STAR Trusts: Cayman Court Confirms Its Stellar Supervisory Jurisdiction

In a judgment delivered on 26 April 2024 (In the matter of the A Trust; AA v JTC (Cayman) LimitedFSD 12 of 2024 (IKJ)), the Grand Court of the Cayman Islands (“Cayman Court”) confirmed that an enforcer of a STAR trust is able to seek the Cayman Court’s blessing of a momentous decision in relation to the trust. The decision is the first published judgment to set out the principles that apply to such an application by an enforcer in relation to a STAR trust.

A STAR trust is a statutory trust established under the Special Trusts Alternative Regime (STAR) in Part VIII of the Trusts Act (2021 Revision) (“Trusts Act”). A STAR trust can be established to hold assets:

There is no requirement for the trust’s purposes to be charitable in nature.

A beneficiary of a STAR trust has no enforceable right to the trust property nor the ability to take steps to enforce the trust. The right to receive information and institute proceedings in relation to a STAR trust is vested in an enforcer who is typically appointed pursuant to the terms of the trust deed. An enforcer has a fiduciary duty to act in the best interests of a STAR trust.

In January 2024, the enforcer of the A Trust, a purpose trust (a kind of trust that has no beneficiaries, instead existing for a specific purpose) established under the STAR regime, sought the Cayman Court’s approval to exercise his power to direct the trustee to exercise rights attaching to shares held by the trustee. The exercise of those rights was central to the purpose of the trust.

Section 48 of the Trusts Act confers the Cayman Court with supervisory jurisdiction over trusts in respect of applications made by a “trustee or personal representative”.

The provisions of the STAR regime expressly confirm that an enforcer of a STAR trust has the same rights as a trustee of an ordinary trust including, among other things, to make applications to the Court for an opinion, advice or direction.

Reading Section 48 with the provisions of the STAR regime, the Cayman Court readily concluded that an enforcer has standing to invoke the Court’s supervisory jurisdiction to bless a momentous decision in relation to a STAR trust.

The questions that the Cayman Court will typically consider in deciding whether to bless a momentous decision are:

Question 3, which primarily concerns the rationality of the decision, is central to the Court’s decision (see In the matter of Standard Chartered Trust (Singapore) Limited as trustee of the Emerging Markets Diversified Fund Trust FSD 82 of 2022 (DDJ)). The onus is on the decision maker to put all relevant facts before the Court and to demonstrate that the decision is being made for a proper purpose. The benefit of obtaining the Court’s blessing is that the decision maker is deemed to have discharged its duties in respect of the subject matter of the decision, but this indemnity falls away if the decision maker fails to make full and frank disclosure to the Court.

In this case, the Cayman Court was satisfied that the enforcer had the power to direct the trustee in the manner proposed and that the suggested instruction furthered the purposes for which the trust was established. The decision met the essential rationality standard, having been arrived at following careful deliberation and the receipt of legal advice. The enforcer had also properly identified all potential conflicts of interest in discharging its duty to the Court.

This decision makes clear that enforcers of STAR trusts can seek the assistance of the Cayman Court when tasked with making difficult decisions in relation to the trust. It underscores the critical role that enforcers play in ensuring that a STAR trust is administered properly in furtherance of the purposes for which it was created and/or in the best interests of any beneficiaries of the trust.