Trust – challenge to jurisdiction of the Court regarding foreign
trust.
[2017]JRC162A
Royal Court
(Samedi)
5 October 2017
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Before :
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J. A. Clyde-Smith, Esq., Commissioner, and
Jurats Liston and Grime.
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Between
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G Trustees Limited
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Representor
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And
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Mr A
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First Respondent
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And
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Mrs C
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Second Respondent
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And
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Mr D
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Third Respondent
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And
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Mr E
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Fourth Respondent
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IN THE MATTER OF THE REPRESENTATION OF
G TRUSTEES LIMITED AND IN THE MATTER OF THE H AND J TRUSTS
AND IN THE MATTER OF ARTICLE 51 OF THE
TRUSTS (JERSEY) LAW 1984, AS AMENDED
Advocate M. P. Renouf for the Representor.
Advocate D. Evans for the First and Fourth
Respondents.
judgment
the commissioner:
1.
This
judgment is concerned with a challenge to the jurisdiction of the Court to give
directions to a Jersey resident trustee in relation to a foreign trust.
2.
The
Representor, which is incorporated in and carries on a trust and company
business from Jersey, applied for directions in relation to two family trusts:-
(i)
The H
Trust created by the fourth respondent (“the Settlor”), originally
with a Bermudan based trustee. The
Representor was appointed trustee on 4th April, 2013. It was originally held on discretionary
trust for a class of beneficiaries composed of the Settlor’s elder son,
the first respondent, whom we will refer to as “the elder son”, his
daughter, the second respondent, whom we will refer to as “the
daughter” and his younger son, the third respondent, whom we will refer
to as “the younger son” and any other children and remoter issue of
the Settlor and their spouses. The
Settlor and his wife are expressly excluded from benefit. Pursuant to a deed of appointment
executed in 2001, the income of the whole of the assets subject to the H Trust
are now held on trust to be paid to the younger son during his lifetime.
(ii) The J Trust, declared by an Bermudan based
trustee. The Representor was
appointed trustee on 4th April, 2013. The J Trust is held on discretionary
trusts to appoint in favour of any of the class of beneficiaries composed of
the elder son and the daughter (defined in the trust deed as “Principal
Beneficiaries”), all of the children of the Settlor and their spouses,
widows and widowers, children and remoter issue of the same. Subject to the exercise of such power of
appointment, the trust fund is divided into half, with the income of half being
paid to the elder son during his lifetime and thereafter held as to capital and
income for such of his children as have reached 25, and likewise for the
daughter as to the other half. The
Settlor and his wife are again excluded from benefit.
3.
The H
Trust is governed by Bermudan law.
Clause 2 of the trust deed is in these terms:-
“Proper Law
This Settlement is established
under the laws of Bermuda and subject and without prejudice to any transfer of
the administration of the trusts hereof to any change in the Proper Law of this
Settlement and to any change in the law of interpretation of this Settlement
duly made according to the powers and provisions hereinafter declared the
Proper Law of this Settlement shall be the law of Bermuda which shall be the
forum for the administration thereof.”
4.
The J
Trust is also governed by Bermudan law.
Clause 19 of the trust deed simply provides:-
“19 The law of Bermuda
shall be the proper law of this Settlement.”
5.
There are
two other family trusts of which the Representor is not the trustee.
Background
6.
The
application was concerned principally with the J Trust, which, through BVI
incorporated companies, owns a large country house in Europe and other
assets.
7.
The
country house was purchased by the Settlor many years ago, and he devoted a
great deal of time and expense to restoring it, before settling it into the
trust structure he had created. It
is currently let to the Settlor at an annual rental of €100,000, in
respect of which there are arrears of rental as at 5th April, 2017,
of €501,559.2. The running
expenses of the country house are significant – to the order of
£500,000 a year. The
Representor has allowed this to continue because of the family’s
attachment to the country house and to their strong desire to keep it in the
family. It is a very valuable
asset, but the only significant income it generates is the rent due from the
Settlor. In addition to the rental
arrears, the Settlor has considerable indebtedness to all four family trusts
and to his bank.
8.
A note
produced by the Representor following a family meeting in July 2016 sets out
the financial position of all four family trusts, showing substantial assets on
a consolidated basis but borrowings of one third of their value. As the note says:-
“Viewed on a consolidated
basis, the financial position of the trusts can be regarded in two different
ways. There are substantial assets
and there are borrowings of approximately one third of the value of the assets
which suggests a healthy financial position. The alternative view is that this
initial view masks the true position because the trusts are unable to service
the borrowings out of income and the greater part of the assets are not
suitable for low cost bank lending purposes, which means the trust borrowings
are expensive, and the borrowings increase quickly as the interest rolls
up.”
9.
The J
Trust has inter-trust debt, but also has substantial charges over the country
house in favour of third party lenders, the first of which comes due for
repayment in December of this year.
10. Following numerous unsuccessful efforts to find
alternative long-term financing, and many suggestions from the Settlor and the
elder son as to potential sources of alternative finance, from which nothing
concrete has ever emerged, it was concluded, following discussions, that the
country house would have to be sold.
This was acknowledged in a letter from the Settlor of 3rd
October, 2016, in which he confirmed that if re-financing arrangements were not
completed by Easter 2017, then the country house would have to be sold to a
third party.
11. No such re-financing has been achieved. The only remotely credible alternative
put forward by the Settlor and the elder son is the sale of the other assets
held within the four trusts, but as the Representor points out, that would
leave the trusts with no income producing assets whatsoever, only the country
house, and no way to service the running costs of that property. It would also be insufficient to deal
with the whole of the third party debt, which would require servicing.
12. Once it became clear that the Representor
wished to proceed with the marketing and sale of the country house on a
controlled basis, the Settlor and the elder son wrote to the Representor saying
that they had lost trust and confidence in it, and wished to bring about the
appointment of a new trustee. A new
trustee has been identified by them which was prepared to pursue their
alternative plan, a plan which the Representor regarded as financially suicidal
for the family. This has created
divisions within the family in that the daughter opposed a change of trustee
and supported the proposal that the country house be sold, as did the younger
son.
13. Marketing of the country house began on 12th
June, 2017, but it became clear to the Representor that the resident staff had
instructions from the Settlor and/or the elder son to frustrate any attempt to
market the property by showing potential buyers around. It appeared that they had been told that
the Representor had already been removed as trustee. A substantial property of this kind
requires time to market, and the Representor is understandably concerned to
avoid a distressed sale at an impaired value. There is urgency as the first of the
secured debts comes up for repayment this December.
14. It is not necessary for this judgment to go
further into the issue, as it was clear to the Court that the Representor
required the protection of the Court.
The Representor sought the Court’s approval of its decision to
market the property, on the basis that it would return for approval of any
decision to sell. The Court was
satisfied, applying the test in the case of In the Matter of the S
Settlement [2001] JLR Note 37, that the Representor had the power to
procure the sale of the country house, that its decision to market the country
house had been formed in good faith and was a reasonable one which had not been
vitiated by any actual or potential conflict of interest.
15. Accordingly, the Court approved the decision of
the Representor to market the country house. The Court also directed the Representor
to remain as trustee of the trusts until further order of the Court, and
ordered the Settlor and all of the Respondents to take all reasonable steps
within their power to facilitate the marketing of the country house, and to
take all reasonable steps within their power to allow access to the country
house, when reasonably required by the Representor or the appointed agents for
that purpose.
Jurisdiction
16. Advocate Evans, for the Settlor and the elder
son, submitted that the Court lacked jurisdiction to give directions to the
Representor. He accepted that under
Article 5 of the Trusts (Jersey) Law 1984 (“the Trusts Law”)
the Court had jurisdiction where “a trustee of a foreign trust is
resident in Jersey”, as is the position here. However, Article 50 provides that Part 4
of the Trusts Law “shall apply to a Jersey trust and, to the extent that the
context admits, shall apply to a foreign trust” (his
emphasis). This application was
being brought under Article 51 of the Trust Law, which authorises a trustee to
apply to the Court “for direction concerning the manner in which the trustee may or
should act in connection with any matter concerning the trust and the Court may
make such order, if any, as it thinks fit.”
17. The provisions of Article 51 gave statutory
effect, he said, to the Court’s inherent jurisdiction over Jersey trusts,
relying on this limited extract from the judgment of Sir William Bailhache,
then Deputy Bailiff, in the case of Representation of WW and XX re In the
matter of the C Foundation [2011] JRC 231, where he said, at paragraph 13:-
“Article 51 confers a general
discretion on the Court to make orders in relation to a trust if it thinks
fit. This gives statutory
recognition of the Court’s equitable jurisdiction in relation to
trusts.”
That equitable jurisdiction, said Advocate
Evans, included the jurisdiction to give directions of the kind made in Public
Trustee v Cooper [2001] WTLR 901, in respect of Jersey trusts.
18. By way of reminder, Public Trustee v Cooper
envisaged at least four situations in which a court would be asked to
adjudicate on a course of action proposed or taken by a trustee; in short:
(i)
where the
issue is whether some proposed action is within the trustee’s powers;
(ii) where the issue is whether the proposed course
of action is a proper exercise of the trustee’s powers where there is no
real doubt as to the nature of the trustee’s powers and the trustee has
decided how it wants to exercise them but because the decision is particularly
momentous, the trustee wishes to obtain the blessing of the court;
(iii) where the trustee wishes to surrender its
discretion to the court because of deadlock or conflict; and
(iv) where the trustee has actually taken action and
that is being attacked as being either outside its powers or an improper
exercise of its powers.
19. Advocate Evans argued that the jurisdiction
under Public Trustee v Cooper concerned the private domestic
relationship between the trustee and its beneficiaries. It is, he said, uniquely governed by the
proper law of the trust, and the Court giving such directions would do so in
exercise of its own inherent jurisdiction over trusts governed by its own
domestic law. As Hart J explained
in Public Trustee v Cooper: -
“The ability of trustees to
make such applications derives from the peculiar relationship of trusts to the
courts of Chancery and is no doubt founded in the jurisdiction of this Court in
an appropriate case itself to execute a trust.”
20. The Royal Court, he argued, had no inherent
jurisdiction over any trusts other than those governed by Jersey law; it has
jurisdiction over foreign trusts only by virtue of the Trusts Law, and only to
the extent that such jurisdiction is conferred by the Trusts Law. Importantly, Article 51 is qualified by
Article 50. If Article 50 is to have
any effect, it must be read as limiting the circumstances in which the powers
given in Article 51 can or should apply to the foreign trust. Otherwise, he said, Article 50 would be
otiose.
21. Advocate Evans said there were three compelling
reasons why Article 51 should not be construed as giving the Court jurisdiction
over foreign trusts for the purposes of Public Trustee v Cooper
applications:
(i)
If it were
to exercise such jurisdiction, it would have to apply foreign law, for which
purpose expert evidence of the law and practice of the foreign court would be
needed;
(ii) In exercising that jurisdiction, it would be
usurping the inherent jurisdiction of the foreign court; and
(iii) There would be no certainty that the foreign
court would recognise a decision of the Court purporting to bless a
controversial and “momentous” decision by the trustees.
22. Advocate Evans acknowledged that there are
cases in which the Court receives evidence of foreign law through the calling
of appropriately qualified experts, but where the trustee has the alternative
course of making its application in the court whose substantive law governs the
trust, the need for expert evidence adds, he said, an unnecessary level of cost
which would normally fall on the trust assets. It was one thing, he said, for a court
to apply foreign law on the basis of expert evidence; it was another for it to
purport to exercise the inherent jurisdiction of the foreign court. In exercising the jurisdiction under Public
Trustee v Cooper, the Court is not really asking itself what the foreign
court would do in applying its own law; rather, it is putting itself in the
place of the foreign judge in exercising his or her powers.
23. For that reason, he said, there was a real and
entirely justifiable possibility that the foreign court, in this case the
courts of Bermuda, would not recognise a decision of this kind made by a court
of a different jurisdiction. The
beneficiaries of the trusts, particularly the minor and unborn beneficiaries,
might challenge the decision of the Representor at some point in the future,
notwithstanding the Court’s approval. If they brought such a challenge in the
courts of Bermuda, it is entirely plausible that the court might feel itself
free to reach a different decision.
Since the whole purpose of a Public Trustee v Cooper application
is to give certainty, it is difficult to see, he said, why a trustee would be
satisfied with less.
24. Advocate Evans did not dispute that the Court
could, in appropriate circumstances, give directions to the trustee of a
foreign trust in relation to claims made against the trustee by third parties,
but that would not normally or necessarily involve the application of a foreign
system of law.
Decision on jurisdiction
25. Part 4 of the Trusts Law contains a number of
general provisions, but in our view there is nothing in the context of Article
51 which limits the Court’s powers to Jersey trusts. In the case of The C Foundation it
had been argued that the Court’s power to appoint a new trustee under
Article 51 of the Trusts Law was a power of last resort, and quoting fully from
the response of the Court at paragraph 13:
“13 Article 51 confers a general discretion on
the Court to make orders in relation to a trust if it thinks fit. This gives statutory recognition of the
Court’s equitable jurisdiction in relation to trusts. It is a wide and vibrant jurisdiction. The power to appoint new trustees
existed prior to the enactment of the Law, as is apparent from the most cursory
search of the Tables des Décisions. There is nothing in Article 51 which
provides any straitjacket to the powers which are there set out.”
26. The Court is given jurisdiction over Jersey
resident trustees of a foreign trust under Article 5 of the Trusts Law. It is a jurisdiction that is given over
the Jersey resident specifically in its capacity as trustee of that foreign
trust. It would be self-defeating
if the Trusts Law were on the one hand to give the Court jurisdiction over a
Jersey resident trustee in that capacity and on other hand to then curtail the
Court’s ability to do anything to enforce that foreign trust by limiting
the Court’s powers under Article 51 to Jersey Trusts. There is every good reason for the Court,
having been given jurisdiction over a Jersey resident in that capacity, to have
all of the powers available under Article 51 to enforce that foreign trust. We rejected the suggestion, therefore,
that the Court’s powers under Article 51 were limited in this way.
27. In any event, we have no doubt that prior to
the enactment of the Trusts Law, the Court had jurisdiction over Jersey
resident trustees of foreign trusts, on the basis that its jurisdiction acts
upon any person whom it finds in its jurisdiction. The point is made in this extract from Lewin
on Trusts 19th edition, Chapter 11:
“11-007 As
to subject-matter, since equity acts in personam, working on the conscience of
the trustee to compel performance of the trust, the general rule is that the
English court can enforce a trust whenever the trustee can be brought before
it. Once the trustee is before the
court, the full trustee remedies are generally available (though it may of
course be difficult to enforce an order if both trustee and trust property are
abroad). It does not matter that
the governing law of the trust is not English or that the trust property is not
in England and Wales. But any
relief granted will take account of the foreign elements in the case. Hence, for example, a vesting order,
which in a wholly domestic context would usually accompany an order removing
trustees, would be unlikely to be effective to divest shares in a foreign
company; but the court, acting in personam, may make an order against the
trustees requiring them to resign and to vest the trust assets in new trustees.
11-008 Similarly, a trustee may invoke the assistance of the English court
to determine a question arising in the administration of the trust, even though
the proper law of the trust is not English and the trustee himself is based
abroad.”
28. In Chellaram v Chellaram [1985] Ch. 409,
it was held that the English court had jurisdiction over the trustees of trusts
governed by Indian law with assets outside India, who were born and domiciled
in India, but who also visited London regularly, where such administration as
there was took place. In his
judgment, Scott J made reference to this passage from the judgment of the Earl
of Selborne LC in the House of Lords’ decision of Ewing v Ewing
[1883] 9 App.Cas.34:
“The jurisdiction of the
English court is established upon elementary principles. The courts of equity in England are, and
always have been, courts of conscience, operating in personam and not in rem;
and in the exercise of this personal jurisdiction they have always been
accustomed to compel the performance of contracts and trusts as to subjects
which were not either locally or ratione domicilii within their jurisdiction.
They have done so as to land, in Scotland, in Europe, in the colonies, and in
foreign countries: …. A jurisdiction against trustees which is not
excluded ratione legis rei sitae as to land, cannot be excluded as to
moveables, because the author of the trust may have had a foreign domicil; and
for this purpose it makes no difference whether the trust is constituted inter
vivos or by a will, or mortis causa deed.”
He also quoted from the judgment of Lord
Blackburn in the same case, who agreed:
“It was argued that the
domicil of the testator being Scotch, the Court of Chancery had no jurisdiction
at all; that the jurisdiction depended on the domicil of the testator, or at
least on the probate in England, and was therefore confined to the
comparatively small part of the property that was obtained by means of the
English probate. I do not think
that there is either principle or authority for this contention. The jurisdiction of the court of
Chancery is in personam, it acts upon the person whom it finds within its
jurisdiction and compels him to perform the duty which he owes to the
plaintiff.”
29. If the Jersey Court were to refuse jurisdiction
over a Jersey resident trustee of a foreign trust, to compel performance by
that trustee of its duties under that foreign trust, it could leave the
beneficiaries of that foreign trust without a remedy. As Advocate Renouf said, it is
fundamental to the good administration of trusts that the Court should exercise
the personal jurisdiction it has over that Jersey resident trustee, just as
this Court would expect a foreign court to compel a trustee in its jurisdiction
to compel performance of its duties under a Jersey trust.
30. As to whether the court of the proper law will
respect orders made by this Court over trustees in its jurisdiction, Scott J in
Chellaram said this:
“There are two other
associated points which I should now deal with. As an adjunct to his submission that the
English courts lack the power to remove trustees of foreign settlements, Mr
Miller submitted that if such an order in the in personam form were made the
defendants could not safely obey the order without first obtaining confirmation
from the Indian courts that it would be proper for them to do so. Further, he submitted, his client ought
not to be subjected to such an order unless it were clear that Indian law would
regard them, if they did obey, as discharged from their fiduciary obligations
under the settlements.
It would be a matter entirely for
the defendants and their advisers what steps they take in the Indian courts,
but for my part, I am not impressed by the proposition that such confirmation
would be necessary. The English
courts have jurisdiction over these defendants. An objection to the exercise of
jurisdiction on forum conveniens grounds has been taken and I must deal with
it, but if in the end the case continues in England, I would expect that the
Indian courts, for reasons of comity, would afford the same respect to orders
of this court as in like circumstances and for the same reasons English courts
would afford to theirs.
Mr Miller suggested to me that I
would give short shrift to an order of a foreign court removing a trustee of an
English trust; but if the English trustee had been subject to the jurisdiction
of the foreign court exercised in like circumstances to those in which English
courts claim and exercise jurisdiction, I can see no reason why I should recoil
from an order in personam made by the foreign court against an English trustee,
and if the order has been given effect to by, for example, the trustee
transferring trust assets in England into the names of new trustees, I can see
no reason why an English court should question the efficacy of the
transfer. All of this assumes, of
course, that there were no vitiating features in the manner in which the
foreign order was obtained.”
31. For the same reasons, we would expect the
courts of Bermuda, for reasons of comity, to afford respect to the directions
we have given to a Jersey resident trustee of a Bermudan trust, in the same way
that we would afford the same respect to directions given by the courts of Bermuda
to trustees of Jersey trusts resident in its jurisdiction.
32. There was nothing in the provisions of the J
Trust which purport to exclude the jurisdiction of this Court by conferring
exclusive jurisdiction on the courts of Bermuda; the trust deed simply provides
that it shall be subject to the proper law of Bermuda. Clause 2 of the H Trust did provide that
“Bermuda shall be the forum for the
administration” of the H Trust, but that did not purport to confer
exclusive jurisdiction upon the courts of Bermuda. The forum of administration in this
context, in our view, means the place where the trust is administered in the
sense of its affairs being organised (see Crociani v Crociani [2014]
UKPC 40 at paragraphs 17 and 18); although in practice neither trust is
administered in Bermuda.
33. There are a number of examples of cases in
which the Court has given directions to Jersey resident trustees of foreign
trusts, including In the matter of M and Others Trusts re A B and C v
Rozel Trustees Limited [2012] JRC 127 and In the matter of the H Trust
[2007] JRC 187.
34. In conclusion, the Representor is resident in
Jersey and we found that we did have jurisdiction under Article 51 to give
directions to it in its capacity as trustee of both trusts.
Forum non conveniens
35. In the event of the Court finding that it had
jurisdiction, the Settlor and the elder son applied for a stay on the grounds
that Jersey was not the appropriate forum for the hearing of the
representation.
36. It is clearly established that the test, as set
out in Spiliada Maritime Corp v Consulex Limited [1986] 3 All ER 843, is
not merely that the burden of proof rests on the Representor to persuade the
Court that Jersey is the most appropriate forum for the hearing of its
representation, but that it has to show that this is clearly so. This test has been considered and
applied in a number of Jersey cases, most recently in Heinrich-v-Pantrust
and Others In the matter of the Brazilian Trust [2016] JRC 106A, In the
matter of the Manor House Trust [2015] JRC 208 and Crociani v Crociani
[2014] UKPC 40.
37. It would seem that the Settlor and the elder
son had initiated proceedings in Bermuda for the removal of the Representor as
trustee of the J Trust, although service had not yet been effected on the
representor and the matter had not proceeded to any hearing. It was not in any event an application
for directions to be given to the Representor.
38. We took those early steps in Bermuda into
account, but in our view, the Representor clearly discharged that burden for
the following reasons:
(i)
It is
resident in Jersey.
(ii) The administration of the trusts is carried on
in Jersey.
(iii) Four of the five directors of the Representor
are in Jersey, with the remaining director in Paris. Although it is the latter who conducts
the relationship with the beneficiaries, all board meetings are held in Jersey.
(iv) Two of the three adult beneficiaries and their
families and the Settlor are UK domiciled and resident. The remaining beneficiary, the elder
son, has another Channel Islands address for service, but is largely in South
Africa, where he has business interests.
(v) There are no assets in Bermuda. The assets are in Europe and England and
held through BVI companies.
(vi) As pointed out in Spiliada, it is
necessary to look at the relevant ground invoked by the Representor, and in
this case, no remedy is being sought against any of the respondents. They are convened so that they can
express their views as to how the Representor should be directed.
(vii) There are no liquid assets within either trust
and the Representor is having to personally fund the application for
directions. Requiring it to apply
in Bermuda would add, unfairly in our view, to the costs burden it faces.
(viii) As Advocate Renouf for the Representor put it,
everything is this side of the Atlantic, other than the proper law of the
trusts.
39. Advocate Evans supported his application by
criticisms of the conduct of the Representor and of its case, but had to accept
that in terms of convenience, the only factor in favour of Bermuda was the
proper law. All of the other
factors weigh heavily and decisively, in our view, in favour of this
jurisdiction. We therefore rejected
the application for a stay on the grounds that Jersey was the most convenient
forum.
Authorities
In
the Matter of the S Settlement [2001] JLR Note 37.
Trusts (Jersey) Law 1984.
Representation
of WW and XX re In the matter of the C Foundation [2011] JRC 231.
Public Trustee v Cooper [2001] WTLR
901.
Lewin on Trusts 19th edition.
Chellaram v Chellaram [1985] Ch. 409.
Ewing v Ewing [1883] 9 App.Cas.34.
Crociani v Crociani
[2014] UKPC 40.
In
the matter of M and Other Trusts re A B and C v Rozel Trustees Limited
[2012] JRC 127.
In
the matter of the H Trust [2007] JRC 187.
Spiliada Maritime Corp
v Consulex Limited [1986] 3 All ER 843.
Heinrich-v-Pantrust
and Others re In the matter of the Brazilian Trust [2016] JRC 106A.
In
the matter of the Manor House Trust [2015] JRC 208.