Enforcement or recognition?

In the trusts column in the last quarter’s edition of the Cayman Financial Review, I endeavored to illustrate, by reference to a number of judgments of the Cayman Islands courts, that there is a type of relief available in the courts of equity, which allows parties in certain circumstances, to turn back the clock on their mistakes. 

In this column, I would like to expand on a slightly different but nonetheless similarly interesting aspect of one of the cases I described, namely Schroder Cayman Bank and Trust Co Ltd v Schroder Trust AG (unreported, dated March 9, 2015).

Readers will recall that of the trusts in question, the Employee Benefit Trust (EBT) from which the erroneous appointments of capital were made was subject to Cayman Islands’ law. The Employee Financed Retirement Benefit Schemes (EFRBS) into which the appointments were received, were subject to Jersey law.

Before the Cayman Islands’ court could address the substantive legal arguments in relation to the erroneous appointments of capital, it first had to decide the question of whether the matters should be determined according to the law of the Cayman Islands or the laws of Jersey. 

There are potentially conflicting provisions in Cayman Islands’ and Jersey law – both jurisdictions having their own ‘firewall’ provisions in their trusts laws which provide that all questions relating to trusts governed by the laws of their jurisdiction should be determined in accordance with those laws, without reference to the laws of any other jurisdictions with which such trusts might be connected. 

Given the potential conflict of laws, it was argued that instead, the parties should rely on established principles of private international law which meant identifying the jurisdiction with which the transactions in question were most closely connected to decide which should apply.

The chief justice approved of this reasoning, in doing so, pointing out that the potential conflict may not in fact arise as under applicable common law principles in relation to ‘choses in action’ the governing law would be the law of the domicile, in this case, the Cayman Islands. In any event, the chief justice went on to find, based on expert evidence, that applying Jersey law would result in the same conclusions, given that the relevant principles of Jersey law are much the same as the principles underpinning Cayman Islands’ law in relation to trusts.

The chief justice went on to grant the order that the plaintiffs were seeking, declaring the appointments of capital from the EBT to the EFRBS void on the grounds of excessive execution. The chief justice found that if, contrary to his decision that the appointments were void, the appointments were valid, he would nevertheless have been prepared to set them aside on the grounds of mistake. 

However, the trustees of the EFRBS, that is, the Jersey law trusts, were uncertain as to whether the Jersey court would recognize the judgment of the Cayman Islands court. The trustees were concerned to ensure that they could properly act on the order of the Cayman Islands court and treat the appointments of capital as void as a matter of Jersey law by returning the relevant assets to the Cayman trustees, without being concerned about claims against them from the beneficiaries of the EFRBS.

They therefore sought directions to that effect from the Royal Court in Jersey, to allow them to act on the decision of the Grand Court in the Cayman Islands and return the assets to the Cayman trustees to be held by them on the trusts of the EBT.

The trustees of the EFRBS sought the same relief sought by the Cayman trustees in the Cayman Islands’ court, namely a declaration that the appointments of capital were void on the grounds of excessive execution, alternatively they should be set aside on the grounds of mistake. They sought one additional order: a declaration that the proper forum for deciding the validity of the appointments of capital was in fact the Cayman Islands, with the consequence that the Royal Court in Jersey should give effect to the order of the Grand Court.

The Royal Court considered the latter point first, in essence the question of the potential conflict of laws. The court highlighted that if the issue had arisen before the coming into force of the Trust (Amendment No. 5) (Jersey) Law 2012 (the 2012 Amendment), the court could not have acceded to the submission that the validity of the appointments should be determined by Cayman Islands law.  That is because the 2012 Amendment inserted a new clause 2(A)(c) into Article 9 of the Jersey Trust Law.

The result of this amendment was that if the document which constituted the disposition of the property to the EFRBS, in this case the deed of appointment, had an express provision such that it was intended that the disposition was to be governed by the laws of a jurisdiction other than Jersey, then that governing law clause was effective and not overridden by the Jersey ‘firewall’ provisions. 

The Royal Court went on to find, by analogy with the proper law of a contract, that the proper law of a disposition into trust will govern its material validity as well as its interpretation, in this case, the validity of the appointments of capital to the EFRBS. The court stressed however that the proper law had to be expressly stated in order to oust the effect of Article 9; if the document were silent, the proper law would be determined by reference to the system of law with which it had the closest connection, in other words, applying the same principles of private international law as the chief justice acknowledged in the Cayman Islands’ application.

Conveniently in this case, the deeds in question contained the following wording: “This Deed shall be governed by and construed in accordance with the laws of the Cayman Islands as long as that shall remain the proper law of the Trust. All rights under this Deed and its construction shall be subject to the exclusive jurisdiction of the Courts of, and construed according to the laws of, the Cayman Islands.”

It followed therefore that the 2012 Amendment at paragraph 2(A)(c) operated to dis-apply the Jersey ‘firewall’ provisions set out at Article 9(1) of the Trust Law and so the validity of the dispositions of property were to be determined in accordance with Cayman Islands law.

The question then arose as to whether the Court was being invited to enforce the judgment of the Cayman Islands’ Grand Court or merely to recognize it.  The Royal Court concluded that it should “more properly be categorized as a case of recognition,” although were it being invited to enforce it, the court would have been willing to do so pursuant to the principles set out in Brunei Investment Agency v Fidelis Nominees [2008] JRC 152 in relation to the enforcement of non-money judgments on a discretionary basis.

The Royal Court concluded that “the trustees of the Jersey Trust are able to rely on the judgment of the Grand Court in any proceedings brought in Jersey” and held that they could “safely return the appointed assets” to be held on the trusts of the EBT on the basis that:

(a)    The validity of the erroneous appointments of capital was governed by Cayman Islands law;
(b)    The Grand Court had ruled that as a matter of Cayman Islands law the appointments were void; and
(c)    This was a judgment which could properly be recognized by the Jersey Royal Court.

Confirming the chief justice’s finding, the Royal Court added, in the final paragraph of their judgment, that had it been necessary for them to determine the questions of excessive execution and mistake by applying Jersey law, they would have reached the same conclusions as the Cayman Islands’ court for “essentially the same reasons,” bringing this matter to a satisfactory conclusion for both the trustees of the EFRBS in Jersey and for the trustees of the EBT in the Cayman Islands.

 

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Morven McMillan

Morven is a partner based in Maples and Calder's Cayman Islands office, where she is head of the Cayman Islands Trusts group. Her expertise includes contentious and non-contentious international trusts and private client work.

 

Morven McMillan
Partner
Maples and Calder
Cayman Islands

T: +1 (345) 814 5356
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    morven.     mcmillan@maplesandcalder.com

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Maples and Calder

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