Jersey: Mubarak v Mubarik - A Clarification Of Article 47 Of The Trusts (Jersey) Law 1984

The notorious litigation in Mubarak v Mubarik may finally have come to a conclusion in the Jersey Court of Appeal decision on the 19 November 2008. The judgment is the appeal against the decision in the Royal Court of the Deputy Bailiff in In the Matter of IMK Family Trust (15 August 2008). The two decisions confirm the Jersey Court's approach to the English Family Division's purported variation or alteration of Jersey trusts.

Article 47 of the Trusts (Jersey) Law ("the 1984 Law") became the vehicle to vary the Trust and the means by which the wife could be given access to the funds in Trust. The Court of Appeal decision is therefore a clarification of the width of Article 47 and its practical application.

In the Royal Court the Deputy Bailiff had ordered (i) a variation of the family trust pursuant to Article 47 of the 1984 Law; (ii) the removal of The Craven Trust Company Ltd as trustee of the trust and (iii) appointed two individuals as receivers and managers to the assets of the trust pursuant to Article 51 of the Trusts (Jersey) Law 1984. In giving the leading judgment in the Court of Appeal, Sir Michael Beloff, QC upheld the judgment of the Deputy Bailiff, with some clarification of the orders made by the Royal Court.

THE ROYAL COURT

In 2007 Holman J in the High Court in England had sought to vary the Jersey governed family trust to enable the First Respondent Wife to receive a lump sum of £4.875m awarded to her in ancillary relief proceedings as long ago as 1999. The First Respondent Wife had previously been excluded as a beneficiary to the family trust and, under the terms of the trust deed, the power to add beneficiaries could not be exercised in favour of an excluded person.

The Deputy Bailiff found that by reason of Article 9(4) and Article 9(1) of the 1984 Law the Royal Court could not enforce a judgment of the Family Division varying or altering a Jersey trust under the provisions of the 1973 Matrimonial Causes Act. Thus, the Royal Court gave power to the statutory amendment of Article 9 which Jersey lawyers had long been expecting.

The Royal Court could however (in certain circumstances) give effect to an order of the Family Division by giving directions pursuant to Article 51 of the 1984 Law. To do so, the order must involve something the trustees had power to do under the Trust (a variation). Whether the variation could be given effect would then be a matter for judicial discretion taking into account the interests of the beneficiaries.

In this case, the Royal Court held that it could not give effect to the judgment of Holman J pursuant to Article 51 of the 1984 Law, because it would have been directing the trustees to act in a manner outside the powers conferred on them by the trust deed.

That was not however, the end of the matter. Mr Mubarak, in order to take part in English proceedings, had written a letter in 2006 to the trustees in which he consented to the payment of the lump sum to his wife from the Trust ("the 2006 letter") The Royal Court found it could give approval under Article 47 of the 1984 Law to a variation of the trust deed, because it considered all adult beneficiaries to have consented to the variation (the 2006 letter being considered as Mr Mubarak's consent) and the representative of the minor and unborn beneficiaries also consented. The trustee maintained a neutral stance.

It was this decision which became the subject of the appeal.

ON APPEAL

The Appellant Husband contended that giving effect to the order of Holman J would amount to a complete resettlement of the trust. As such this constituted neither a variation nor a revocation of the terms of the trust and the Court had no power to approve it under Article 47.

This contention was rejected. Sir Michael Beloff QC held that whilst the First Respondent Wife had been excluded as a beneficiary to the trust, that exclusion was revocable. The exclusion could be revoked and as a reinstated beneficiary she was given a particular interest restricted to the extent of her entitlement under the orders made in the divorce proceedings. Her entitlement therefore remained one under the trust. Sir Michael Beloff QC confirmed that Article 47 of the 1984 Law empowered approval of an arrangement which is so extensive as to leave little of the existing trust provisions extant, as long as those benefitting from the arrangement were within the terms of the Trust and entitled to the Court's protection (paragraph 83 of the judgment).

The Appellant Husband contended that the Deputy Bailiff had failed to grant approval to the variation on behalf of unascertained beneficiaries.

The Court of Appeal found that the Advocate appointed to represent the minor and unborn beneficiaries had also represented the unascertained beneficiaries. The omission to refer to unascertained beneficiaries in the Court order had been a mere slip. Sir Michael Beloff QC noted that ordinarily the interests of unascertained beneficiaries would be best represented by the trustees (provided the trustees were maintaining a neutral stance).

Sir Michael Beloff QC continued: if the Court of Appeal was wrong on this point, it reconvened itself as the Superior Number and decided to approve the variation under Article 47 on behalf of the unascertained beneficiaries itself.

The Court of Appeal went onto consider whether it had the power to grant approval on behalf of unascertained beneficiaries in circumstances where the Appellant Husband argued he had retained a general power to appoint further beneficiaries to the trust, a power which he had not released.

The Court of Appeal held that Jersey Law was sufficiently wide to give the Royal Court the power to grant approval on behalf of unascertained beneficiaries, even if a potential member of the relevant class is in existence.

The question was then whether the object of a fiduciary power had the ability to block an arrangement. Here, whether Mr Mubarak had the ability to block the variation as the object of a general fiduciary power to appoint further beneficiaries to the Trust. Lord Walker in Schmidt v Rosewood Trust Ltd [2003] 2AC 709 Privy Council suggested that the object of such a fiduciary power would have such power unless the trustees have the authority to release the power granted.

Sir Michael Beloff QC however, held that only where the Jersey court was considering either (a) the position of a single default beneficiary or (b) a restricted class from whom one or more must be chosen, and all of whom agree in objecting, could it be said that the object of a fiduciary power would have power to block an application for approval."

The Court went onto to find that even if wrong on this, the Appellant Husband had, by the 2006 letter, thereby given his irrevocable consent to the variation of the trust deed and in so doing released his power of appointment.

Importantly, the Court of Appeal concluded that the proper characterisation of the determination of a Court in an application under such as Article 47 of the 1984 Law is not to vary the trust but, rather, to supply the missing consent. . Here, the Appellant was required, in advance, irrevocably to submit to being bound by such proposals as were set out in the Holman order. It is those very proposals which the orders below sought to give effect to.

COMMENT

The Court of Appeal declined to express a view on whether Article 9(4) of the 1984 Law allows the Royal Court to enforce a judgment of the Family Division in England varying or altering a Jersey trust under the Matrimonial Causes Act 1973. In practical terms this debate may now be defunct given the ready use of Article 47 and 51 of the 1984 Law by the Courts to give effect to orders made in foreign proceedings.

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