The relationship between the European Union and the Cayman Islands has an interesting history. When faced with the prospect of the extension of the first EU Savings Directive in 2003, the Cayman Islands went so far as to mount a legal challenge, only to be advised by the EU’s Court of First Instance that while the EU had no power to directly or indirectly extend the EUSD to the Cayman Islands, if the United Kingdom chose to so do, as it had indicated that it would, this was entirely a matter for the U.K. and the terms of its constitutional relationship with the Cayman Islands.1 Consequently, when the U.K. threatened to leverage its superiority in this relationship and to issue an Order in Council, the Cayman Islands was left with little option but to enact its own legislation giving effect to the objectives of the EUSD.
Superficially, one might be tempted to interpret the outcome of the U.K.’s Brexit referendum as a liberating force, potentially freeing the Cayman Islands and the other United Kingdom Overseas Territories from the reach of the EU. This narrow view, however, ignores, amongst other things, that many of the EU’s objectives are shared by other international organizations with whom the Cayman Islands will continue to engage. Having initially resisted the first foray into the sharing of tax information that was the EUSD, the Cayman Islands has latterly embraced the OECD’s global agenda in this regard and a policy of active engagement has, for the most part, proved beneficial for the Cayman Islands. Certainly, it would be naive to think that any impending departure from the EU by the U.K. will herald mass renegotiations of the many tax information exchange agreements entered into by the Cayman Islands in recent years, or a reneging by the Cayman Islands of its commitment to adopt the OECD’s biggest and boldest tax sharing initiative to date, the common reporting standard.
A more considered analysis of the decision of the EU Court of First Instance reveals that the judgment is instructive as to the nuances of the relationship between the Cayman Islands and the EU and the U.K.’s crucial role as the intermediary between the two. At a time when the playbook appears to have been tossed away and there is massive uncertainty as to what the U.K. will do next in terms of Brexit, let alone what effect this may have on the U.K. overseas territories, any instruction is most welcome. So, if there is a lesson still to be learnt from the approach taken by the EU court, it is that the Cayman Islands can be impacted by the U.K.’s interests as manifested in the U.K.’s interactions with the EU.
Even though the British electorate voted to leave the EU, the U.K. will continue to have some sort of relationship with the EU. Negotiations between the U.K. and the EU will, at some stage, have to take place. At this juncture, it is difficult to predict how these negotiations will pan out, given that there are so many different variables to contend with at present. The premier of the Cayman Islands is therefore right to make contact with the U.K. and to seek assurances in an effort to avoid precisely the sort of unilateral action by the U.K. that committed the Cayman Islands to the EUSD without prior consultation. In response, the U.K.’s overseas territories minister has indicated that the outcome of the referendum does not change the constitutional relationship between the U.K. and the overseas territories. That may very well be the intention, but the Cayman Islands should be under no illusion that its interests are anywhere near the top of the U.K.’s list of non-negotiables.
The Cayman Islands cannot therefore afford to rest on its laurels. Events are unfolding rapidly since the Brexit referendum and with each successive turn there may well be ramifications for the Cayman Islands to consider. One such event is the debate surrounding whether the prime minister can use prerogative powers to trigger the U.K.’s departure from the EU under Article 50 of the Lisbon Treaty, or whether such action requires pre-approval by parliament. This is evidently a critical consideration for the U.K. as it figures out what to do next after the Brexit vote, although its relevance to the Cayman Islands has largely gone unnoticed.
At the heart of this debate is the royal prerogative and the extent to which these discretionary powers are subject to parliamentary oversight and supervision by the courts. One only need consult with the Chagos Islanders, who were forcibly removed from their homes in the British Indian Ocean Territory under prerogative powers and who were unsuccessful in their attempts to challenge the exercise of this prerogative in the courts2, to appreciate the seriousness of the issue at hand. Closer to home, the suspension and amendment of the Turks and Caicos Constitution by the U.K. in 2009, on one view, effectively extended the royal prerogative by revesting wide discretionary legislative and executive powers in the governor at the expense of the locally elected officials.
As a U.K. overseas territory and ultimately subservient to the U.K., the Cayman Islands does indeed have an interest in what might otherwise be viewed as an obscure point of U.K. constitutional law. The fact that this may not have been immediately apparent should also serve to put the Cayman Islands on notice as to the need to be ever vigilant in its monitoring of Brexit developments. To this end, the Cayman Islands should consider mirroring the U.K.’s establishment of a bespoke Brexit unit, so that it is as prepared as it can be for every eventuality in what promises to be an on-going Brexit saga.
- Government of the Cayman Islands v Commission of the European Communities 2003 CILR 91.
- R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (2008) UKHL 61.