25 April 2008

International trust and succession digest


This is the first edition of our international trust and succession digest complied by Withers Contentious Trust and Estates Team, winner of this yearʼs STEP award for Contentious Trust and Estates Team of the Year. The digest will now be published at regular intervals with a view to summarizing leading developments in the relevant case law, not only in England, but throughout the common law world with particular emphasis on off shore jurisdictions.

This year has seen a continued rise in international trust and divorce litigation. Ever since the House of Lords decided in White v. White [2001] 1 AC 596 that equality between spouses would be the yardstick for financial provision on divorce (rather than any needs based approach), spouses (usually wives) seeking sizable financial settlements have looked to England as the jurisdiction of choice. Such high value divorces in England have generated much satellite litigation in offshore jurisdictions, as spouses seeking to claim a share in offshore trusts seek to enforce awards made by the English Family Division. Our digest commences with three trust case summaries which show the attitude of the Royal Court in Jersey to such satellite litigation. Here, in this jurisdiction, the House of Lords have refused leave to Mr Charman to appeal against the order of the Court of Appeal which grant Mrs Charman financial provision amounting to £48 million, a record for England. That figure was arrived at by including as a “resource” trusts created by Mr Charman in Bermuda. The Court of Appeal had been unimpressed with the argument put forward on behalf of Mr Charman that these settlements were dynastic, in other words, intended for future generations and should not therefore be included in the matrimonial pot for division between the spouses. Should Mrs Charman find it necessary to take enforcement proceedings in Bermuda to obtain the fruits of her victory, it will be interesting to see what attitude the Bermudian Court takes to the judgment of the English courts. The Bermudian Courtʼs unwillingness to give effect to a letter of request issued at the behest of the wife seeking information about the trusts, strongly suggests that in Bermuda at least, the courts will not be as receptive to the demands of the family judges as the Royal Court in Jersey have been. The Royal Courtʼs approach is evidenced by the first three cases.

Re The A Trust; FM v. ASL Trustee Company Limited (2006) 9 ITELR 127, Royal Court, Jersey

Facts of the case

The husband and wife were involved in bitterly contested divorce proceedings in England. The A Trust was a Jersey trust of which the husband, wife and their children were the beneficiaries. In 2001, a deed of appointment had been executed so that the income became payable to the wife during her life, thereafter to the husband and thence on discretionary trust in favour of the children. The trust owned the property in London where both the wife and children lived. The English Family Court varied the trust so as to extinguish the husbandʼs interest and also ordered the husband to transfer the benefit of a loan to the trust. The wife then applied for recognition and enforcement of this order in Jersey.

The decision

Deputy Bailiff Birt held that this being a Jersey trust, the trustee was bound to hold the trust fund on the trusts set out in the trust deed, unless ordered to do otherwise by the Jersey Court. The trustee in this case had not submitted to the jurisdiction of the English Court and therefore it was a matter for the Jersey Courtʼs discretion whether to enforce the English Courtʼs order in the interests of justice and comity. Here, the husband had refused to maintain his wife and children. The trust assets were the only substantial assets in the UK. Accordingly, the Court ordered those assets to be used exclusively to support the wife and children.

Points of interest

Here, the trustee had not submitted to the jurisdiction of the English Court and therefore could not be said to have agreed in advance to be bound by its decision. The Jersey Court was therefore free to decide whether to give effect to the order of the English Court. The conduct of the husband in deliberately not maintaining his wife and children clearly tipped the balance in favor of recognition and enforcement by the Jersey Court.

Re The H Trust; X Trust Company Limited v. R W & Others [2006] 9 ITELR 133, Royal Court, Jersey

Facts of the case

The H Trust was a discretionary trust whose beneficiaries include the settler and his wife, the settlerʼs children by his previous marriage and the settlerʼs grandchildren. The value of the trust fund was estimated at £2.6 million. The wife petitioned for divorce in England and obtained a freezing injunction in the Family Division against the husbandʼs assets. The Royal Court also froze the trust assets. The trust was governed by English law. The trustee exercised its power to change the proper law of the Trust to Jersey law and to confer exclusive jurisdiction on the Jersey courts. The wife then obtained a further order in the Family Division joining the trustee and obtaining an Order restraining the trustee from executing (if he had not already done so) a deed, changing the proper law of the trust and from taking any step to remove the wife as a beneficiary. The trustee sought the Royal Courtʼs approval to the trustee not submitting to the English Court.

The decision

The Court granted the directions sought by the trustee and approved its refusal to submit to the jurisdiction of the English Court. The Deputy Bailiff stated that it would not usually be in the interests of the trust to submit to the jurisdiction of the foreign court dealing with a divorce petition where one or both of the parties were beneficiaries. It was more likely to be in the interests of the trust to preserve the freedom of action of both the trustee and the Royal Court to act appropriately, taking account of a foreign courtʼs decision when known. If a trustee submitted to the decision of a foreign court, it was likely to be enforceable in Jersey without any reconsideration of the merits.

Points of interest

In this case the Deputy Bailiff was anxious to preserve the freedom of action of both the Jersey trustees and the Royal Court itself. The Deputy Bailiff realised that if the trustee simply submitted to the jurisdiction of the English Family Division, then the opportunity for the Jersey Court to review the merits of the English Courtʼs decision from the point of view of the trust and the beneficiaries as a whole, would be lost.

Further developments

The H Trust has again been before the Royal Court very recently.

The English High Court subsequently made orders against the husband requiring him to pay a lump sum to the wife out of the trust. Certain properties in the UK owned by the H Trust were also to be transferred to the wife. The Jersey trustee put forward a counter proposal which was less generous to the wife saying if it could not be agreed promptly, the trustee would seek directions from the Royal Court.

The wife rejected the proposal but the trustee did not apply to the Royal Court. The trustee decided to wait for the outcome of certain enfranchisement proceedings in the UK and in the meantime not to make any significant distributions. The wife then issued proceedings to bring the trustee before the Royal Court. The Royal Court severely criticized the trustee for taking sides and said there would have to be a good reason for not to giving effect to the original English Courtʼs order. Accordingly, the Royal Court ordered that the lump sum ordered by the Family Division be paid to the wife out of the trust and that the UK properties be transferred to her.

Re The B Trust [2006] 9 ITELR 783; Royal Court, Jersey

Facts of the case

The husband and wife were beneficiaries of a Jersey trust. The trustee had submitted to the jurisdiction of the English Court in divorce proceedings between them. The English Court held the trust was a post-nuptial settlement and made an order varying the Jersey trust pursuant to the Matrimonial Causes Act 1973 by appointing the sub-trust in the wifeʼs favour. The trustees sought directions as to how to respond to the English order. The husband argued that the newly amended Article 9 (4) of the Jersey Trust Law made the English Order unenforceable and that the power of the Jersey Court to enforce the English order on the basis of comity had been removed by the amended Jersey legislation.

The decision

The Bailiff decided to enforce the English order. In reaching that conclusion the Courtʼs function was to apply the law of Jersey, not English law. The Bailiff did not consider that Article 9 as amended had excluded the doctrine of comity. This could only have been done by clear and express words. All parties has had the opportunity to address the English Court and the trustee had submitted to the jurisdiction.

Points of interest

The Bailiff stated it would be better in such cases, if the English Court were to refrain from purporting to vary Jersey trusts. Instead, they could request the Jersey Court to be auxiliary to them. This would be similar to the approach adopted in insolvency matters. This would be a more appropriate approach between two friendly and civilized jurisdictions and would reduce the risk of the respective courts producing inconsistent judgments.