Representation of AA

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: J. A. Clyde-Smith,Jurats Liddiard,Nicolle
• Judgment Date: 07 September 2010
• Neutral Citation: [2010] JRC 164
• Date: 07 September 2010

[2010] JRC 164

ROYAL COURT

(Samedi Division)

Before:

J. A. Clyde-Smith, Commissioner, and Jurats Liddiard and Nicolle.

In the Matter of the Representation of AA

And in the Matter of the D Discretionary Trust

and

In the Matter of Articles 26, 32, 34 and 51 of the Trusts (Jersey) Law 1984 (as Amended)

Between

AA

Representor

and

B

Respondents

and

C

Advocate A. D. Robinson for the Representor.

Advocate J. P. Speck for the Respondents.

Authorities

Service of Process Rules 1994.

Trusts (Jersey) Law 1984.

Trusts (Guernsey) Law 2007.

Koonmen v Bender and Others [2002] JCA 218.

EMM Capricorn Trustees Limited v Compass Trustees Limited [2001] JLR 205.

Helmsman Limited v Bank of New York Trust Company (Cayman) Limited 11th June 2009.

Alhamrani v Alhamrani [2005] JLR 236.

THE COMMISSIONER:

1 On 6 ^th August, 2010, the Court set aside the service of proceedings on the respondents and stayed the representation. We now set out our reasons.

The D Discretionary Trust (“the Trust”)

2 The Trust was declared by B on 26 ^th March, 2007, in order to receive assets from a BVI settlement for the benefit of E and his family.

3 Clause 3 of the Trust provided as follows:-

“3 PROPER LAW AND FORUM FOR ADMINISTRATION.

3.1 SUBJECT TO Clause 3.2 this Trust is established under and shall be governed in all respects by the laws of the Island of Jersey which shall be the proper law of this Trust and the courts thereof shall be the forum for the administration of this Trust.

3.2 The Trustees may at any time or times by instrument in writing declare that thenceforth, or from such date as may be specified in the instrument, this Trust shall be governed in all respects by the law of the jurisdiction specified in the instrument and thereupon that law shall be the proper law of this Trust and the courts of that jurisdiction shall be the forum for the administration of this Trust.”

4 We were informed by Mr Speck that Jersey law was selected on tax advice but it was always intended that the Trust would be administered in Guernsey, as indeed it has been. The Trust has no connection with Jersey other than by virtue of clause 3.

5 By deed of appointment dated 21 ^st August, 2007, C, a wholly owned subsidiary of B was appointed an additional trustee. Both B and C are Guernsey registered companies and are regulated by the Guernsey Financial Services Commission. We will refer to them hereafter as “the former trustees”.

6 The Protector of the trust was F. On 8 ^th October, 2009, he was succeeded as Protector by G, managing director of the Representor, a company which carries on trust business in Geneva. We will refer to the Representor hereafter as “AA”. The Protector has the power to appoint and remove trustees. On 25 ^th June, 2010, G nominated E as Protector and on 1 ^st July, 2010, G exercised his power as protector to remove the former trustees as trustees of the Trust and to appoint the Representor as trustee in their stead.

Background to the Representation

7 From August 2007 onwards the former trustees worked closely with H as a joint venture partner, adviser and as the provider of equity and senior, junior and mezzanine debt in relation to a variety of transactions.

8 On 19 ^th December, 2007, the former trustees entered into a framework agreement with H and a group of companies within the trust structure the general purpose of which was to secure long-term financing for the activities of these companies and to provide H with additional security for the provision of that financing.

9 According to the former trustees, the practice had been developed that if funds were required to be moved within the trust structure for working capital or other purposes, intra group transfers were made to move the relevant funds where they were needed. Apparently these were then recorded in the accounting records of the relevant companies as a series of informal loan arrangements. The arrangements were usually recorded as a series of loans streamed up the structure from the provider company to the former trustees through any intermediate companies and streamed back down from the former trustees to the recipient companies through the intermediate companies. On occasion they may have been recorded as direct transfers between the provider and the recipient of the funds. As a consequence significant loan balances were apparently established between the Trust and some of the companies within the trust structure, which we will refer to as the “creditor companies”. These loan arrangements were made in Guernsey and are arguably governed by Guernsey law.

10 H collapsed financially in October 2008 and the creditor companies have gone into liquidation in the BVI. If the loan balances apparently due by the Trust to the creditor companies are found to be payable, then there are insufficient assets within the Trust to meet the same and the trust structure will effectively be insolvent.

11 On 12th March, 2010, the former trustees brought proceedings against the creditor companies before the Guernsey court for its determination as to whether the loan arrangements are and remain binding and, if they are enforceable, as to their terms and to the extent of the claims (in particular whether they extend to the personal assets of the former trustees). The creditor companies have counterclaimed in these proceedings for repayment of these loans. We will refer to these proceedings as “the first application”.

12 On 19 ^th May, 2010, the former trustees applied to the Guernsey court for the following directions, namely:-

We will refer to these proceedings as “the second application”.

• (i) Directions as to the steps they ought to take to ascertain the liabilities and the values of the assets and liabilities of the Trust.

• (ii) Directions as to the basis on which assets should be used to meet liabilities if the assets of the Trust were not sufficient to meet its liabilities in full.

• (iii) Specific directions as to what if any action they should take in relation to particular investments.

• (iv) Directions in relation to what steps they should take in proceedings in the Commercial Court in England in which they are defendants.

• (v) Directions for the payment of various costs and expenses of the former trustees, both administrative and legal, out of the assets of the Trust.

13 E has been convened to the second application, and, as we understand it, G, in his then capacity as Protector of the Trust, has been ordered to file evidence. E has submitted to the jurisdiction of the Guernsey court in the second application.

14 The former trustees have also given notice that they intend to apply for further directions as to the steps they should take in relation to the first application. The Guernsey court has ordered E and G to file such evidence as they wish in relation to these proposed directions.

15 Following the appointment of AA as trustee, it has now been convened to the second application. It has applied separately to this Court for directions as to whether it should submit to the jurisdiction of the Guernsey court. That potential application and an application by the creditor companies to be joined in as parties to the second application was due to be heard on the Monday following the hearing before us, namely Monday 9 ^th August, 2010, in a three day hearing set aside for that purpose.

16 The former trustees have recognised the appointment of AA as trustee of the Trust but have declined to vest the assets in AA pending receipt of directions from the Guernsey court and in exercise of their right to withhold assets to meet liabilities, which might in this case exceed the value of the assets within the Trust.

The Representation

17 Shortly after its appointment as trustee, AA brought the Representation with which we were concerned and obtained leave to serve it on the former trustees out of the jurisdiction, pursuant to Rule 7(j) of the Service of Process Rules 1994, namely that the claim or application is brought within the terms of Article 5 of the Trusts (Jersey) Law 1984. The former trustees appeared under protest as to jurisdiction and on 2 ^nd August, 2010, issued a summons to set that service aside and to stay the Representation.

18 In the Representation AA seek the following orders as against the former trustees:-

• (i) Directions requiring the former trustees to provide AA with information and documentation relating to the Trust.

• (ii) An injunction restraining the former trustees from dealing with the assets of the Trust without the prior approval of AA.

• (iii) Declarations that the former trustees are not entitled to (a) a right of indemnity in respect of any liability they may have to the creditors against the assets of the trust; and (b) retain or administer the trust funds.

• (iv) Directions requiring the former trustees to take all such steps as may be necessary to vest legal title to the assets of the Trust in AA.

19 We agreed with Mr Speck that this relief cannot properly be characterised as an application by AA for directions as to how it should act as trustee; rather it constitutes hostile proceedings against the former trustees. In particular an allegation that a former trustee is not entitled to an indemnity is an allegation that it has acted in breach of trust.

20 AA were only proposing to proceed at this stage with the directions in relation to disclosure, the injunction and the directions requiring vesting of legal title in the assets (18 (i), (ii) and (iv) above).

Jurisdiction

21 On the face of it both the Jersey and Guernsey courts have jurisdiction in this matter, pursuant to their respective laws. The Jersey Court has jurisdiction under Article 5 of the Trusts (Jersey) Law 1984 because the Trust is a trust whose proper law is the law of Jersey.

22 The Guernsey court would appear to have jurisdiction under section 4 of the Trusts (Guernsey) Law 2007 which...