The Cayman Islands firewall legislation: does it need further fireproofing?

The Cayman Islands led the way in 1987 when it passed the Trusts (Foreign Element) Law, later consolidated with other parts of Cayman Islands’ trusts statute to become Part VII of what is now the Trusts Law (2011 Revision). This has become known as the Cayman Islands’ ‘firewall legislation’. In essence, the purpose of the firewall legislation is to insulate trusts governed by Cayman Islands law from attack by forced heirs and those claiming against the trust assets by reason of a personal relationship with the settlor.

Jersey and Guernsey introduced their own firewall legislation in 2006 and 2008 respectively. The question addressed in this article is whether Cayman’s firewall legislation would stand up to challenges similar to those seen, for example, in Jersey. Are its provisions fit to face up to the current realities of the offshore trusts industry?

In summary, and subject to certain exceptions, the legislation provides: 

  • where a trust is expressly governed by Cayman Islands law and there is an exclusive jurisdiction clause in favour of the Cayman Islands court, any questions about that trust or disposition of property on to the trusts, must be determined in accordance with Cayman Islands law without reference to the laws of any other jurisdiction with which the trust might be connected (section 90); 
  • no trust governed by Cayman Islands law and no dispositions of property in to those trusts will be void, voidable, liable to be set aside or defective in any fashion, nor the trustee, any beneficiaries or other person be subject to any liability or deprived of any right because the trust or disposition avoids or defeats rights, claims or interests conferred by foreign law upon any person by reason of a personal relationship with the settlor (section 91); and
  • where any foreign judgment is inconsistent with section 91 that judgment will not be recognised, enforced or give rise to any estoppel in the Cayman Islands (section 93)…

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