Burning Questions – Grand Court considers the effectiveness of "Firewall Legislation"

In an unreported judgment of the Grand Court of the Cayman Islands (the "Grand Court") In the Matter of HSBC International Trustee Limited v Tan Poh Lee (7 November 2019), Justice Kawaley provides helpful clarification of the manner in which the Cayman Islands "firewall" legislation will operate. This decision affirms the exclusive application of Cayman Islands law to questions concerning the administration of Cayman Islands trusts.

The purpose of the Cayman Islands "firewall" legislation is, in essence, to insulate trusts governed by Cayman Islands law from challenges under foreign laws or judgments on the basis of forced heirship or a personal relationship with the settlor or any beneficiaries of the trust. Firewall provisions are a common and important feature of the trusts laws of many offshore jurisdictions.

This Cayman application arose because of proceedings issued in Singapore by one of the adult beneficiaries of the Tan Kim Choo Family Scholarship Trust (the "Trust") seeking an order that the Trust be terminated. The Trust deed contained provisions naming the law of the Cayman Islands as the proper law of the Trust and the initial forum for the administration of the Trust. HSBC International Trustee Limited (the "Trustee") made an application to the Grand Court seeking, among other declarations, urgent Beddoe relief.

Kawaley J granted the Beddoe relief and approved the majority of the declarations sought. In summary:

  1. The Grand Court has exclusive jurisdiction to determine all questions raised by the Trustee as the Trust is governed by the laws of the Cayman Islands in light of the operation of section 90 of the Trusts Law (2018 Revision) (the "Trusts Law") and the terms of the Trust Deed. Section 90 determines that all questions in relation to a Cayman Islands trust are to be governed by the laws of the Cayman Islands without reference to those of any other jurisdiction.
  2. In accordance with the Trusts Law and Cayman Islands public policy relating to Cayman Islands trusts, an order of a foreign court in respect of the administration of the Trust which does not result from the application of Cayman Islands law will not be enforced or recognised in the Cayman Islands.
  3. Kawaley J was reluctant to declare that an order of the Singapore Court applying Cayman Islands law"…will not be enforced, recognised or give rise to any estoppel in the Cayman Islands." Instead he elected to substitute the word 'will' with 'may', as he found that it was not clear that the legal position operated so as to prevent the Singapore Court under any circumstances, even when applying Cayman Islands law, from determining those questions.
  4. The Grand Court is able to act as an auxiliary court in circumstances where a foreign court will not give up jurisdiction in a matter involving a Cayman Islands trust.

This judgment confirms the effectiveness of the Cayman Islands firewall provisions in circumstances where a foreign court has made an order in respect of a Cayman Islands law governed trust without any application of Cayman Islands law.

CAYMAN ISLANDS
Shelley WhitePartnerT +1 345 914 4205shelley.white@walkersglobal.com
Lucy DiggleSenior CounselT +1 345 914 4250lucy.diggle@walkersglobal.com