Robert Lindley and Wesley O'Brien discuss cases where offshore courts act as auxiliaries to those onshore
Generally, for a foreign judgment to be capable of enforcement in an offshore common law jurisdiction such as Cayman or Jersey, it must be final and conclusive, for the payment of a sum of money and made by a superior court.
Offshore courts have considerable experience in giving directions to trustees faced with a joinder order issued by a foreign family court seeking to exercise its variation jurisdiction in respect of a trust governed by the law of the offshore jurisdiction. Subject to the specific facts and circumstances, various responses may be made by trustees in respect of such joinder applications, including the resulting directions made by offshore courts when dealing with foreign divorce proceedings affecting or indeed attacking an offshore law governed trust.
It is generally inappropriate for the trustee to argue against joinder, or to submit to the jurisdiction of the foreign (ie onshore) family court, thus avoiding any enforcement by the family court which may be to the detriment of the beneficiaries of the trust as a whole. There are exceptions to this, such as if all of the trust's assets are situated in the same jurisdiction as the foreign family court, or if all of the beneficiaries consent to a particular course of action to be undertaken by the trustee. In any event, such exceptions would be a viable option if the trustee has also obtained directions from its local court permitting its submission or participation in the foreign divorce proceedings. The different levels and extents of trustee involvement in foreign divorce proceedings is not the focus of this article. In understanding the extent to which offshore trust law and offshore courts will protect trusts from a variation order granted in foreign divorce proceedings, we review various judgments delivered by the courts of the Cayman Islands and Jersey in which it was considered and suggested that rather than the family court invoking its jurisdiction to vary an offshore trust, the family court should request the offshore court to act as an 'auxiliary court' to the divorce proceedings.
Divorce proceedings
Although not solely related to English divorce proceedings, offshore trustees grappling with divorce proceedings concerning their beneficiaries should consider the scope of the relevant trust variation jurisdiction, such as s24(1)(c) of England and Wales's Matrimonial Causes Act 1973, which provides:
24 Property adjustment orders in connection with divorce proceedings, etc.
(1) On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation or at any time thereafter (whether, in the case of a decree of divorce or of nullity of marriage, before or after the decree is made absolute), the court may make any one or more of the following orders, that is to say—
[...]
(c) an order varying for the benefit of the parties to the marriage and of the children of the family or either or any of them any antenuptial or post-nuptial settlement (including such a settlement made by will or codicil) made on the parties to the marriage, other than one in the form of a pension arrangement...
There may be differing attitudes between offshore courts towards the enforcement and recognition of a variation order made in foreign divorce proceedings. In the English Court of Appeal case of Charalambous v Charalambous [2004], it was confirmed that the English court had jurisdiction to vary the Jersey trust. Thorpe LJ held:
This power to vary is derived not from the settlement but from the matrimonial regime of the state. Equally the right to seek variation derives not from the settlement but from the matrimonial regime of the jurisdiction that dissolves the marriage. So [the exclusive jurisdiction clause of the trust] cannot oust or defeat the wife's exercise of her statutory right to apply under s.24 of the Matrimonial Causes Act 1973 for a variation of the settlement order. The [exclusive jurisdiction] clause is of no avail to the husband.
Further, in Charalambous Thorpe LJ cited the 2002 Jersey case of Compass Trustees Ltd v McBarnett [2002] in which the Jersey court was prepared, as a matter of comity, to recognise an order made in England under s24(1)(c) of the Matrimonial Causes Act 1973 as the English court had considered the matter fully and concluded that the need to provide capital to the wife outweighed the disadvantage caused to the other beneficiaries. Similarly, the Jersey court gave effect to an English variation order made in the Mubarak v Mubarik [2008] proceedings.
Each case will turn on its specific facts, and it is interesting to note the attitude taken by the Jersey Royal Court before Jersey enacted amendments to the Trusts (Jersey) Law. Post Mubarak, Jersey trusts law now prohibits the enforcement of foreign judgments in respect of Jersey trusts. Therefore such discretion of the Jersey courts to enforce variation orders of the English family court for reasons of comity have been significantly restricted.
Firewall legislation
Offshore 'firewall provisions' which have been enacted in most offshore jurisdictions such as the British Virgin Islands, Jersey, Guernsey, Isle of Man, Bermuda and the Cayman Islands provide protection to the trustee if foreign proceedings seek to encroach on the administration of a trust governed by such offshore law.
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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.
