees and protectors of the trust. The Ninth Circuit found that the Andersons retained sufficient control through their protector role to make compliance theoretically possible, and held them in contempt.

The lesson from Anderson is not that the duress clause failed. The Cook Islands trustee continued to refuse repatriation, and the Cook Islands court later invalidated the FTC’s attempts to replace the trustee. The lesson is that the duress clause must be paired with a governance structure that removes the settlor from all positions of control when duress occurs. The Andersons’ trust did not do this effectively because they retained the protector role. A properly structured trust transfers the protectorship to a non-U.S. successor upon the same triggering event that activates the duress clause, ensuring that no person subject to the court’s jurisdiction retains any governance authority over the trust.

The case library provides additional detail on the Anderson litigation and subsequent Cook Islands court proceedings. The contempt risks article addresses the U.S. court dynamics in more detail.

The Impossibility Defense

The duress clause is the factual foundation for what U.S. courts call the “impossibility defense”—the argument that the settlor cannot comply with a repatriation order because the trustee is legally prohibited from following the settlor’s instructions under the trust deed and Cook Islands law.

The logic is straightforward. A person cannot be held in contempt for failing to do something that is impossible. If the trust deed prohibits the trustee from following the settlor’s instructions during an event of duress, and Cook Islands law gives that prohibition legal effect, then the settlor has no ability to compel the trustee to repatriate the assets, regardless of what a U.S. court orders.

U.S. courts have not uniformly accepted this defense. In Anderson, the Ninth Circuit was skeptical precisely because the impossibility was self-created. The Andersons designed a trust whose entire purpose was to make compliance impossible. The court noted that it would be “especially chary of accepting a defendant’s assertions that repatriation or other compliance with a court’s order concerning a foreign trust is impossible” and held that the burden of proving impossibility is “especially high” when the impossibility is the intended result of the defendant’s own conduct.

This does not mean the impossibility defense is ineffective. It means the defense works best when the settlor has genuinely relinquished governance authority, when the duress clause has transferred all meaningful control to persons outside the court’s jurisdiction and the settlor can demonstrate that they lack any legal mechanism to override the trustee’s refusal. The stronger the governance separation, the stronger the impossibility defense. The weaker the separation, as in Anderson where the settlors retained protector status, the more likely a court is to find that compliance is possible and hold the settlor in contempt.

Interaction with Other Trust Provisions

The duress clause does not operate in isolation. It interacts with several other provisions in the trust deed to create the trust’s overall defensive architecture.

The trust protector provisions define who oversees the trustee during normal operations and who succeeds to that role upon an event of duress. The protector succession mechanism must be coordinated with the duress clause’s triggering events so that both activate on the same events, at the same time.

The excluded persons provisions prevent the appointment of any creditor, judgment holder, or creditor-controlled entity as trustee or protector. These provisions prevented the FTC from installing a replacement trustee in the Anderson case and are essential to ensuring that the duress clause’s protections cannot be circumvented through governance substitution.

The discretionary distribution provisions define how the trustee exercises distribution authority during and after a duress event. During duress, the trustee retains full discretion over whether to make distributions, and a trustee acting under a duress clause will typically suspend distributions to the affected beneficiary to prevent assets from flowing to a person whose accounts or assets may be subject to seizure.

The spendthrift provisions prevent beneficiaries from assigning their beneficial interest to creditors, ensuring that even if a court orders the settlor to assign trust distributions, the assignment is void under the trust deed and Cook Islands law.

Together, these provisions create a layered defensive structure. The duress clause is the triggering mechanism, but the trust’s overall resilience depends on how well all of these provisions are coordinated.

Structuring Considerations

Several drafting decisions determine whether the duress clause performs effectively under pressure.

The triggering events should be defined broadly enough to capture preliminary proceedings, not just final judgments. A creditor’s most aggressive actions often occur before judgment, through temporary restraining orders and preliminary injunctions. A duress clause that activates only upon entry of a final judgment leaves the trust exposed during the most critical phase of litigation.

The governance transfer should be automatic and immediate. The protector succession, the suspension of the settlor’s advisory role, and the trustee’s obligation to disregard duress-tainted instructions should all take effect upon the occurrence of the triggering event without requiring any affirmative action by the settlor, the protector, or the trustee. Provisions that require the settlor to notify the trustee of a duress event create a practical problem: the settlor may be unable or unwilling to provide that notification, and the delay between the triggering event and the trustee’s response creates a window of vulnerability.

The successor protector should be a non-U.S. person or entity beyond the jurisdiction of the court pursuing the settlor’s assets. If the successor protector is a U.S. resident, the court may simply direct orders at the successor, defeating the purpose of the governance transfer. The protector vs. trustee roles article discusses how these roles should be allocated.

The trustee should have discretion to determine whether a triggering event has occurred, rather than being required to wait for a formal legal determination. This allows the trustee to invoke the duress provisions as soon as it becomes aware of legal proceedings, even before the settlor has been formally served or notified.

For a comprehensive overview of Cook Islands trust administration, return to the administration overview. For information about Cook Islands trust structure, formation, and costs, return to the Cook Islands trust overview.