Knowledge

Trusts Foreign Element Law in the Cayman Islands

22 May 2020

Traditionally, establishing of trusts by those from jurisdictions which, for example, do not recognise trusts or which have forced heirship laws, was seen as potentially problematic. To remedy this, in 1987, the Cayman Islands enacted a foreign elements law (often referred to as "firewall legislation"), as presently consolidated into Part Vll of the Trusts Law (2020 Revision) (the "Trusts Law"). This provides for the exclusion of foreign law in matters dealing with Cayman trusts, the non-recognition of foreign heirship rights and preventing the enforcement of related foreign judgments.

Application of Part VII
Part VII is applicable to every trust and every disposition of property in trust, whether made before, on or after its commencement. It is not necessary that the trust property be situated in the Cayman Islands.

Governing law
By s89, in determining the governing law of a trust, regard will be given to the terms of the trust and any evidence as to the intention of the parties. However, if a term of the trust expressly selects Cayman law to govern the trust it will be "…effective and conclusive regardless of any other circumstances." Further, a term of the trust that Cayman law is to govern or that its courts are the forum for its administration or any like provision "…is conclusive evidence, subject to any contrary term of the trust, that the parties intended the laws of the Islands to be the governing law of the trust…".

Matters determined by governing law
S90 provides that questions arising in relation to:

  • the capacity of any settlor;
  • the validity of the trust or disposition;
  • the administration of the trust; and
  • the existence and extent of trust powers

Are to be determined in accordance with Cayman law. The provision does not purport to give an exhaustive list and it is intended that all questions affecting a Cayman trust are to be governed by Cayman law, without reference to the laws of any other jurisdiction.

S90 is subject to certain provisos. It:

  • does not validate any disposition of property which is neither owned by the settlor nor the subject of a power in that behalf vested in the settlor, nor does the section affect the recognition of foreign laws in determining whether the settlor is the owner of such property or the holder of such a power;
  • takes effect subject to any express contrary term of the trust or disposition;
  • does not, as regards the capacity of a corporation, affect the recognition of the laws of its place of incorporation;
  • does not affect the recognition of foreign laws prescribing generally (without reference to the existence or terms of the trust) the formalities for the disposition of property;
  • does not validate any trust or disposition of immovable property situate in a jurisdiction other than Cayman which is invalid according to the laws of such jurisdiction; and
  • does not validate any testamentary trust or disposition which is invalid according to the laws of the testator's domicile.

Exclusion of foreign law
Under s91, subject to the same provisos as set out above, no trust governed by Cayman law, or disposition of property will be deemed to be void, voidable or liable to be set aside in any fashion, nor is the capacity of any settlor to be questioned by reason that:

  • the foreign law prohibits or does not recognise the trust concept; or
  • the trust or disposition avoids or defeats rights conferred by foreign law upon a person by reason of a personal relationship to the settlor or any beneficiary or by way of heirship rights, or contravenes any rule of foreign law, or any foreign judicial or administrative order or action intended to recognise, protect, enforce or give effect to any such rights.

Note that a personal relationship is defined so as to include a marriage or former marriage.

Heirship rights
S92 provides that an heirship right conferred by a foreign law in relation to the property of a living person shall not be recognised by a Cayman court as affecting the ownership of property, whether situated within Cayman or elsewhere. Nor will such heirship right be recognised as constituting an obligation or liability for the purposes of Cayman's Fraudulent Dispositions Law (1996 Revision).

An heirship right is defined as "…any right, claim or interest, against or to property of a person arising, accruing or existing in consequence of, or in anticipation of, that person's death, other than any such right, claim or interest created by will or other voluntary disposition by such person or resulting from an express limitation in the disposition of the property to such person".

Foreign judgments
By s93 a foreign judgment "… shall not be recognised, enforced or give rise to any estoppel insofar as it is inconsistent with section 91 or 92".

Key Contacts