The distinction between "forum for administration" clauses and "exclusive jurisdiction" clauses in the context of trusts
This judgment from Commissioner Clyde-Smith with Jurats Liddiard and Nicolle set aside a service of proceedings on respondents outside of Jersey and stayed the proceedings. The importance of the judgement is the Court's consideration of the "forum for administration" and "exclusive jurisdiction" clauses in the context of trusts.
The proceedings in question concerned a representation brought in the Royal Court of Jersey by AA (a Swiss company) which was the present trustee of a Jersey law trust (the "Trust"). The representation sought certain orders against the former trustees, namely two Guernsey companies regulated by the Guernsey Financial Services Commission, and which former trustees continued to hold and administer the trust assets in Guernsey. The nature of the orders requested by AA constituted hostile proceedings against the former trustees.
Importantly, the Guernsey courts were already seized of several other applications in relation to the Trust, brought by the former trustees.
With respect to the representation in the Jersey courts, the former trustees appeared under protest as to jurisdiction and issued a summons to set service aside and to stay the representation.
It was not in dispute that on an application to serve proceedings out of the jurisdiction in accordance with the Service of Process Rules 1994, AA must show:
- that the Court has jurisdiction to hear the matter;
- that there is a serious issue to be tried; and
- that Jersey is clearly the most convenient forum for the resolution of the issues.
The former trustees did not dispute (1) and (2), and the issue was therefore whether AA could satisfy the Court that Jersey was clearly the most convenient forum. In effect, this required the Court to consider the "forum for administration" provision found in the trust deed of the Trust.
The clause in question is one that most Jersey trustees will be familiar with, in that it provided:
"...this Trust is established under and shall be governed in all respects by the laws of the Island of Jersey which shall be the proper law of this Trust and the courts thereof shall be the forum for the administration of this Trust."
AA's advocate submitted that this provision conferred an exclusive e jurisdiction on the Jersey court in connection with all disputes arising out of the Trust, and in support, he relied upon the Court of Appeal decision in Koonmen v Bender and Others  JCA 218.
In response, the former trustee's advocate drew from an article by Paul Matthews entitled "What is a trust jurisdiction clause?", published in the Jersey and Guernsey Law Review in October 2003, which criticised the Koonmen decision as making the mistake of treating the "forum of administration" clause as being a contractual provision and misunderstanding the meaning of such clauses.
By way of background, Paul Matthew's article asserts that jurisdiction clauses are essentially contractual, and as a trust is not a contract, it therefore could not bind persons, such as beneficiaries, who are not party to the trust deed. His view is that "forum for administration" provisions are quite different to exclusive jurisdiction clauses. The administration referred to, in Professor Matthew's view, is not intended to include contentious breach of trust litigation. Rather, it is concerned with aspects of the administration of the trust which require the assistance of the court, such as clarifying the true construction of trust terms, or seeking directions as to whether the trustee should take or defend legal action against third parties. In contrast, an exclusive jurisdiction clause has its place in a contract between parties to a transaction who agree that, if a dispute arises out of their transaction, they will submit their dispute to a particular tribunal. Paul Matthews' criticisms were recently cited with approval by the Grand Court of the Cayman Islands, which decided not to follow Koonmen.
As the superior court, the Court of Appeal decision in Koonmen is binding on the Royal Court. Bearing this in mind, the Royal Court, in determining that the provision did not amount to an exclusive jurisdiction provision notwithstanding the decision in Koonmen, the Court relied on "important" differences between the trust deed in Koonmen (which included the words "exclusive jurisdiction" in the interpretation of the proper law clause) and the trust deed in this matter (which did not contain those words). Further, the Royal Court asserted that it was a question of the Court construing the particular deed before it in order to derive from it the presumed intentions of the parties, conducted against the background of the surrounding circumstances or matrix of facts existing at the time when the document was executed.
In this case, the Court noted that the Trust here had no connection with Jersey save for the adoption of Jersey law as the proper law and the Jersey courts as the forum for administration. Accordingly, the court's judgment was that it was not the intention of the draftsman of the trust that the courts of Jersey should have exclusive jurisdiction over all disputes in relation to the Trust. The Court accordingly held that the Jersey Courts did not have exclusive jurisdiction over the matters raised in AA's representation, and that the Guernsey courts were the most convenient forum.
As a safety measure, the Court further held that if it were wrong and the trust deed did confer exclusive jurisdiction on the Jersey courts, then in exercise of the Court's discretion and applying Koonmen, the Court's judgement was that the circumstances in this case were exceptional and justified the Court overriding the express choice of forum provision.
The Royal Court is bound by the Court of Appeal decision in Koonmen, although the case shows an implied approval of Professor Paul Matthews' clear and reasoned criticism of the decision in Koonmen.
In this case, the Royal Court avoided having to apply the outcome from the Koonmen decision by noting relevant differences in the two trust deeds and focussing on the importance of construing the particular deed against the background of the surrounding circumstances in order to derive from it the presumed intention of the parties. The Royal Court also reminded us that it can override an exclusive jurisdiction clause in the interests of justice, and this would have been one of those cases if the clause in question had amounted to an exclusive jurisdiction clause.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.