A Fine Balance: Two Recent Cases From The Cayman Islands

This article is a summary of a talk delivered at the Legal Week Trusts and Estates Litigation Conference in March 2007.

Introduction

No offshore jurisdiction that wishes to be taken seriously will hold itself out as the ideal place to shelter ill-gotten gains or to squirrel away assets behind opaque legislation. However, the trust is the quintessential "asset protection" device in the sense that it has been used successfully for centuries as a way of preserving and planning estates. By "asset protection" in this context, I mean to refer to the legitimate uses of offshore trusts for estate preservation and planning which will attract growing interest with the emergence of new wealth. The history of this success in personal estate planning has led to innovative commercial uses, which have been given statutory life in, for example, the STAR legislation in the Cayman Islands and the VISTA legislation in the BVI. The efficacy of Cayman Islands trusts, and their increasing popularity, owes a great deal to the approach to resolving disputes affecting Cayman Islands trusts, as reflected in the legislative framework and the judicial approach.

The Caymanian approach is underpinned by the notion that it is sensible and appropriate to aim to achieve a compromise between, on the one hand, the rights of an individual to protect his assets from future and unknown creditors and, on the other, the rights of legitimate creditors to pursue their claims. This requires the legislators and the judiciary (in interpreting and applying the legislation) to achieve a fine balance between these competing imperatives. The objectives of international crime fighting and anti-money laundering initiatives also have to be put in the scales.

The decisions of the Cayman Islands Grand Court and Court of Appeal demonstrate that a large part of the reason for the jurisdiction's success has been the ability to achieve this balance. This article will examine the Caymanian approach in two recent cases.

The legislative Framework

Legislative equilibrium has been achieved in the interplay between the foreign element provisions of the Trusts Law on the one hand, and the creditor protection provisions in the fraudulent dispositions and bankruptcy legislation on the other. Section 90 of the Cayman Islands Trusts Law (2001 Revision) provides that all questions affecting a Cayman Islands trust are to be determined according to Cayman Islands law. Section 91 provides that foreign law in relation to the validity of the trust or rights, claims or interests...