10 April 2024

Trusts And State Immunity – Can A Nation State Be Trustee?



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A nation state can be trustee of a Jersey law express trust, even though it has state immunity against being sued for breach of trust or otherwise being held accountable...
Jersey Litigation, Mediation & Arbitration
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A nation state can be trustee of a Jersey law express trust, even though it has state immunity against being sued for breach of trust or otherwise being held accountable for its trusteeship in domestic courts. The Royal Court has clarified this in the first case directly on this point to be decided in the Commonwealth.

It arose in Representation of Equiom Trust (CI) Limited re Estate of Constantin  Mattas  [2024]JRC068. This concerned a will that provided for various trusts. The final disposal of residue was to a trust to provide interest free loans to intelligent and promising young men of Greek Orthodox faith born in Greece of Greek, Greek Orthodox parents, for the purpose of them undertaking further university education in specified countries (the "Intended Trust"). The will also provided that the trustee of the Intended Trust would be the Greek Government (as recognised as such by the Government of the United Kingdom).

Various issues arose as to the validity of that trust. One was the status of Greece as trustee. One of the heirs¹ (who would take on an intestacy if the Intended Trust failed) argued that the Intended Trust could not be valid because, as a nation state, Greece enjoys state immunity. This means it cannot be sued in domestic courts, and so could not be held accountable as a trustee. Therefore, they argued, the trust could not come into being because it was unenforceable.

In Jersey, state immunity is regulated by the State Immunity Order 1985 (the "Order"), which imports the UK State Immunity Act 1978 into Jersey law, with limited amendments to make sense of that Act under Jersey law (references to the "UK" being amended to references to "Jersey", for example)(the "Act").

The Act confirms and applies the fundamental principle of state immunity as a matter of international law as a matter of domestic law: the starting point is that a nation state is immune from action in domestic courts. The Act provides that rule of state immunity applies, unless (and only unless) one of the exceptions provided in the Act applies.

These exceptions include the ability of the state in question to waive its immunity, and submit to the jurisdiction of the domestic courts (provided for by s.2 of the Act).

Greece argued that it had already submitted to the jurisdiction of the Court pursuant to s.2 by appearing in the proceedings in which the validity of the trust was being decided.

Against that, the Court accepted the heir's argument that the submission had so far only been made to the Court's jurisdiction in the present proceedings, as regards the validity of the Intended Trust. There had therefore been no submission in respect of any future proceedings, such as for breach of the Intended Trust, which could not be started or submitted to, because no such breach had yet occurred. 

However, the Court noted that Greece indicated that it would be willing to undertake not to claim state immunity in respect of any future proceedings relating to the Intended Trust. As a result, the Court felt it would be unsatisfactory to declare the Intended Trust unenforceable, when the Government of Greece was prepared to give an undertaking to render it enforceable.

Conversely, the Court further held that it could not be known at the present time whether the Greek Government would claim immunity in respect of any proceedings at a future time. The Court considered that, if immunity were not claimed at that future time, the trust would be enforceable by action in the usual way. It therefore held that the mere possibility that the Greek Government might claim sovereign immunity in future was insufficient ground to declare the Intended Trust invalid.

Finally, the Court referred to s.3 of the Act. This provides that a state is not immune in respect of any proceedings relating to a "commercial transaction" entered by a state, which the Act defines to include "any transaction or activity (whether of a commercial, financial, industrial, professional or other similar character) into which a State enters or into which it engages  otherwise than in the exercise of sovereign authority." (the Court adding that emphasis when quoting the section).

The Court emphasised the wording referring to the state acting "otherwise in the exercise of its sovereign authority" and decided that wording applied. The Court applied it because it held that the Greek Government was appointed as trustee by a will, not by itself exercising any sovereign authority of its own, and it would therefore carry out its activities as trustee of the Intended Trust in the same way as any other trustee would.

Impact of the case

In almost all cases, the trustee of a Jersey trust will be a professional trustee operating in Jersey's regulated sector, and the possibility of a nation state being trustee is exceptional - as the lack of previous case law on the point anywhere else in the Commonwealth demonstrates. That said, the case also shows the continuing importance of state immunity in Jersey case law: in addition to Mattas, twice in the last ten years points of state immunity have been decided by the Jersey Court and then by the Privy Council.² It remains to be seen whether the point in Mattas will be considered further on any appeal.

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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