Re the Fountain Trust

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: Bailhache, Bailiff and Jurats Le Breton and Clapham
• Judgment Date: 20 July 2005
• Date: 20 July 2005

ROYAL COURT

Bailhache, Bailiff and Jurats Le Breton and Clapham

D.F. Le Quesne for the representors;

D.M. Cadin for the first respondent;

W. Grace for the second respondent;

F.B. Robertson for the third respondent;

J.P. Speck for the fourth respondent;

S. Sharpe, Crown Advocate, for the Attorney General.

Cases cited:

(1) Compass Trustees Ltd. v. McBarnett, 2002 JLR 321, dicta of Le Cras, Commr. considered.

(2) Esteem Settlement, In re, 2003 JLR 188, applied.

(3) Hitch v. Stone, [2001] STC 214; [2001] BTC 78; [2001] EWCA Civ. 63, dictum of Arden, L.J. not followed.

(4) Lane v. Lane (ne Coverdale), 1985-86 JLR 48, followed.

(5) MacKinnon v. Regent Trust Co. Ltd., 2004 JLR 477; on appeal, 2005 JLR 198, referred to.

(6) Midland Bank plc. v. Wyatt, [1997] 1 BCLC 242; [1995] 1 FLR 696, dicta of David Young, Q.C. not followed.

(7) Rabaiotti 1989 Settlement, In re, 2000 JLR 173, applied.

(8) Shalson v. Russo, [2003] EWHC 1637, referred to.

(9) Snook v. London & W. Riding Invs. Ltd., [1967] 2 Q.B. 786; [1967] 1 All E.R. 518; (1967), 111 Sol. Jo. 71, referred to.

(10) Trollope v. Jackson, 1990 JLR 192, referred to.

Texts cited:

de Ferrire, 1 Dictionnaire de Droit et de Pratique, at 600 (1771 ed.).

Dicey & Morris, 1 The Conflict of Laws, 13th ed., para. 14-003, at 468; para. 14R-141, at 525 (2000).

Trustsvariationenforcement of foreign financial provisioncomity may require Jersey court to vary Jersey trust to make financial provision ordered in foreign matrimonial proceedings if faircourt generally reluctant to enforce foreign judgment varying Jersey trust or declaring it shamparty to matrimonial proceedings not to be permitted to hide behind trust to prevent assessment of assets so as to inhibit fair division

The trustees of a Jersey trust applied for directions as to how to respond to a judgment of the English High Court which declared the trust to be a sham and ordered the trustees to transfer the trust assets to the first respondent.

In matrimonial proceedings in England, the first respondent (the wife) was awarded 4,185,000 by the English High Court. Her husband (the second respondent) had established a post-nuptial settlement in Jersey, of which she was not a beneficiary, which was administered by the representors (the trustees). Applying principles of English trusts law, the judge found the trust to be a sham, intended by the husband to conceal his assets. The English court declared that the husband was in fact the beneficial owner of the trust assets and that they were held on bare trust for him. It ordered that the trust should be set aside and the assets transferred to the wife. The husband was found to have been uncooperative and obstructive and to have failed to make full and frank disclosure of his assets. He had chosen not to attend the proceedings after an interim order was made.

The trustees participated in the matrimonial proceedings to a very limited extent and did not make submissions. They were, however, aware of the relief sought by the wife and nevertheless submitted to the jurisdiction of the English High Court, asserting that they would abide by any order or declaration made. They brought the present proceedings, seeking directions as to how they should respond to the English judgment.

The wife submitted that it should be recognized and enforced in Jersey as a matter of comity. The husband, on the other hand, submitted that (a) it would be contrary to public policy to enforce the order, as the English court did not have jurisdiction to declare a Jersey trust to be a sham; and (b) alternatively, the order was unenforceable because it was a declaratory order.

Held, ruling as follows:

(1) The English judgment would be recognized and enforced so as to vary the trust, which was a post-nuptial settlement, to give financial relief to the wife, because it would be fair to do so as a matter of comity. As the trust was governed by Jersey law and administered by trustees established in Jersey, the English court had, however, erred by applying English law in finding that it was a sham. The question of whether or not it was a sham should instead have been determined according to Jersey lawwhich required that both the settlor and the trustees should have had a common intention that the deed was not to create the legal rights and obligations which it gave the impression of creating, as well as a common intention to deceive third parties. Furthermore, the assumption by a foreign court of the power to vary the terms of a Jersey trust or to declare it to be a sham would generally be regarded as exorbitant and a Jersey court would be reluctant to enforce such a judgment. It was also important, however, that parties to matrimonial proceedings should not be permitted, by obstruction and manipulation, to prevent a proper assessment of their financial positions and thereby to inhibit a fair division of family assets. In the particular circumstances of this case, it would not, therefore, be contrary to public policy to enforce the judgment, as it sought to do justice in matrimonial proceedings in which the husband had been obstructive and had failed to disclose his assets ( para. 5; paras. 16-18; para. 27; para. 31).

(2) Moreover, it would not be unfair to enforce the English judgment against the trustees since, despite being aware of the nature of the relief sought by the wife, they had submitted to the jurisdiction of the English court when it was clear that an order or declaration affecting the status of the trust might be made. Indeed, to the extent that the trustees submitted to the jurisdiction and failed to protect the beneficiaries' position, they could be liable for breach of trust. If they had not submitted to the English court's jurisdiction, however, it might not have been fair to enforce the judgment against them ( paras. 20-21; para. 29).

(3) Although the English judgment was a declaratory judgment, it could be recognized and enforced as a matter of comity because the husband had had every opportunity to participate fully in the English proceedings and to raise any defences he thought fit. It was irrelevant that he had in fact chosen not to attend those proceedings after an interim order had been made ( para. 24).

1 BAILHACHE, BAILIFF:

Introduction

This matter comes before the court following a representation by C.I. Law Trustees Ltd. and Folio Trust Co. Ltd. ("the trustees"), as trustees of the Fountain Trust, seeking directions as to how to respond to a judgment in the Family Division of the High Court of Justice in England setting aside the trust as a sham and ordering the trustees to transfer the trust assets to the petitioner in the matrimonial proceedings, Meher Darayus Minwalla ("the wife").

2 Case management hearings were conducted before the Bailiff on May 26th and June 20th, 2005. A number of orders were made. Darayus Cyrus Minwalla, the first respondent in the matrimonial proceedings before the High Court ("the husband"), and Jamsheed and Framji Minwalla (referred to individually as "Jamsheed" and "Framji" and collectively as "the beneficiaries") were granted leave to intervene, the husband on condition that 20,000 was paid into court as security for the costs of the wife. On May 26th, the Bailiff released Advocate Hanson, as guardian ad litem for Hormazd Minwalla, from further appearance, on the ground that his interests would effectively be represented by counsel for the benefi ciaries. The Bailiff determined that the essential issue for consideration was whether, as a matter of comity, the Royal Court should enforce the judgment of the High Court delivered by Singer, J. on December 3rd, 2004 ("the judgment"). The Bailiff ordered the trustees to remain neutral and not to participate in the argument between the wife and the other parties to the proceedings.

3 When the hearing opened, on July 4th, Standard Chartered (Jersey) Ltd. and the Attorney General, on behalf of the Government of Pakistan, were granted leave to intervene, but agreed, on terms that their respective positions would not be prejudiced, not to participate in the argument. An application by Messrs. Cowasjee Minocher Cowasjee, Mehmood Haji and Sheikh Sultan Al-Qasimi for leave to intervene on the ground that they were creditors of a company or companies forming part of the underlying assets of the Fountain Trust was refused.

4 In the opening paragraph of the judgment, Singer, J. described the wife's claim for relief as raising important issues. The judge stated:

"The first [issue] is the approach that the court should adopt where it finds (as I do here in relation to...