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05 May 2016
The Royal Court recently considered orders made by the English Family Court in relation to a Jersey discretionary trust and therefore the operation of the so-called 'firewall' provisions contained in Article 9 of the Trusts (Jersey) Law 1984 regarding the enforcement or recognition of foreign judgments against Jersey trusts.(1)
The case confirms that trustees are not prevented from taking steps which are in the best interest of their beneficiaries simply because doing so might also be seen as giving effect to a decision by a foreign court which applied foreign law to a question regarding a Jersey trust.
Mr B and his former wife (Mrs B) had been involved in divorce proceedings in England, as a result of which the English Family Court ordered a division of the matrimonial assets.
The trust in question had been settled by Mr B and the only beneficiaries were the children of the marriage, who were both minors. The trust instrument permitted, among other things, the addition of beneficiaries.
The English court ordered that the disposition of trust assets by Mr B to the trust be set aside and ordered the trustee to treat that disposition accordingly and remit the trust fund to Mr B for onward payment by him to Mrs B.
It was clear from the judgment in the divorce proceedings that the overall family assets were insufficient for Mrs B to maintain the property in England in which she and the two children resided. It was partly for this reason that the English court determined that access to the trust assets was required.
The trustee had carefully considered the English judge's analysis and concluded, on the basis of his factual findings, that it was in the best interest of the beneficiaries of the trust (the children) that Mrs B have access to the trust funds so that she could maintain the family home.
The trustee therefore decided to add Mr B as a beneficiary of the trust and to distribute the whole of the trust assets to him in order to enable their onward distribution to Mrs B. The trustee applied to the Royal Court for approval of this decision on the basis that it was momentous.
The Jersey court had no difficulty in confirming that the tests for approval of a momentous decision (as set out in the well-known case of Re S Settlement(2)) were satisfied:
However, an interesting question arose as to whether the proposed steps fell foul of Article 9(4) of the Trusts Law, which provides that:
"(4) No –
(a) judgment of a foreign court…
with respect to a trust shall be enforceable, or given effect, to the extent that it is inconsistent with this Article, irrespective of any applicable law relating to conflict of laws."
Article 9 requires questions regarding a Jersey trust to be determined in accordance with Jersey law, which was not the case in relation to the orders made by the English court. As a result, Article 9(4) would have prohibited the English order from being enforced or given effect.
The court noted that the English judgment was not being enforced and that it was not concerned with the trustee giving effect to the English decision (which would be prohibited by Article 9(4)). Rather, the court was satisfied that the trustee was taking the proposed steps because he considered them to be in the best interests of the beneficiaries.
The main aim of Article 9 of the Trusts Law is to ensure that questions concerning a Jersey trust are governed by Jersey law, and as such it has been largely welcomed by trustees since its introduction in 2006.
However, it would be an absurd consequence for a trustee to be prevented from taking steps which are clearly in the best interests of the beneficiaries simply because there was an English court order requiring similar steps. In this regard, the decision provides some welcome clarity that this is not how Article 9(4) (which was introduced in 2012) should be interpreted.
The most recent consultation paper (published in April 2016) on amendments to the Trusts Law records that there have been a number of suggestions as to how Article 9 may be improved, but that no amendments are under immediate consideration. Given this decision, arguably, the interpretation of Article 9(4) is sufficiently clear.
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