The A and B Trusts

JurisdictionJersey
CourtRoyal Court
JudgeClyde-Smith, Commr. and Jurats Morgan and Newcombe
Date17 July 2007
ROYAL COURT
Clyde-Smith, Commr. and Jurats Morgan and Newcombe

P. Nicholls for the trustee.

Cases cited:

(1) H Trust, In re, 2006 JLR 280, considered.

(2) Marley v. Mutual Security Merchant Bank & Trust Co. Ltd., [1991] 3 All E.R. 198, dicta of Lord Oliver of Aylmerton followed.

Legislation construed:

Trusts (Jersey) Law 1984 (Revised Edition, ch.13.875, 2007 ed.), art. 51(1):

"A trustee may 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."

Trusts—powers and duties of trustees—submission to foreign court—not generally in interests of all beneficiaries for trustee to submit to foreign court in matrimonial proceedings of beneficiaries—may be if all assets located there—Jersey court cannot approve trustee's decision to participate in overseas proceedings if already submitted voluntarily to foreign court and therefore obliged to participate

Trusts—powers and duties of trustees—application for directions—trustee to make full disclosure of all relevant information, whether or not surrendering discretion—if full disclosure not made, application dismissed or adjourned—trustee may also be refused costs from trust fund

A trustee applied for directions concerning matrimonial proceedings in England involving the settlor of two Jersey trusts.

The settlor of two Jersey trusts (the husband) was involved in divorce proceedings in England instituted by his wife, who did not appear to be a beneficiary of the trusts. The trustee offered, inter alia, to provide £3m., out of the assets of the one trust of which the husband was a beneficiary, to be paid to the wife to settle the proceedings. The wife rejected the offer. The trustee submitted voluntarily to the English court, which encouraged it to provide assistance, namely £900,000 towards the parties' legal costs and assistance to the husband to pay maintenance to the wife. A financial dispute resolution was scheduled to be heard in September in the hope that the proceedings might be settled. The trustee stated that it could not distribute any funds without the approval of the Royal Court.

The trustee subsequently applied to the present court for directions. It sought approval of its proposal, in response to the judicial encouragement of the English court, to make only £200,000 available to the parties to pay the costs of the financial dispute resolution, and approval of its decision to participate in the English proceedings. It appeared that, contrary to the misleading impression given by the trustee that it had access to substantial funds, the trust was in fact manifestly illiquid. The trustee disclosed little information to the court to explain the financial position of the trust.

Held, ruling as follows:

(1) In the circumstances, the trustee's proposal to distribute £200,000 (which appeared to be the maximum sum currently available) to assist the parties in relation to the financial dispute resolution was sensible and in the interests of the beneficiaries of the trust, even though it was considerably less than the assistance expected by the English court because of the misleading impression previously given by the trustee. Approval would not, however, also be given to the trustee's decision to participate in the English proceedings, as it had already submitted voluntarily to the jurisdiction of the English court and therefore had no option but to participate. The court could not say whether it would have authorized the trustee voluntarily to submit to the English court if it had applied for directions before doing so, although in most cases it would be unlikely to be in the interests of a Jersey trust for a trustee to submit to the jurisdiction of an overseas court hearing divorce proceedings between a husband and wife, one or both of whom were beneficiaries under the trust. If, however, all the trust assets were located in England, it might be in the interests of a trustee to appear before the English courts ( para. 28; paras. 30-31).

(2) The trustee had, however, failed to provide the court with all the information relevant to its application for directions. A trustee applying for directions under art. 51 of the Trusts (Jersey) Law 1984 had a duty to make full disclosure, whether or not it surrendered its discretion to the court. It should provide the court with all the material relevant to the proposed decision it wished the court to approve, e.g. if the proposed action required the obtaining of expert advice or valuation the trustee should obtain that advice or valuation and provide it to the court. The court could not be expected to give directions without the information which the trustee itself had or ought to have had in relation to the matter on which it required assistance. If full disclosure were not made, the proper course would be to dismiss the application or adjourn it until full information was provided, and the court would have considered dismissing the present application but for the time constraints. If a trustee failed to make full disclosure on an application for directions without a good excuse, then, in addition to the possibility of the application being dismissed or adjourned, the court may also refuse to grant the trustee its costs out of the trust fund ( paras. 21-22; para. 24; para. 32).

1 CLYDE-SMITH, COMMISSIONER: This is an application for directions by Lincoln Trust Company (Jersey) Ltd. as trustee of two trusts to which I will refer as the "A" and "B" Trusts respectively, brought under art. 51 of the Trusts (Jersey) Law 1984 in relation to matrimonial proceedings in England between the settlor of the assets of the trusts, to whom I shall refer as "C," and his wife, to whom I shall refer as "D."

2 C has a number of wives including D under the tribal laws of the foreign jurisdiction in which he lives. However, he was subsequently married to D under a civil ceremony in England, where D now lives with the children of the marriage. C is thought to have as many as 40 children by his various marriages and a number of grandchildren.

The trusts

3 The A Trust is a Jersey proper law discretionary trust nominally settled on September 14th, 1989 by C's uncle, but funded by C. The original trustee was Allied Irish Trust Company (Jersey) Ltd. It retired in favour of Lincoln on May 11th, 2000. The beneficial class comprises C's grandfather, the grandfather's brothers and sisters, and the issue of the grandfather's brothers and sisters. It also includes the spouses of the grandfather and his brothers and sisters but, as a result of what appears to be a typographical error, spouses of the issue may not be included within the beneficial class. C comes within the beneficial class as issue, but for the reasons just mentioned it is not clear that D as his spouse is a beneficiary. C's children come within the definition of "issue" and are therefore beneficiaries. There is the usual power to add beneficiaries. A letter of wishes was executed by C on September 15th, 1989 under which he expressed the wish that the trust fund should be applied first for his benefit within his lifetime, secondly for the benefit of D during her lifetime, and thereafter for the benefit of his four children with D and six other named children.

4 The assets of the A Trust comprise an interest in a golf course with residential development potential situated in Ireland. The B Trust is a Jersey proper law discretionary trust declared by Lincoln on October 1st, 1992 and funded by C. The beneficial class comprises the grandchildren of C's father, their spouses and their issue. Accordingly, neither C as a child nor D as his spouse are within the beneficial class. There is the usual power to add beneficiaries. C executed a letter of wishes on October 2nd, 1992 expressing the wish that the trust fund should be applied primarily for the benefit of his four children with D and five other named children. The assets of the B Trust comprise the home in England in which D and her children (believed to be adults) live, a number of other properties situated in the United Kingdom and cash held in Guernsey.

The matrimonial proceedings

5 D commenced proceedings in the Family Division of the English High Court on June 17th, 2000 and on the same date obtained a worldwide freezing order in relation to C's assets, which included certain assets of the B Trust. On December 7th, 2000, Lincoln applied to intervene in those proceedings without the directions of this court. The application does not specify the capacity in which Lincoln applied to intervene but, on December 12th, 2001, Hughes, J. made the following order inter alia:

"There be leave to the trustees of the [B] Trust and of the [A] Trust to intervene for purposes limited to proceedings relating to ancillary relief.

Any application the trustees are advised to make to vary the terms of the freezing order made by Mr. Justice Johnson dated July 17th, 2000 (as amended) shall be issued and served on the petitioner and the respondent by not later than 4 p.m. on January 21st, 2002.

The trustees shall file and serve on the petitioner and the respondent by not later than 4 p.m. on January 21st, 2002 an affidavit containing the best available information relating to each of the trusts as to:

(i) its assets and income;

(ii) its last two years' trust accounts with copies;

(iii) all payments currently being made detailing recipient, amount and the purpose of any such payment; and

(iv) the extent to which the respondent was directly or indirectly the source of the funds paid into the trust.

And in relation to the [A] Trust shall produce by that date a copy of the trust deed."

Pursuant to those orders, Lincoln filed two affidavits, part of one of which we have seen and to which we refer later.

6 C challenged the jurisdiction of the...

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