The H Trust

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: Clyde-Smith, Commr. and Jurats Clapham and Le Cornu
• Judgment Date: 02 October 2007
• Date: 02 October 2007

ROYAL COURT

Clyde-Smith, Commr. and Jurats Clapham and Le Cornu

R.J. MacRae for the representor;

D.M. Cadin for the first respondent.

Cases cited:

(1) B Trust, In re, 2006 JLR 562, applied.

(2) Marley v. Mutual Security Merchant Bank & Trust Co. Ltd., [1991] 3 All E.R. 198, referred to.

(3) S v. L, 2005 JLR N [34], applied.

(4) S Settlement, In re, 2001 JLR N [37], applied.

Legislation construed:

Trusts (Jersey) Law 1984 (Revised Edition, ch.13.875, 2007 ed.), art. 9: The relevant terms of this article are set out at para. 40.

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.

(2) The court may, if it thinks fit

(a) make an order concerning

(i) the execution or the administration of any trust?.?.?."

Text cited:

Lewin on Trusts, 17th ed., para. 29-100, at 765; para. 29-102, at 766-767 (2000).

Trustspowers of courtvarying trustee's decisioncourt may vary decision of trustee who has not surrendered discretion only if no reasonable trustee could have made itmay then give directions under Trusts (Jersey) Law 1984, art. 51 as to exercise of trust powers

The representor sought a direction that the trustee of a Jersey trust be directed to give effect to an order of an English court in matrimonial proceedings.

The representor (the wife) and the second respondent (the husband) were beneficiaries under a trust governed by Jersey law. The trust held their matrimonial assets, comprising property in various countries and an investment portfolio, which had been used solely for their benefit. The other beneficiaries were the husband's children, their spouses and his grandchildren. The wife instituted divorce proceedings in the Family Division of the English High Court in 2005, having been married to the husband since 1983.

In September 2006, the English court ordered that the trust assets, which were then worth approximately 2.6m., be divided equally between the husband and wife. The trustee had not surrendered its discretion in those proceedings. It took legal advice in relation to the English order and decided not to give effect to it but instead to make an alternative proposal to the parties. It resolved formally and openly that if its proposal were not accepted it would seek the direction of the Royal Court. The wife rejected the proposal and requested that the matter be brought before the court.

Meanwhile, the trustee considered that there was a realistic prospect that proceedings seeking the enfranchisement of the lease of the English property in which the wife resided might be successful and provide substantial funds for the parties. It decided not to apply to the court for directions pending the outcome of those proceedings. The husband had been aware of and supported this second decision but the trustee did not consult the wife and did not inform her for several months. The trustee maintained its decision despite subsequent opinions that there was a clear risk of losing the proceedings and the parties being liable for costs. Furthermore, this stance delayed giving effect to the English order and the making of any material capital distributions to the parties, leaving the wife in particular unable to service or discharge her debts. She therefore made the present application, seeking a direction by the court under art. 51 of the Trusts (Jersey) Law 1984 that the trustee should give effect to the English order.

The English court had also ordered the husband to make monthly maintenance payments to the wife until the surrender of the lease of the English property. The trustee made a monthly distribution to the husband on the basis that he would use part of it to fund the wife's maintenance. The wife informed the trustee in October 2006 that she was in fact receiving nothing from the husband and requested that it make direct payments to her. The trustee did not respond until May 2007, by which time the wife's financial situation was dire, and took an apparently relaxed attitude to her difficulties. Direct payments were only made from July, after she had made the present application.

The trust assets had been reduced to approximately 2.28m., mainly as a result of the monthly distributions to the parties. Although the wife initially sought a direction that effect be given to the English order, she subsequently sought merely an equal division of the remaining assetsas the trustee had clearly sided with the husband, she did not seek an order under which it would control assets awarded to her. The trustee did not surrender its discretion and stood by its decisions but was willing to be guided by the court.

The wife submitted that (a) the trustee's second decision, to await the outcome of the enfranchisement proceedings, had been unreasonable and should be set aside; (b) any application by a trustee for directions or guidance was equivalent to a surrender of its discretion in respect of a particular issue; and (c) when giving directions under art. 51 of the Trusts Law, the court was not concerned under art. 9 with whether or not the trust itself avoided or defeated the rights, claims or interests conferred on her by reason of her marriage or contravened the English order, but only with whether the trustee should be directed to exercise its powers to give effect to the order.

The trustee submitted that, under art. 9, when considering this matter and giving any directions, the court had to ignore entirely the relationship between the husband and wife and the order of the English court. That article provided that "any question concerning?.?.?. the administration of the trust?.?.?. shall be determined without consideration of whether or not?.?.?. the trust or disposition avoids or defeats rights, claims, or interests conferred by any foreign law upon any person by reason of a personal relationship to the settlor?.?.?."

Held, ordering as follows:

(1) The trustee's decision not to apply to the court for directions pending the outcome of the enfranchisement proceedings was one at which no reasonable trustee could have arrivedas there were insufficient funds in the trust to maintain the parties and pursue those speculative proceedings, and as the trustee had previously resolved formally and openly to refer the matter to the court if its counter-proposal were not accepted, whereas it had not consulted or informed the wife of its second decisionand it would be set aside. The court therefore had power under its supervisory jurisdiction to give the trustee directions, notwithstanding that the trustee had not surrendered its discretion. In the circumstances, it was in the interests of comity and of the beneficiaries to achieve the provision ordered by the English court as far as reasonably practicable. That court had investigated the matter very thoroughly, heard all the evidence and full argument, and reached a reasoned decision as to a fair division of the assets between the parties. The order was not unreasonable and had not been appealed. Although it did not override the trustee's discretion, there would have to be good reason, on the facts of the present case, for a trustee not wishing to give effect to such an order. The trust assets would be divided so as to give substantial effect to the English order, as follows: the trustee should make a capital distribution to the wife of 960,000 and procure the transfer to her of the UK properties, after which she could be removed as a beneficiary of the trust; and the remaining assets could be appointed to the husband, against whom the wife would make no further claim under the English order. The court appreciated that this order would leave insufficient funds in the trust to make its continuation financially viable ( para. 43; paras. 48-53; paras. 57-62).

(2) The present application for directions under art. 51 of the Trusts (Jersey) Law 1984 had been made by the wife and not the trustee, which stood by its decisions and had not surrendered its discretion. Indeed, the court would only accept a trustee's surrender of discretion for good reason, such as conflict or deadlock, and an application by a trustee for directions under art. 51 was not the equivalent of a surrender of its discretion in relation to a particular issue ( para. 39).

(3) When exercising its supervisory jurisdiction under art. 51 to give directions concerning the administration of the trust, the court was not concerned, under art. 9(2)(b), with whether the trust itself avoided or defeated the rights, claims or interests conferred on the wife by English law by reason of her marriage to the husband or whether the trust defeated the English order. The court was concerned solely with whether and to what extent the trustee should be directed to exercise its powers under the trust in such a way as to give effect to the English order and the wife's rights under it. Article 9 therefore had no bearing on the exercise of the jurisdiction under art. 51. The legislature could not have intended that trustees and the court, if discretion were surrendered, should be prevented by art. 9, when considering the exercise of powers under a trust, from taking into account the relationship between a beneficiary and the settlor of a trust or the orders of foreign courts of competent jurisdiction adjudicating between beneficiaries ( paras. 41-42).

(4) The trustee's conduct in this case precluded any solution in which the wife would have retained an interest under the trust. For example, although the legal obligation to maintain her had rested on the husband and not the trustee, the trustee had been aware that all the husband's available assets were held in the trust and it had known or should have known that he was not using his allowance to pay her maintenance. It was intolerable that the wife did not receive...