Robert Lindley and Wesley O’Brien discuss cases where offshore courts act as auxiliaries to those onshore.

Offshore courts have considerable experience in giving directions to trustees faced with a joinder order issued by a foreign family court seeking to exercise its variation jurisdiction in respect of a trust governed by the law of the offshore jurisdiction. Subject to the specific facts and circumstances, various responses may be made by trustees in respect of such joinder applications, including the resulting directions made by offshore courts when dealing with foreign divorce proceedings affecting or indeed attacking an offshore law governed trust.

It is generally inappropriate for the trustee to argue against joinder, or to submit to the jurisdiction of the foreign (ie onshore) family court, thus avoiding any enforcement by the family court which may be to the detriment of the beneficiaries of the trust as a whole. There are exceptions to this, such as if all of the trust’s assets are situated in the same jurisdiction as the foreign family court, or if all of the beneficiaries consent to a particular course of action to be undertaken by the trustee. In any event, such exceptions would be a viable option if the trustee has also obtained directions from its local court permitting its submission or participation in the foreign divorce proceedings. The different levels and extents of trustee involvement in foreign divorce proceedings is not the focus of this article. In understanding the extent to which offshore trust law and offshore courts will protect trusts from a variation order granted in foreign divorce proceedings, we review various judgments delivered by the courts of the Cayman Islands and Jersey in which it was considered and suggested that rather than the family court invoking its jurisdiction to vary an offshore trust, the family court should request the offshore court to act as an ‘auxiliary court’ to the divorce proceedings.

Divorce proceedings

Although not solely related to English divorce proceedings, offshore trustees grappling with divorce proceedings concerning their beneficiaries should consider the scope of the relevant trust variation jurisdiction, such as s24(1)(c) of England and Wales’s Matrimonial Causes Act 1973, which provides:

24 Property adjustment orders in connection with divorce proceedings, etc.

(1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say—


(c) an order varying for the benefit of the parties to the marriage and of the children of the family or either or any of them any antenuptial or post-nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage, other than one in the form of a pension arrangement…

There may be differing attitudes between offshore courts towards the enforcement and recognition of a variation order made in foreign divorce proceedings. In the English Court of Appeal case of Charalambous v Charalambous [2004], it was confirmed that the English court had jurisdiction to vary the Jersey trust. Thorpe LJ held:

This power to vary is derived not from the settlement but from the matrimonial regime of the state. Equally the right to seek variation derives not from the settlement but from the matrimonial regime of the jurisdiction that dissolves the marriage. So [the exclusive  jurisdiction clause of the trust] cannot oust or defeat the wife’s exercise of her statutory right to apply under s.24 of the Matrimonial Causes Act 1973 for a variation of the settlement order. The [exclusive jurisdiction] clause is of no avail to the husband.

Further, in Charalambous Thorpe LJ cited the 2002 Jersey case of Compass Trustees Ltd v McBarnett [2002] in which the Jersey court was prepared, as a matter of comity, to recognise an order made in England under s24(1)(c) of the Matrimonial Causes Act 1973 as the English court had considered the matter fully and concluded that the need to provide capital to the wife outweighed the disadvantage caused to the other beneficiaries. Similarly, the Jersey court gave effect to an English variation order made in the Mubarak v Mubarik [2008] proceedings.

Each case will turn on its specific facts, and it is interesting to note the attitude taken by the Jersey Royal Court before Jersey enacted amendments to the Trusts (Jersey) Law. Post Mubarak, Jersey trusts law now prohibits the enforcement of foreign judgments in respect
of Jersey trusts. Therefore such discretion of the Jersey courts to enforce variation orders of the English family court for reasons of comity have been significantly restricted.

Firewall legislation

Offshore ‘firewall provisions’ which have been enacted in most offshore jurisdictions such as the British Virgin Islands, Jersey, Guernsey, Isle of Man, Bermuda and the Cayman Islands provide protection to the trustee if foreign proceedings seek to encroach on the
administration of a trust governed by such offshore law.

By way of example, and in summary, Cayman’s firewall legislation contained in ss90-93 of the Trusts Act (2021 Revision) (‘Cayman Trusts Act’) confirms that a Cayman trust can only be varied in accordance with Cayman law and only by a Cayman court, and any foreign order would not be enforceable against the trustee, the beneficiaries of the trust or the trust fund.

Section 90 of the Cayman Trusts Act provides that all questions (subject to certain exceptions) arising in relation to a Cayman trust or in relation to any disposition of property, including questions as to:

  • the capacity of any settlor;
  • any aspect of the validity of the trust or disposition or the interpretation or effect thereof;
  • the administration of the trust, whether the administration be conducted in Cayman or elsewhere, including questions as to the powers, obligations, liabilities and rights of trustees and their appointment and removal; or
  • the existence and extent of powers.

are to be determined according to Cayman law, without reference to the laws of any other jurisdictions with which the trust or disposition may be connected.

The effect of s91 is to erect a barrier to the application of foreign law. Subject to the same provisos as set out in s90 above, s91 provides that no Cayman Islands trust is:

… void, voidable, liable to be set aside or defective in any fashion, nor is the capacity of any settlor to be questioned, nor is the trustee, any beneficiary or any other person to be subjected to any liability or deprived of any right, by reason that:

(a) the foreign law does not recognise the trust concept; or

(b) the trust or disposition avoids or defeats rights, claims or interests conferred by foreign law upon any person by reason of a personal relationship to the settlor or any beneficiary (whether discretionary or otherwise) or by way of heirship rights…

Section 92 excludes disappointed forced heirs from being creditors with standing to make a claim under the Fraudulent Dispositions Act (1996 Revision) to recover trust property settled with the intent to defraud existing creditors. It also operates to prevent heirship rights from affecting the ownership of immovable property in Cayman or movable property ‘wherever situate’.

Finally, s93 provides that:

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

Prior to its recent reform in 2019, the Cayman Trusts Act’s firewall legislation protected Cayman trusts from being attacked because a foreign law conferred upon a party an interest in the trust’s assets by virtue of their personal relationship with the settlor only. Because the provision only made reference to a personal relationship with the settlor, questions arose as to the protection afforded to the settlor’s descendants once the settlor was no longer living. In order to avoid any technical difficulties in this regard, the relevant provision (being sub-section 91(b)) was amended in 2019 by extending the reference to a ‘personal relationship to the settlor’ to include a personal relationship to any beneficiary including a discretionary beneficiary. The legislative amendment has enhanced the protection offered by the ‘firewall’ so that it is clearly available to all beneficiaries in countering any potential claims against a trust’s assets. Recent legislative reforms have affirmed the operation and robustness of the firewall provisions and reinforced the need for a trustee of a Cayman trust under attack in foreign matrimonial proceedings to ensure that its response is, at all times, in the best interests of the trust.

The approach taken by the Cayman court in relation to a trustee of a Cayman trust submitting to the jurisdiction of the foreign court was confirmed in Re B Trust [2010], which confirmed that an order of the Hong Kong court was unenforceable in Cayman, whether or not the trustee submitted to the jurisdiction because of the terms of the firewall legislation:

An order of the Hong Kong court purporting to effect a variation of the trust, whether in matrimonial proceedings or otherwise, cannot be recognized by the trustee. That is so even if the trustee were to attorn to the jurisdiction of the Hong Kong court. A trust in the Cayman Islands can only be varied in accordance with the law of the Cayman Islands and only by a court order of the Cayman Islands.

In Re B Trust, the Cayman court held that a trustee must ‘jealously guard’ its independence and noted that it would be unwise and inappropriate for a trustee to allow itself to be placed in a situation where its trust obligations come into conflict with an obligation to obey an order of a foreign court.

Similarly, in the 2016 Cayman case of Re A Trust the settlor and his wife, N, both of whom were excluded from the trust, subsequently became involved in divorce proceedings before the English High Court. In the course of the English proceedings, N was seeking orders to vary the trust and set aside her exclusion as a beneficiary of the trust so that she might have an interest in it. Flowing from that, requests were made of the Cayman trustee to release trust information for the purposes of the English proceedings. The trustee determined that it was not in the best interests of the beneficiaries to submit to the jurisdiction of the English High Court nor to disclose confidential information to the parties to the English proceedings. Its concern was that, in doing so, it would confer on the English High Court an enforceable power to act to the detriment of the beneficiaries and to the benefit, instead, of either the settlor or N. However, recognising that it was an important step for a professional trustee to refuse to submit to the jurisdiction of a foreign court, the trustee applied to the Cayman Court for Beddoe-type directions, pursuant to s48 of the Cayman Trusts Act which enables a trustee of a Cayman trust to apply to the court at any time for ‘an opinion, advice or direction on any question respecting the management or administration of the trust money or the assets of any testator or intestate’. Provided that the trustee acts on the opinion, advice or direction given by the court, they will be deemed to have discharged their duty as trustee in respect of the subject matter of the application.
The trustee’s position was that any variation of the trust’s terms or any challenge to N’s exclusion from the settlement should only be made in accordance with Cayman law by the Cayman court and as such further disclosure was not necessary.

In the 2019 judgment delivered by the Cayman court in the case of HSBC International Trustee Ltd v Tan Poh Lee, the Cayman court affirmed the operation and robustness of Cayman’s firewall provisions by confirming that all questions concerning a Cayman trust should be determined in accordance with Cayman law and that, based on the terms of the forum of administration clause of the Cayman trust in question, the Cayman court had exclusive jurisdiction to determine questions relating to the administration of the Cayman trust.

However, a more recent case illustrated the nuances of the ‘firewall’ provisions and made clear that these provisions do not in and of themselves confer the Cayman courts with exclusive jurisdiction over all matters relating to a Cayman trust. In Geneva Trust Company
(GTC) SA v IDF (Re Stingray Trust) [2020] the trustee sought to rely on the ‘firewall’ provisions to restrain a settlor from having a Cayman trust set aside by an Italian court. The terms of the Stingray Trust provided that it was governed by the laws of the Cayman Islands and that ‘the courts of the Cayman Islands shall be the forum for administration of this Trust’. However, acting through her court-appointed guardian, the elderly settlor of the trust commenced proceedings relating to the trust and its assets, first in Switzerland and then in Italy. The Italian proceedings sought a declaration that the trust was invalid on the basis that the settlor had been taken advantage of and had never actually agreed to the establishment of the trust.

In a detailed judgment, Kawaley J held that s90 of the Cayman Trusts Act does not require that all matters which must be determined under Cayman law must therefore be determined exclusively by the Cayman court. In other words, in certain circumstances it will be permissible for foreign courts to apply Cayman law. The court considered the interplay with various forum non conveniens factors and seemingly took issue with the trustee’s failure to seek a declaration on the validity of the trust in earlier proceedings before the Cayman court. Kawaley J’s findings in relation to the wider litigation history appeared central to his finding on forum non conveniens, ‘tipp[ing] the scales decisively in favour of the Court of Milan’. While the proceedings did not arise in the context of a matrimonial dispute, the judgment may represent a shift in just how ‘jealously’ the court will guard its jurisdiction in circumstances where it is arguably more appropriate for a foreign court to be the adjudicator. The court found that, in the circumstances of the case, the trustee could not insist the invalidity dispute must be adjudicated in Cayman and found that it was therefore appropriate to grant a stay of the Cayman proceedings subject to a condition that Cayman law was in fact applied by the Italian court.

Auxiliary courts

The 2019 case of HSBC, referred to above, related to HSBC International Trustee Ltd’s application as trustee to the Cayman court in respect of proceedings issued in Singapore by one of the beneficiaries of a Cayman trust known as the Tan Kim Choo Family Scholarship Trust, seeking an order that the trust be terminated. The various heads of relief sought by the trustee fell into two broad categories:

  • declaratory relief; and
  • Beddoe relief as follows:
    • authorising the trustee to challenge the Singapore proceedings on the grounds of forum non conveniens; and
    • alternatively, inviting the Singapore court to direct that the Cayman court shall act as an auxiliary court for the purpose of determining Cayman law questions without reference to any other law.

The Cayman court affirmed that the basis for seeking Beddoe relief was in accordance with the firewall provisions, specifically s90 of the Cayman Trusts Act, whereby all questions arising in relation to a Cayman law trust are to be determined in accordance with Cayman
law and without reference to the laws of any other jurisdiction. In doing so, the Cayman court reviewed the forum for administration clause in the trust deed in order to determine whether or not the Cayman court had exclusive jurisdiction.

In HSBC, Kawaley J stated that Re B Trust and Re A Trust both suggested that there is not only a statutory requirement that Cayman law should be applied to the trust where Cayman law is its governing law, but also that those issues can only be determined by the Cayman court.

Furthermore, the plaintiff beneficiary in HSBC sought a declaration to ascertain if the Cayman court would be willing to act as an auxiliary to the Singapore court for the purposes of determining any questions relating to, inter alia, the administration of the trust so as to ensure these questions would be dealt with in accordance with Cayman law. Kawaley J had no difficulty approving this relief. This question had not been determined by the Cayman court in any previous reported decision.

It is noted that the Jersey court in the 2006 case of Re B Trust, in which the trustee of a Jersey trust had submitted to the jurisdiction of the English court in divorce proceedings brought by two beneficiaries, decided to enforce the English order varying the Jersey trust.
In reaching this conclusion, the Jersey court’s function was to apply Jersey law, not English law. The Bailiff did not consider that the relevant Jersey legislation had excluded the doctrine of comity.

In Re B Trust [2006], the Bailiff stated obiter at paras 30 to 32 of the judgment as follows:

With some diffidence, we express the hope, however, that English courts might in future exercise judicial restraint before asserting a jurisdiction pursuant to s.24 of the Matrimonial Causes Act 1973 to vary a Jersey trust. This court has shown itself sensitive (long before the enactment of the Trusts Law amendment) to perceived interference with its jurisdiction to supervise Jersey trusts…

The jealousy with which the court guards its supervisory jurisdiction over Jersey trusts does not mean that it is insouciant of the reasoned decisions of other courts exercising a matrimonial jurisdiction…

It would, in our view, avoid sterile argument and expense to the parties if the English courts were, in cases involving a Jersey trust, having calculated their award on the basis of the totality of the assets available to the parties, to exercise judicial restraint and to refrain from invoking their jurisdiction under the Matrimonial Causes Act to vary the trust. Instead, they could request this court to be auxiliary to them. Such an approach is adopted by Courts exercising jurisdiction in relation to insolvency and in other areas of law too. It is true that such jurisdiction to seek assistance from a foreign court may usually have its basis in statute. Nonetheless, we can see no reason why the trustee, or one or more of the parties before the English court as the case might be, should not be directed to make the appropriate application to this court for assistance in the implementation of the English court’s order. It appears to us that this would be a more seemly and appropriate approach to matters where the courts of two civilised and friendly countries have concurrent interest. It would, furthermore, be more likely to avoid the risk of the delivery of inconsistent judgments.

Lessons for practitioners

Generally, for a foreign judgment to be capable of enforcement in an offshore common law jurisdiction such as Cayman or Jersey, it must be final and conclusive, for the payment of a sum of money and made by a superior court. Thus, a foreign judgment varying a trust would not be capable of enforcement in an offshore jurisdiction. Also, given the restrictive and protective nature of the offshore firewall legislation, relying on ‘comity’ rather than dealing with the recognition or giving effect to (or enforcement of) foreign divorce orders varying a trust may be a workable and sensible solution. The offshore court acting as an auxiliary would ensure that all questions relating to the variation of the trust are dealt with by the offshore court and in accordance with the governing law of the trust, thus in accordance with the local trusts law under the firewall provisions. This would also avoid any issue of a trustee being placed in a situation where its trust obligations come into conflict with an obligation to obey an order of a foreign court. It remains to be seen whether similar orders will be sought from the offshore court in the context of trustee direction applications and foreign divorce proceedings.

Offshore trust jurisdictions, quite understandably, guard their autonomous position. The Cayman and Jersey courts, for example, have made their displeasure clear in respect of attempts by foreign courts to determine, by reference to the laws of that foreign country, any matters which are governed by the relevant offshore trust law. However, as is apparent in Re Stingray Trust, there are circumstances where the offshore courts will accept that matters can be adjudicated by the onshore court applying the relevant offshore trust law. In matrimonial proceedings, there will often be various forum non conveniens factors which may weigh in favour of the matter being heard onshore (for example it is likely that the parties will reside in that onshore jurisdiction and there will be significant extra expense to any additional ‘auxiliary’ matter being heard in Cayman). It remains to be seen to what extent these factors could ultimately undermine the concept of an auxiliary court.

Although there may be a distinction between the attitude of the offshore courts when determining whether or not to give effect to a foreign divorce order, the Jersey cases referred to above and Cayman’s 2019 HSBC case will be helpful guidance for any future cases addressing this question in other offshore jurisdictions which have similar firewall provisions, whereby a trust governed by its local laws may only be varied in accordance with such laws and by the courts of that particular jurisdiction.

Avoiding inconsistent judgments, while achieving finality on cross-border trust litigation, will be in the best interests of those concerned and connected to the trust. It will be interesting to see how this area of law develops and any reported decisions on the question of comity, and offshore courts being requested to act as an auxiliary court to foreign proceedings involving a trust, are eagerly awaited.

This article was originally published in Issue #266 of Trust and Estates Law and Tax Journal. Visit to read the full publication.


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