Trusts practitioners will be aware of the history of Family Division judges in England having been willing, in effect, to disregard foreign trust structures in a manner which their counterparts in the Chancery Division would approach with far more caution. As a notable exception to this, the decision of Munby J in A v A v St George Trustees Limited and others comes as welcome news to Jersey's trust industry.
The case involved trusts, with Jersey trustees, governed by English law. The wife alleged that the trusts were shams, with the consequence that, as she would have it, certain shares held by the trusts should be treated as belonging to the husband.
Munby J rejected this argument, noting that although the court should adopt a "robust, questioning and where appropriate, sceptical approach" to offshore structures, it did not mean that the court could "simply ride roughshod over established principle, least of all where there are, or appear to be, third party interests involved".
The High Court went on to consider the law on sham trusts, and pointed out that the relevant legal principles which have to be applied "are precisely the same in [the Family Division] as in the other two Divisions. There is not one law of 'sham' in the Chancery Division and another law of 'sham' in the Family Division."
In considering the law of sham, Munby J agreed with the analysis of the Royal Court of Jersey in In the Matter of the Esteem Settlement (Abacus (CI) Limited as trustee), Grupo Torras SA and Culmer v Al Sabah and four others  JRC 092, that the requirement of there being a common intention applies equally in the case of a settlement of property or the creation of a trust, as between the trustees and the settlor, who must intend that "the arrangement is otherwise than as set out in the trust deed".
A comforting reminder was also given by Munby J that "the mere fact that a trustee complies with a request from the settlor (or, for that matter, a request from a beneficiary) to exercise his discretion in a particular way provides no basis at all for the suggestion that the trust is a sham".
The High Court also considered whether a trust which commenced as a sham, could subsequently lose that character, and vice versa, and concluded that a trust which is not initially a sham cannot later become a sham - if a trustee subsequently acts other than in accordance with the trust deed, this would constitute "a breach of trust; nothing less and nothing more". Munby J also saw no reason why a trust which was initially a sham could not subsequently lose its character, for example through a change in trustees, "where the new trustee accepts the appointment believing the trust to be entirely genuine and intending to perform its fiduciary duties conscientiously and strictly in accordance with what it believes to be a genuine trust deed."
In giving further support to the trust industry, Munby J declined to give "judicious encouragement" to the trustees of the trusts to use their discretion to benefit the wife, as to do so, he felt, would cross the line to improper pressure in all the circumstances of the case.
In terms of the continuing debate on the recognition of foreign matrimonial orders, this is an important decision. The case shows that the matrimonial courts must now apply the same stringent tests as the Chancery Court, making it far more unlikely that trusts will be found to be shams in matrimonial cases. If the English Courts generally adopt this approach, they will also be more circumspect about attributing the trust assets to one of the spouse as a "matrimonial resource."
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