13 September 2013

Joinder of beneficiaries in financial proceedings on English divorce where trustees decline to participate

In a recently reported decision in the case of Tchenguiz-Imerman v Imerman [2012] EWHC 4277 (Fam) (in which Diana Parker and Michael Gouriet of Withers represented the wife), the court had cause to determine an application for joinder to the proceedings by adult beneficiaries of trusts which were the subject of a variation claim. As is common practice (as outlined in the Jersey case of In Re H Trust [2006]), the trustees, although already formally joined as parties, chose not to participate in the divorce proceedings so as to preserve their freedom of action and that of the overseas court in the event that a variation of settlement order was made by the English family court. Their decision not to participate was endorsed by the courts in Jersey and BVI where the trustees were situate. In contrast (per Re H Trust)’ where trustees submit to the jurisdiction by participating in the divorce proceedings, the English order would more likely be upheld in the offshore court without reconsideration of merits.

The question for the English court in this case was whether it should allow the beneficiaries (who were resident in England) to participate in the divorce proceedings notwithstanding that they had supported the trustees’ decision not to participate. Although Moylan J regarded the beneficiaries as seeking ‘to have their cake and eat it’, he decided, by reference to the recently introduced family procedure rules, that as the trustees were not participating it was ‘desirable’ for the beneficiaries to be joined as parties to the proceedings.

The judge decided that joining the beneficiaries as parties to the proceedings rather than simply permitting them to make representations as witnesses, would assist the court with the investigation and resolution of the issues raised in the case as they would be subject to direct disclosure obligations and would be subject to cross-examination. He observed that all of the factual and legal issues which the beneficiaries wished to raise in relation to the impact of a successful variation of settlement claim on their interests in the discretionary trusts would be ventilated and determined. The judge went on to suggest, that having participated in that way, it would be difficult for the beneficiaries to argue in the overseas court that they should be permitted to evade the consequences of any order made at the conclusion of the case.

Whilst not imposing conditions on the joinder of the adult beneficiaries, the judge invited the beneficiaries to disclose voluntarily the information permitted by the Jersey and BVI courts, and he went on to give his view that as parties to the proceedings they would be under an obligation to disclose all documents relevant to the issues raised, which would include:

(a) whether the trusts are or are not nuptial settlements;

(b) what the resources held within the trusts are;

© the manner in which the trustees would be likely to exercise their discretion; and

(d) any other issue relevant to the ability to enforce any order which the court might make.

The reported judgment also records the new mandatory rule which requires minor children to be separately represented in financial proceedings on divorce when there is an application for variation of settlement unless the court is satisfied that the proposed variation does not adversely affect the rights or interests of the child concerned.

As the case settled out of court prior to the final hearing, the court did not have to determine the variation of settlement claim or subsequent enforcement issues.

As a reminder of the broad discretion wielded by the Judges of the English family court as to case management and ultimate determination of awards, in the case of DR v GR [2013] EWHC 1996 (Fam) Mostyn J adopted a somewhat stricter approach to the question of joinder of trustees. He concluded that joinder of trustees or underlying companies was not an essential pre-condition for the validity of a variation of settlement order, and, in that particular case (involving trust assets located in England of approximately £1.65m net of tax), he directed that it was possible to resolve the application for variation of settlement without joinder; that there was no separate dispute which required their joinder; and no evidence that enforcement would be better achieved.

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