In the recent judgment of AA v JTC (Cayman) Limited (unreported, Cause No, FSD 12 of 2024 (IKJ)), the Honourable Justice Kawaley held that that an enforcer of a Cayman Islands STAR trust has the ability under Section 48 of the Trusts Act (2021 Revision) ("Trusts Act") to seek the Court's blessing of a “momentous” decision under the same legal principles as those which are applicable to trustees. The decision is of significance as it was the first published judgment of the Grand Court to address the principles applicable to blessing applications brought by enforcers under the STAR trust regime.
Background
The case concerned the A Trust, which was a purpose trust established in the Cayman Islands under the Special Trusts Alternative Regime (“STAR”) in Part VIII of the Trusts Act. One of the distinguishing features of a STAR trust is that it must have one or more "enforcers". Unless there is evidence to the contrary, Section 101(2) of the Trusts Act provides that an enforcer is deemed to have a fiduciary duty to act responsibly with a view to the proper execution of the trust. Furthermore, the enforcer is the only person who has the right or duty to bring an action for the enforcement of a STAR trust.
With respect to the A Trust, its enforcer (the "Enforcer") sought the Grand Court's approval under Section 48 of the Trusts Act in relation to the proposed exercise of one of his fiduciary powers (namely, to instruct the trustee to exercise certain rights attached to shares held by the trustee for the benefit of the A Trust).
In his judgment, Kawaley J considered two key issues: firstly, whether the Enforcer had standing to seek the Grand Court's blessing of a momentous decision under Section 48 of the Trusts Act and, secondly, the principles applicable to such applications brought by enforcers. Each of those issues are considered in turn below.
Standing of the Enforcer
Whilst Section 48 of the Trusts Act expressly provides that any “trustee or personal representative” is at liberty to apply to the Grand Court for an opinion, advice or direction on any question respecting the management or administration of the trust, that provision does not expressly refer to an enforcer having standing to make such an application.
The STAR trust regime in Part VIII of the Trusts Act does, however, contain an express provision under Section 102(b) which provides that an enforcer (subject to any terms of that person's appointment) has the rights of a trustee "to protection and indemnity and to make applications to the court for an opinion, advice or direction or for relief from personal liability" (emphasis added).
This is consistent with the "fundamental character" of the STAR trust regime, which seeks to modify the general law relating to trusts as explicitly stated in the Trusts Act, rather than to create an entirely parallel legal regime. In particular, Section 98 of the Trusts Act provides that the law relating to STAR trusts and powers is the same in every respect as the law relating to ordinary trusts and powers, save as provided in Part VIII.
When reading Section 48 in conjunction with Section 102(b) of the Trusts Act, Kawaley J had "little difficulty" in concluding that the Enforcer of the A Trust had standing to apply for the blessing of a momentous decision under Section 48 of the Trusts Act on the same legal basis as a trustee.
Kawaley J also found further support for his conclusion in Order 85, rule 7(1) of the Grand Court Rules (as revised), which provide that:
“…an application by an executor, administrator, trustee or enforcer under Section 48 of the Trusts Act…for the opinion, advice or direction of the Court upon any question respecting the management or administration of the…trust fund shall be made in accordance with this rule” (emphasis added).
Applicable Legal Principles
Having concluded that the Enforcer was invoking the same advisory jurisdiction under Section 48 that the Court exercises over trustees, Kawaley J held that it followed that the Court was required to apply the familiar principles established by Public Trustee v Cooper [2001] WTLR 901. Given that the blessing of a "momentous" decision was a "Category 2" case under Public Trustee v Cooper, Kawaley J confirmed that the Court should consider the following four questions (as had been applied by the Court in various cases with respect to applications by trustees):
- Does the trustee or enforcer have the power to enter into the proposed transaction?
- Is the Court satisfied that the trustee (or enforcer) has genuinely concluded that the proposed transaction is in the interests of the trust and the beneficiaries and/or in furtherance of its purposes?
- Is the Court satisfied that a reasonable trustee (or enforcer) would arrive at the relevant conclusion?
- Does the trustee (or enforcer) have any conflict of interests which prevents the Court from granting the approval sought?
Having considered these questions in relation to the matter before him, Kawaley J approved the Enforcer's decision to make a “momentous” decision in the exercise of his fiduciary powers under the Trust.
Comment
This decision puts it beyond doubt that an enforcer of a Cayman Islands STAR trust has standing to invoke the Court's jurisdiction under Section 48 of the Trusts Act to seek the Court's blessing of a “momentous” decision under the same legal principles as applicable to trustees. Whilst not referred to in the judgment, it is noted that Kawaley J's findings are also consistent with the approach set out in Section D4.1 of the Financial Services Division Guide, which provides that:
"Applications to the Court by a trustee, executor, administrator, or enforcer for directions in relation to the administration of a trust or in relation to a deceased person's estate pursuant to section 48 of the Trusts Act, are to be made by originating summons, and are governed by GCR 0.85" (emphasis added).
It will be interesting to see whether this published judgment, in practice, leads to enforcers seeking to bring a much wider range of applications before the Grand Court in the future seeking an opinion, advice or direction respecting the administration of STAR trusts.
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