The Imk Family Trust

• Jurisdiction: Jersey
• Court: Royal Court
• Judge: Birt, Deputy Bailiff and Jurats Le Brocq and Liddiard
• Judgment Date: 15 August 2008
• Date: 15 August 2008

ROYAL COURT

Birt, Deputy Bailiff and Jurats Le Brocq and Liddiard

C.G.P. Lakeman for the representor;

M.P. Renouf for the minor and unborn beneficiaries;

J.M.P. Gleeson for the trustee;

The first and second respondents did not appear and were not represented.

Cases cited:

(1) A Trust, In re, Royal Ct., February 6th, 2006, [2006] JRC 020A, unreported, not followed.

(2) A & B Trusts, In re, 2007 JLR 444, distinguished.

(3) B Trust, In re, 2006 JLR 562, distinguished.

(4) C v. C (Ancillary relief: Nuptial settlement), [2005] Fam. 250; [2004] 2 FLR 1093; [2004] EWCA Civ. 1030, referred to.

(5) Chapman v. Chapman, [1954] A.C. 429; [1954] 1 All E.R. 798, referred to.

(6) Compass Trustees Ltd. v. McBarnett, 2002 JLR 321, not followed.

(7) Fountain Trust, In re, 2005 JLR 359, distinguished.

(8) H Trust, In re, 2006 JLR 280; further proceedings, 2007 JLR 569, distinguished.

(9) Lane v. Lane, 1985-86 JLR 48, distinguished.

(10) Saunders v. Vautier (1841), 4 Beav. 115; 41 E.R. 482; [1835-42] All E.R. Rep. 58, applied.

(11) Showlag v. Mansour, 1994 JLR 113, dicta of Lord Keith of Kinkel considered.

(12) Turino Consolidated Ltd. Retirement Trust, In re, 2008 JLR N [27], distinguished.

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. 49.

art. 47: The relevant terms of this article are set out at para. 81.

art. 51: The relevant terms of this article are set out at para. 64.

Texts cited:

Dicey, Morris & Collins, The Conflict of Laws, 14th ed., vol. 1, para. 14-003, at 567; para. 14-006, at 568; para. 14-020, at 576; paras. 14R-018 - 14-047, at 574-588 (2006).

Harris, Comity overcomes statutory resistance: In the matter of the B Trust, 11 Jersey & Guernsey Law Review at 184 (2007).

Harris, Jersey's new private international law rules for trusts—A retrograde step 11 Jersey & Guernsey Law Review at 9 (2007).

Hochberg, Jersey's new private international law rules for trusts—A response, 11 Jersey & Guernsey Law Review at 20 (2007).

Lewin on Trusts, 18th ed., para. 21-57, at 707; para. 34-21, at 1223; paras. 38-28 - 38-39, at 1551-1555; para. 45-11, at 1857 (2008).

Trusts—variation—variation by foreign court—order of foreign court varying or altering Jersey trust inconsistent with Trusts (Jersey) Law 1984, art. 9(1) and unenforceable under art. 9(4)

Trusts—variation—variation by foreign court—order of foreign court in matrimonial proceedings varying Jersey trust (i.e. requiring exercise of trustee's power under trust) may be given effect under Royal Court's general supervisory jurisdiction or by directions under Trusts (Jersey) Law 1984, art. 51—no power to give effect to alteration of Jersey trust (i.e. requiring departure from terms of trust)—directions under art. 51 not "enforcement" of foreign order for purposes of art. 9(4)

Trusts—variation—variation by beneficiaries—beneficiaries may require trustee to vary terms of trust—beneficiary's consent to variation valid if voluntary, even if provided as precondition to participation in proceedings opposing variation and subsequent attempt to renege

The representor sought an order enforcing or giving effect to an order of an English court altering a Jersey trust.

In matrimonial proceedings in England in 1999, the Family Division of the High Court ordered the first respondent (the husband) to pay £4.875m. to the representor (the wife), with periodical payments until the lump sum was paid. In 1997, the parties had established a Jersey trust which held the shares in a group of companies involved in the international jewellery business. As a result of a company reorganization prior to the establishment of the trust, however, the husband had retained the majority of the group's value. The beneficiaries were originally the parties, their children and any remoter issue but, in 1998, the husband had removed the wife as a beneficiary of the trust, so that the trustee had no power to make payments to her. The husband refused to comply with the 1999 order and the wife, with whom the children lived in dire financial circumstances, commenced various proceedings seeking payment of the amount awarded to her.

In 2005, she applied to the English court seeking, inter alia, an order under s.24(1)(c) of the Matrimonial Causes Act 1973 altering the trust so as to require the trustee to pay the sum owed to her by the husband and, as there was no liquidity in the trust, to enable steps to be taken to obtain the funds from the underlying companies. She also sought to bar the husband from any further participation in the proceedings under the Hadkinson principle, as he was in contempt of the court's orders. As a precondition to his continued participation, the husband wrote a letter to the trustee, in which he accepted that he was bound by the English court's orders and wished the trustee to give effect to them. He was then permitted to appear and opposed the wife's application. The English court made an order in 2007 altering the trust as requested by the wife. The court acknowledged that it would generally be an exorbitant exercise of jurisdiction for it to purport to alter the terms of a Jersey trust but considered that the husband's prolonged recalcitrance made this a wholly exceptional case.

The husband refused to comply with the 2007 order and informed the trustee that, contrary to his earlier letter, he opposed the wife's application. She therefore brought the present proceedings seeking an order enforcing or giving effect to that order, which was supported by the parties' adult children. The wife submitted that (a) the court should enforce the English order on the grounds of comity; alternatively (b) all the adult beneficiaries of the trust should be treated as having consented to the alteration (despite the husband's attempt to renege on his letter to the trustee) and the court should give its consent on behalf of the minor and unborn beneficiaries pursuant to art. 47 of the Trusts (Jersey) Law 1984. The alteration was in the best interests of the minor and unborn beneficiaries, as it offered the best prospect of obtaining funds from the underlying trust assets.

The trustee was neutral in these proceedings but submitted that the court did not have jurisdiction to enforce the English order. Article 9(1) of the Trusts Law provided that questions as to the alteration of a Jersey trust should be determined solely in accordance with Jersey law and para. (4) provided that "no foreign judgement with respect to a trust shall be enforceable to the extent that it is inconsistent with this Article irrespective of any applicable law relating to conflicts of law." The trustee also submitted that, if the trust were altered, representatives of KPMG should be appointed as receivers of the trust, with power to take the necessary steps to realize assets from the underlying trust companies, because it had no expertise in doing so and no funding for its costs, and it was unlikely that another trustee could be found.

Held, approving the alteration of the trust:

(1) The English order "altered" the trust, in the sense that it required the trustee to do something it did not have power to do under the trust deed, i.e. to make payments to the wife, who was an excluded person. (An order would "vary" a trust if it did not depart from the trust, so that the trustee could comply with it by exercising a power under the deed.) ( paras. 57-60).

(a) By reason of art. 9(4) of the Trusts Law, the court could not enforce a judgment of an overseas court varying or altering a Jersey trust, even if the trustees had submitted to the jurisdiction of that court. In the present case, the English court applied English law when it purported to alter the trust pursuant to the 1973 Act. Under art. 9(1) of the Trusts (Jersey) Law 1984 (which applied regardless of whether or not a settlor was domiciled in Jersey), any question concerning the variation of a Jersey trust should be determined solely in accordance with Jersey law. The judgment of the English court was therefore "inconsistent" with art. 9(1) and not enforceable under art. 9(4) ( para. 71; para. 76).

(b) If the order had merely varied the trust, the court could have given the trustee directions under art. 51 so as to achieve the objectives of the order, having regard to the interests of the beneficiaries. The giving of directions under art. 51 did not amount to "enforcement" of an overseas judgment for the purposes of art. 9(4) ( paras. 72-76).

(c) As the order amounted to an alteration of the trust, the court had no power to give directions to the trustee under art. 51 to comply with it. The court itself could not alter a trust so as to authorize or require a trustee to do something outside the powers conferred on it by the deed. Its general supervisory power to protect the interests of beneficiaries did not require it to have the ability to override a settlor's expressed intentions and to rewrite the dispositive terms of a trust ( paras. 65-68; para. 76; para. 80).

(2) As all the adult beneficiaries had consented to the English court's alteration of the trust, however, the Royal Court would approve the alteration under art. 47 of the Trusts Law on behalf of the minor and unborn beneficiaries. The husband's letter to the trustee—which, under the Hadkinson order, he had written in order to participate in the hearing before the English court and in which he stated that he was bound by the English order and wished the trustee to give effect to it—would be considered to be his consent. As he had chosen to write the letter, and had thereby obtained the advantage of appearing before the English court, he was bound by it notwithstanding his later attempts to renege. The alteration of the trust was for the benefit of the minor and unborn beneficiaries, as it offered the best prospect of realizing funds...