This article first appeared in Trusts & Trustees.
Trustees can all too easily find themselves caught up in litigation in another jurisdiction given the increasingly international nature of offshore trusts. The firewall regime and forum for administration clauses within deeds, when robustly applied and upheld by the Courts, are the key to ensuring questions concerning a trust are dealt with by the courts of its home jurisdiction.
Being joined to foreign proceedings can result in trustees being caught up in a clash of laws and processes and potentially facing conflicting orders and obligations, but in a recent Cayman Islands decision, where a trustee had found itself in such an invidious position, the Grand Court of the Cayman Islands confirmed that all questions concerning a Cayman trust are to be determined in accordance with Cayman law and further held, importantly, that the forum for administration clause in question, together with the firewall, bestowed upon the Cayman court exclusive jurisdiction to determine questions concerning the administration of a Cayman trust. The Cayman court was also prepared, by way of a novel and practical approach in comity, to facilitate a mechanism whereby questions concerning a Cayman trust arising in the foreign proceedings be dealt with by the Cayman Court: by offering to act as auxiliary court.
In In the Matter of HSBC International Trustee Limited v Tan Poh Lee at al1, the trustee of a Cayman Islands settlement sought Beddoe relief and certain substantive declarations from the Cayman court in respect of foreign proceedings brought against it by one of the adult discretionary beneficiaries of the Trust. The relief claimed in the foreign proceedings included an order to compel the trustee to distribute the overwhelming majority of the trust fund, at the beneficiary's direction, to a nominated bank account held by a non-beneficiary of the trust, for the purpose of settling liabilities in relation to the construction of a building which was held by a company in which the beneficiary held shares (not a trust asset).
Notwithstanding that the trust was an irrevocable, discretionary trust, in which the trustee was given wide-ranging discretionary dispositive powers, the beneficiary alleged that the trustee had breached its duties as trustee by failing to act upon the beneficiary's instructions for a distribution.
The Trustee sought to challenge the jurisdiction of the foreign court to make the orders sought, given that the relief claimed related to questions of trust administration, which, by virtue of Cayman's firewall provisions, and the specific forum for administration clause in the Trust Deed, the trustee argued should be exclusively determined by the Cayman Court.
The Cayman Firewall Provisions
The Cayman Islands were one of the first jurisdictions to legislate to insulate trusts governed by Cayman Islands law from attack from foreign courts as regards forced heirship claims and those claiming against the trust assets by reason of a personal relationship to the settlor (and more recently a personal relationship to a beneficiary), such as in foreign matrimonial proceedings.2
Section 90 of the Cayman Islands Trusts Law (2018 Revision) (as amended) mandates that Cayman Islands law must be applied (save for certain exceptions)3 without reference to any other law, to all questions regarding a trust which is governed by the laws of the Islands including the administration of the trust. This provision expressly applies whether the administration is conducted in the Islands or elsewhere, and expressly includes questions as to the powers and obligations, liabilities and rights of trustees and their appointment and removal.
Section 91 of the Trust Law, which is expressly subject to the same provisos which apply to section 90, precludes the application of any foreign law that is in any way designed to give effect to heirship rights or to rights arsing by reason of a personal relationship with the settlor or a beneficiary of the trust.
Section 93 of the Trust Law provides that if a foreign judgment is "inconsistent" with section 91 (but makes no mention of s.90), the judgment will not be enforced or recognised by the Cayman Islands Courts.4
Applying Section 90, the Cayman Islands court in HSBC found no difficulty in declaring that, in respect to the Trust,
'All questions concerning the Settlor's capacity, the identity of the trustee, the administration of the trust, any past or future distributions from the Trust, any decision to decline a distribution, and termination of the Trust, or part thereof must be determined in accordance with the law of the Cayman Islands without reference to any other law.'
Since the Trust was governed by Cayman Islands law, it follows that the construction of all clauses of the Trust instrument, including any jurisdiction clause, must be determined under Cayman Islands law. The Cayman Court in HSBC was invited to examine the forum for administration clause contained in the Trust Deed to determine whether such clause bestowed exclusive jurisdiction on the Cayman Courts.
Clause 27 stated as follows:
"The Courts of the Cayman Islands shall be the initial forum for the administration of the Trust. The Trustee shall have power…to carry on the general administration of the Trust from any country province state or territory whether or not the law of such country province state or territory is for the time being the proper law of the Trust or its courts are for time being the forum for the administration of the Trust and whether or not the Trustee is for the time being resident or domiciled in or otherwise connected with such country province state or territory. The Trustee may at any time declare by deed that from the date of such declaration the forum for the administration of the Trust shall be the courts of any specified country state or territory PROVIDED THAT no such declaration shall be made which is a Perpetuity" (emphasis added).
The phrase "forum for the administration of the trust" has been the subject of previous judicial consideration. Such a phrase could potentially be construed as identifying no more than where, geographically, the trust is to be administered or, depending on context and the actual words used, it could be interpreted as a jurisdiction clause indicating a choice of court to determine issues related to the administration of the trust. Even where the clause is interpreted as a jurisdiction clause, a further question arises: whether the clause is intended to be exclusive or non-exclusive.
The phrase "forum for the administration of the trust" has been interpreted by the Grand Court of the Cayman Islands as conferring exclusive jurisdiction on the Grand Court in respect of the administration of the trust.5 Consequently, where the Court has decided that a specific issue for determination falls within the ambit of the 'administration' of the Trust, it will have exclusive jurisdiction to determine that issue. The added difficulty has been determining what matters would fall within the ambit of that phrase. As stated by Commissioner Clyde-Smith in Re The Representation of AA, dictum which was adopted by Kawaley J in In the Matter of A Trust (SCt Bda, December 12, 2012):
"..it is at the end of the day a question of the court construing the particular deed before it in order to derive from it the presumed intention of the parties. That exercise has to be conducted against the background of the surrounding circumstances or matrix of facts existing at the time when the document was executed."
The leading authority6, and starting point for an analysis of a forum of administration clause in a trust instrument is the Privy Council case of Crociani v Crociani7, a case in which there was such a clause in favour of Mauritius, which was being relied on in support of an application to stay proceedings for breach of trust in Jersey. The PC decided that the forum of administration of a trust need not be the same as the forum for resolution of disputes relating to it. In coming to that conclusion, the PC confirmed that the construction of the clause itself was relevant and that it should be interpreted in its context.
A significant factor in Crociani was the fact that the clause itself referred only to 'forum' and not to 'courts'. The PC stated
"if the stipulation was intended to indicate the country whose courts were to determine disputes, rather than the country in which the trust was to be managed, one would have expected the draftsman to refer to the courts of the country, as opposed to the country simpliciter as being the forum."8
Relevant factors in favour of determining that clause 27 of the Trust Deed in HSBC should be interpreted as an exclusive jurisdiction clause included the fact that:
(i) it specifically referred to "The courts of the Cayman Islands" being the forum for the administration of the trust (an important distinguishing factor between HSBC and Crociani);
(ii) the clause as a whole clearly distinguished between "general administration" which may be carried out anywhere, and the "forum for administration" which was specifically stipulated to be the courts of the Cayman Islands;
(iii) the clause used a mandatory term "shall be" rather than "may";
(iv) the clause used the definite article ("the initial forum") to refer to the forum;9
(v) even without clause 27 the Cayman Islands courts would have had jurisdiction to hear disputes concerning the Trust in any event by reason of it being a Cayman Islands trust, and so for the first sentence to have any meaning and effect it must have been included to bestow exclusive jurisdiction on the Cayman courts;
(vi) the reference in the last sentence to the ability of the Trustee to change the forum for administration by deed indicates that the forum for administration was intended to be an important aspect of the Trust Deed and not able to be changed informally.
The Court in HSBC found that the question of whether clause 27 was an exclusive jurisdiction clause was "more nuanced" but "ultimately straightforward":
"…the effect of Section 90 combined with clause 27 of the trust deed makes it clear that the Cayman Court has been given exclusive jurisdiction in respect of all significant trust administration questions."
Consequently, the Court ultimately ordered that the Cayman Islands Courts had exclusive jurisdiction in respect of "all questions concerning the Settlor’s capacity, the identity of the Trustee, the administration of the Trust, any past or future distribution from the Trust, any decision to decline a distribution, and the termination of the Trust, or part thereof".
Enforcement of a Foreign Order in the Cayman Islands
Having so ruled, the Court then considered whether the Cayman Islands Courts would recognise and enforce any subsequent foreign court order concerning questions of trust administration, or even regard them as having created an issue estoppel where such order (a) does not result from the application of Cayman Islands law and (alternatively) (b) it does result from the application of Cayman Islands law. This question was relevant to the forum challenge in the foreign court – if the foreign court order would not be enforced or recognised in the Cayman Islands in any event, this would be relevant to the Trustee's case that the matter should be determined in Cayman.
In respect of (a), on the basis of the firewall provisions and recognising the freestanding general common law principle operating in the Cayman Islands that the enforcement of a foreign judgment may be refused on public policy grounds,10 the court had no hesitation in declaring that an order of the foreign court which did not result from the application of Cayman Islands law would not be enforced, recognised or give rise to any estoppel in the Cayman Islands. The Court stated this was because it would be:
"manifestly contrary to public policy of this jurisdiction to recognise or give effect to an attempt by a foreign court to effectively administer a Cayman Islands trust without applying Cayman Islands law."
However, the court left open the question raised in (b), as to whether a Cayman court would ever recognise and/or enforce an order of a foreign court where the order had resulted from the application of Cayman Islands law.
As stated above, Section 93 precludes the recognition and enforcement of judgments which are inconsistent with sections 91 and 92, but does not extend to foreign judgments which are inconsistent with section 90 (which is, as explained above, a provision requiring the application of Cayman law to questions concerning Cayman trusts).
Nonetheless, there are indications in Cayman case law that foreign orders would not be recognised, even where Cayman law has been applied.
In the Cayman case of Re the B Trust,11 the court examined sections 90-93 of the Trusts Law in the context of Hong Kong matrimonial ancillary relief proceedings, in which one of the two settlors sought to vary a Cayman Islands trust. The Grand Court held that even though both the settlors and all beneficiaries had connections with Hong Kong, and did not reside in the Cayman Islands:
"An order of the Hong Kong court purporting to effect a variation of the trust, whether in matrimonial proceedings or otherwise, cannot be recognised by the Trustee. That is so even if the Trustee were to attorn to the jurisdiction of the Hong Kong court. A trust in the Cayman Islands can only be varied in accordance with the law of the Cayman Islands and only by a court of the Cayman Islands. These overarching rules are provided for expressly in the Trusts Law..in ss 90, 91 and 93…"12 (emphasis added)
This could be construed as purporting to give the Cayman court exclusive jurisdiction over questions concerning Cayman trusts, even though s.90 is silent on the question of jurisdiction and only expressly refers to applicable law. The Court in Re B Trust appears to have interpreted the statutory language of the firewall provisions purposively, and the dicta of Henderson J, represents the Cayman Islands law as it currently stands. The dicta has since been cited with approval and described as "helpful" in the Cayman Islands case of Re A Trust.13
Mangatal J in the matter of Re A Trust, said in summary, at paragraph 33:
"From In Re B Trust, a number of principles may be seen… an order of the English High Court is unenforceable in the Cayman Islands whether or not the trustee submits to the jurisdiction because of the terms of the firewall legislation. Were the trustee to submit to the jurisdiction of the High Court this could potentially create a situation where there is a conflict between its duty to observe the terms of the trust and its obligation to comply with the terms of the order of the High Court"
In his ruling in HSBC, Kawaley J also took a robust approach to the firewall legislation. Referring to both Re B Trust and A Trust, Kawaley J commented that these cases emphasise the importance of the statutory framework of the Trusts Law to the Cayman Islands public policy relating to Cayman Islands trusts. He went on to say that given the substantial number of high value trusts in the Cayman Islands it was unsurprising that parliament had sought to fortify the trust industry in the Cayman Islands by making it clear in the governing legislation that the fact a settlor has chosen Cayman Islands law to apply to govern the trust should be something upheld by the Cayman Islands courts.
However, whilst noting that it is "clearly arguable," on the basis of the Cayman cases, that a foreign court cannot determine issues relating to a Cayman Trust which are exclusively governed by Cayman law, Kawaley J noted that the question had not been fully argued before the Cayman courts, and on that basis he was prepared to make a declaration that:
"An order of a foreign court (including a court in Singapore) directing a distribution from the Trust, ordering the termination of the Trust or changing the trustee of the Trust, where such order does result from the application of Cayman Islands law, may not be enforced, recognised or give rise to any estoppel in the Cayman Islands."
Therefore, until the matter is definitively determined by the Cayman courts, any orders of a foreign court relating to a Cayman Islands trust, even where Cayman Islands law has purportedly been applied, may not be recognised or enforced in the Cayman Islands.
Putting aside the issue of the proper interpretation of the firewall provisions, it can be said, in light of Kawaley J's comments, and the statutory framework, that the public policy of the Cayman Islands is to uphold the decision of a settlor who chooses the courts of the Cayman Islands as the forum for administration for their trusts. Such settlors have a legitimate expectation that any questions concerning their trust will be dealt with by the Cayman courts, and it is important that they may be confident that the Cayman court would ensure such legitimate expectations are protected.
Furthermore, the inherent ambiguities, uncertainty and confusion created by a foreign court making orders which conflict with Cayman Islands law are a reason that Cayman Islands public policy may mean that an order made in the foreign proceedings seeking to vary or interfere with the proper administration of a Cayman Islands trust ought not be recognised or enforced in the Cayman Islands.
The Cayman Court as an Auxillary Court
One further interesting aspect of the HSBC case is the Cayman Court's direction that an application could be made to the foreign court for an order that the Cayman Court act as auxiliary court as regards questions which fall to be determined under Cayman law.
Judicial co-operation between foreign courts where cases have international aspects and involve questions of foreign law finds longstanding support in both statute and common law. It is a flexible jurisdiction which can be moulded by the specific issues in the case, and by the co-operation of the courts and the parties, in the interests of expediency. It is designed to avoid issues such as those observed by Spigelman CJ in Murakami v Wiryadi14: “The need to prove foreign law introduces additional levels of complexity, expense and uncertainty together with the risk of error in the application of foreign law”
Indeed, the current (15th) edition of Dicey, Morris & Collins, The Conflict of Laws observes at 9-024 that: “there are signs that direct court-to-court co-operation may provide a new avenue for the ascertainment of foreign law, with the result in a court in one jurisdiction may be asked to, and may, entertain proceedings whose purpose is to obtain an authoritative statement of foreign law in local proceedings”
The procedure of using the Cayman Court as an auxiliary court, which the Cayman Court declared it would be willing to do, has not been the subject of any previous reported decision in the Cayman Islands. The procedure has been recommended in the context of matrimonial proceedings in England and Jersey. In the Jersey case of B Trust15, the Royal Court observed:
“It would, in our view, avoid sterile argument, and expense to the parties, if the English courts were, in cases involving a Jersey Trust, having calculated their award on the basis of the totality of the assets available to the parties, to exercise judicial restraint and to refrain from invoking their jurisdiction under the Matrimonial Causes Act to vary the trust. Instead they could request this Court to be auxiliary to them.Such an approach is adopted by courts exercising jurisdiction in relation to insolvency and in other areas of law too. It is true that such jurisdiction to seek assistance from a foreign court may usually have its basis in statute. Nonetheless we can see no reason why the trustee or one or more of the parties before the English court as the case might be, should not be directed to make the appropriate application to this court for assistance in the implementation of the English court’s order. It appears to us that this would be a more seemly and appropriate approach to matters where the courts of two civilised and friendly countries have concurrent interests. It would furthermore be more likely to avoid the risk of the delivery of inconsistent judgments.”
Referencing the approach in B Trust, the English Court of Appeal in Charman v Charman16 observed:
“[Counsel] also draws our attention to the decision of the [Jersey]… court in In the matter of the B Trust…,. There…an important suggestion was made, namely that, when a party applied to it for variation of an off-shore settlement, the English court should give serious consideration to declining to exercise its jurisdiction on the basis that, after conducting the substantive enquiry, it should instead invite the off-shore court, provided of course that the latter is invested with the appropriate jurisdiction, to act as an auxiliary to it in regard to any proposed variation.”
The advantage of this procedure is that it provides finality and certainty to all interested parties. If a foreign court refrains from taking jurisdiction over questions relating to the administration of the Cayman Trust, and instead refers such matters to the Cayman Court, acting as an auxiliary court, then all relevant parties would be bound by the decision of the Cayman Court, and there would be finality and certainty. If, on the other hand, those questions are determined by the foreign court, even having applied Cayman law, there is a risk, as set out above, that such order would not be recognised or given effect to in Cayman, and further litigation could result.
It remains to be seen, however, how the use of Cayman as an auxiliary court to determine questions of Cayman law, would ultimately affect the enforceability of a foreign judgment in the Cayman Islands, but such an approach would seem to remove the risk of inconsistent decisions and is entirely consistent with Henderson J's dicta in Re B that " A trust in the Cayman Islands can only be varied in accordance with the law of the Cayman Islands and only by a court of the Cayman Islands.".
The HSBC case gives some comfort to trustees of Cayman Islands trusts facing proceedings in a foreign court in which orders are sought which would ultimately conflict with the trustees' duties owed under Cayman law. The Cayman courts have consistently applied the Cayman firewall protections to make it clear that all questions concerning a Cayman trust must be determined only in accordance with Cayman law, and has now held that where there is a forum for administration clause along the lines of the clause in the HSBC case, such questions must be determined exclusively by a Cayman court. The Court has also shown a willingness to provide a flexible and practical approach to ensuring all such matters are determined by the Cayman Court.
Moreover, the HSBC case has confirmed that even where a foreign court applies Cayman Islands law, there remains a significant risk that an order of a foreign court relating to the administration of a Cayman Islands trust may not be enforced, recognised or give rise to any estoppel in the Cayman Islands.
Whilst the HSBC case illustrates the Cayman court taking a careful and pragmatic approach to the interpretation of a forum of administration clause, having regard to the clause itself and the wider context, trust draftspersons are of course well advised to take the advice of the Jersey Court of Appeal in Crociani and abandon the forum of administration clause in favour of an unambiguous exclusive, or non-exclusive, jurisdiction clause.17
1 Kawaley J, unreported 7 November 2019
2 The Trusts Amendment Law (2019) expands the Cayman firewall to protect trusts from challenges mounted on the basis of a personal relationship to a beneficiary as well as the settlor.
3 Section 90 will not operate, for example, to validate a disposition of property that the settlor does not own, nor will it validate any testamentary trust or disposition that is invalid according to the laws of the testator's domicile.
4 See for example Lemos v Coutts & Co 1993-94 CILR 460 where the Cayman Islands Court of Appeal upheld an order directing the trustee to defend the trust at the expense of the trust from attacks made in Greece on the basis of, inter alia, Greek forced heirship provisions.
5 In the matter of the T Trust 2018 (1) CILR Note 3 and Helmsman Limited & Hotham Trustee Company Limited v Bank of New York Trust Company (Cayman) Limited 2009 CILR 490
6 See Lewin on Trusts (19th edn, Fourth Supplement) at 11-047
7  WTLR 975
8 Ibid at para 20
9 Although the Privy Council case of Crociani v Crociani 2014 UKPC 40 held that it was questionable whether the use of the word "shall" and the definite article were enough to confer exclusive jurisdiction, it was made clear that such an outcome would not be impossible in another case.
10 Lakatamia Shipping Co Ltd v Su 2017 CILR 416 where Mangatal, at paragraph 49 referred to Dicey Rule 51 "A foreign judgment is impeachable on the ground that its enforcement or, as the case may be, recognition would be contrary to public policy".
11 2010 (2) CILR 348
12 Ibid at paragraph 23
13 Re the A Trust 2016 CILR 416, at  and 
14  NSWCA 7 at [150
15  JRC 185
16  W.T.L.R. 1151
17 Crociani v Crociani  JCA 089 at . See Lewin on Trusts (19th edn, Fourth Supplement) at 11-050
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.