Jersey: A Moment Of Harmony

Last Updated: 10 December 2008
Article by Louise Richardson

The attitude of the English matrimonial courts to offshore trusts has long been laced with suspicion. It has not been unknown for offshore trusts to be used, traditionally by husbands, to place assets beyond the reach of their wives. The English matrimonial court has often sought to cut through this device and to vary the terms of the offshore trust to allow a distribution to the wife.

Jersey is, of course, a sovereign jurisdiction and an order of a foreign court will generally be ineffective in Jersey without further order. Recent cases have confirmed that the Jersey courts have no power simply to "enforce" a judgment of a foreign court or, perhaps more significantly to direct a trustee to take action that it has no power to take under the terms of the trust.

The court has, however, recently breathed new life into the principle set out in the 19th century English case of Saunders v. Vautier – reflected in Article 43(3) of the Trusts (Jersey) Law 1984 (as amended) ("the Law"). Essentially where the beneficiaries are ascertained, of age and of sound mind and are acting as one, they can call for the termination of a trust, and, indeed, the variation of the terms of the trust.

In the recent case of In the matter of the Turino Consolidated Ltd Retirement Trust [2008] JRC100, the Royal Court was considering the variation of a fixed trust. The court confirmed that its general supervisory power relation to trusts did not confer additional powers on the Royal Court over and above those set out in the Law or in the Trust instrument itself. In In the matter of the IMK Family Trust [2008] JRC136, the Royal Court went further and stated that the Law does not confer a power on the Royal Court to alter the terms of a trust, whether a fixed trust or otherwise: "A settlor is entitled to expect that the Court will uphold and enforce the provisions of the trust which he has established."

In Turino, a Jersey law trust had been established by a husband and wife. The terms of the trust were such that the assets that each contributed were to be held in separate funds in the proportions of their contributions which were of different amounts. The trust funds were used to purchase a matrimonial home situated in the Netherlands. This was essentially both the sole asset of the trust and the sole matrimonial asset.

In heavily contested ancillary relief proceedings (to which the trustee was not a party), the Dutch court held that the matrimonial assets should be split equally between the parties. Whilst the Dutch court did not purport to vary the trust, the matrimonial assets were said to include the respective shares of the parties in the trust. The trustee sought directions from the Royal Court as the wife wished to purchase the house but wished the trustee to distribute the proceeds of sale equally. The husband (for various reasons) urged the trustee and the Royal Court to uphold the terms of the Trust and stated that there was no power for the Royal Court to vary the terms of a fixed trust and to distribute the proceeds of sale equally.

Unfortunately for the husband, the parties had sent what was termed a "Letter of Wishes" to the trustee some time earlier asking for the trustee to hold the trust funds equally in the event of a divorce. The Jersey court found that this was an effective Saunders v. Vautier direction and that the fixed trust had, therefore, been varied by the parties themselves. The court emphasised that the trust was not varied by reason of any order of the Dutch court or even as the result of any order of the Jersey court. Rather the variation was a result of the instruction by the two sole beneficiaries of the trust.

This principle was again invoked in the IMK case, a case which is steadily gaining in notoriety, involving the matrimonial affairs of Mr and Mrs Mubarak. The English matrimonial court awarded Mrs Mubarak £4.875 million in 1999. Up to April 2008, she had only received some £250,000. The combined legal costs in respect of the recovery of the £4.875 million themselves ran into millions. Judges of the English Court of Appeal have declared the litigation "Titanic". The case was described by Lord Justice Wall as "not a case of cannot pay; it is a case of will not pay, and one of the worst of its kind."

The wife eventually sought and obtained an order that the husband – in contempt of various orders already - be barred from participating in an upcoming hearing unless he fulfilled certain pre-conditions, one of which was to write a letter to the Trustee. The husband complied with that condition writing to the Trustee a letter "intending its terms to be irrevocable". He confirmed that he accepted he was bound by the court's orders, asked the Trustee to assist him in meeting his obligations under the Orders of the court, and stated that he wished the Trustee to give effect to the orders of the English court.

Because he had written that letter he was permitted to participate in the English proceedings which resulted, despite his protests, in an order by the English court varying the Jersey trust.

When the Trustee sought directions from the Royal Court, the court confirmed that it could not enforce a judgment of the English Family Division. What it could do, if it was in the interests of the beneficiaries to do so, was to give the Trustee directions or to approve a course of action decided upon by the Trustee which would have the effect of achieving the objectives of the English judgment. It could, however, do so if the directions sought were to act in a manner which was outside the powers conferred on the Trustee by the trust deed or the Law.

This meant that the Royal Court could not direct the Trustee to make a distribution to the wife from the Trust as she was no longer a beneficiary of the Trust. However, what it could do was to rely on the letter from the husband as a direction to the trustee to vary the trust which in the circumstances of that case gave rise to a Saunders v Vautier situation. The court emphasised that the husband had chosen to write the letter to the trustee (thereby obtaining the advantage of participating in the English proceedings) and could not now disown what he had written just because he did not like what the English court had decided.

The moment of harmony between the beneficiaries – however fleeting – was sufficient to found a variation of the trust which might otherwise not have been permissible.

This article first appeared in the JEP Wealth Management supplement on 12 November 2008.

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.

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Louise Richardson
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