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27 October 2020
In its recent decision in In the matter of the 1964 Settlement ( JRC 140B), the Royal Court considered – for the first time – whether it can exercise a foreign statutory power on the application of a trustee of a foreign trust. The court concluded that it can do so as a matter of principle and went on to exercise an English statutory power so as to permit the trustees of a trust governed by English law to self-deal.
The 1964 E Settlement (the trust) was made in England by the settlor when she was resident in England. While there was no express choice of law clause, the trust contained references to various English statutes and the first trustees were also residents of England. By the time of the application, those trustees had been replaced by two Jersey private trust companies (the trustees), and the administration of the trust was carried out by a dedicated family office that administered the offshore wealth of two branches of the same family.
By way of subsequent instruments, a number of sub-funds were established for the benefit of the trust's principal beneficiaries. Each principal beneficiary's sub-fund held all of the issued shares in a separate holding company, which in turn held various assets that comprised the body of the trust. Both of the holding companies were Jersey companies.
In order to create greater independence between different sides of the family, the trustees proposed to reorganise the corporate structure underlying the trust. English counsel advised that:
The trustees (having consulted with the principal beneficiaries) decided not to unravel the historic transactions and did not seek relief in respect of them from the Royal Court. However, the trustees did apply to the court for:
Governing law of trust
While there was no express choice of law clause, the Royal Court concluded that the terms of the trust "unambiguously" implied a choice of English law. (The court emphasised that it was therefore making no finding as to the extent to which the English law rule against self-dealing might apply in Jersey.)
Application of foreign law statutory power
The court noted that had the application permitting the trustees to self-deal been brought in respect of a Jersey law-governed trust, relief could have been granted under Article 47(3) of the Trusts Law.(3) However, as the trust was a foreign trust, that power was unavailable.
The court noted that Section 57 of the UK Trustee Act contained an equivalent provision to Article 47(3) of the Trusts Law, and that there was some sense in the application for an order under Section 57 being made to the Jersey court "bearing in mind the location of the Trustee, the trust property and the administration of the companies of the Trust" – provided that the court had the power to make such an order.
The court found that it could exercise the Section 57 jurisdiction, notwithstanding that the 'court' for the purposes of Section 57 was defined as the High Court of England and Wales.
The court noted that Article 49(1) of the Trusts Law provides that "a foreign trust shall be regarded as being governed by, and shall be interpreted in accordance with its proper law" (subject to certain exceptions), and so concluded that:
Accordingly this Trust, as a matter of Jersey law, is governed by English law. The proper law of the trust necessarily means the whole of that law. If the Royal Court were to decide that it could not exercise the power conferred by section, it would not be applying the whole of English law to the Trust but only a truncated version of it.
The court noted that the same reasoning had been adopted in the English case of C –v- C ( EWHC 2699 (Ch)). In that case, the English court held that it could exercise a Kenyan foreign statutory power in relation to a Kenyan-law governed trust by virtue of Article 8 of the Hague Convention on the Law Applicable to Trusts and on their Recognition (the convention), as scheduled to (and given force in England by) the Recognition of Trusts Act 1987. Article 8 provides that the applicable law of a trust is to govern its validity, construction, effects and administration.
The court held that while the convention does not have direct force in Jersey, it could nonetheless have regard to Article 8 thereof when considering the meaning and effect of Article 49(1) of the Trusts Law.(4) The court therefore had "no doubt" that it had the power to make an order under Section 57 and, on the facts, concluded that it was appropriate to grant the order sought.
Blessing of decision
The court declined to grant an order approving the trustees' decision to enter into the proposed reorganisation, as the relief granted under Section 57 already enabled the reorganisation to proceed. However, the court did make some "general remarks", including that:
The judgment is a welcome one for trustees in two particular respects.
First, the Royal Court's confirmation that it will apply the whole of the proper law of a foreign trust (including powers conferred by foreign statute) is both well reasoned and pragmatic. This judgment illustrates to Jersey-based trustees of foreign trusts that the Jersey court is willing to assist in the administration of foreign trusts and, importantly, that it can apply the full range of powers available under the trust's governing law. This gives trustees the option of seeking assistance from the Jersey court, thereby avoiding the potential difficulties that can follow from commencing proceedings in another jurisdiction.
Second, the judgment provides a helpful reminder of the type of factors that the court will consider when asked to bless a decision that a trustee proposes to take in circumstances where they may be exposed to a conflict of interest.
For further information on this topic please contact Oliver Passmore or Daniel Maine at Ogier by telephone (+44 1534 514 000) or email (email@example.com or firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.
(3) Broadly speaking, this provision empowers the Royal Court to vary the terms of a trust so as to empower a trustee to undertake certain transactions otherwise not permitted by the terms of the trust or by law.
(4) In reaching this view, the Royal Court noted that the Trusts (Amendment No 2) (Jersey) Law 1991 and the explanatory note to the report set before the states in 1990 proposing that law stated that:
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