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Is My Trust Fund Protected If I Get Divorced? – A Jersey Perspective (Part II)

Andrew Fox, a barrister and head of family law at Sinels, provides a comprehensive review - in 2 parts - of the interplay between the English and Jersey courts when faced with trust funds on divorce. This second part concentrates on the Jersey court's approach to the relationship with English divorce courts. Part 1 was published in September.

image of andrew fox

Andrew Fox, Barrister and Head of Family Law, Sinels

Part 1 of this article is available here

An order of the Family Division affecting the trust – how will trustees and the Royal Court respond?  
1) The most common scenario to consider (as in Charman[1]) is where a spouse has generated wealth during the marriage in the course of employment, some or all of which has been settled into an offshore trust (usually a discretionary trust), of which he and members of his family (sometimes including his wife) are beneficiaries. When the marriage breaks down the husband attempts to protect his assets and attempts to distance himself from the trust fund, claiming that it should not form part of the "matrimonial pot" for division on divorce. The Family Division has repeatedly taken a dim view of such arguments.

2) In Charman the husband asserted that the assets owned by the trust were deposited there by him as part of his long term plan to found a “dynastic trust”. The husband gave evidence as follows:

“I deeply wanted to establish a legacy for my future generations because I felt it was the most wonderful thing that I could ever do to ensure not only the longevity of my name but also my reputation and my standing in the future generations of offspring.” [2] 

3) The Family Division dismissed the husband’s assertion stating that:

“…if the husband harboured this as a settled and real intention from the outset, the lack of a single piece of supporting documentary evidence from any quarter is truly remarkable.” [3]

4) The Court went on to say the following:

“But even if I had been persuaded of the existence of this as a settled, even documented intention I am doubtful in the circumstances of this case whether, of itself, it would have been very influential in the result.
 
The test is whether the assets in the trust should be regarded by the Court as a “resource.” That is a very broad definition. These assets are held in a discretionary trust in conventional form……
 
So even if the husband had got home on the facts, for the Court simply to have ignored the assets would have been, I consider, wrong and, in my experience, entirely novel.” [4]

5) The husband was to appeal the decision[5]. A main ground of appeal was that the High Court had erred in computing the total assets of the husband to include the monies held in the trust. The Court of Appeal resoundingly rejected this point of appeal. The Court stated as follows:

“…In the circumstances of the present case it would have been a shameful emasculation of the court’s duty to be fair if the assets which the husband built up in Dragon during the marriage had not been attributed to him.
 
… [Counsel] submits that, if this court were to dismiss the part of the appeal referable to Dragon, it would send a message to the offshore world that, in family cases, trusts do not matter. It will by now be clear that we send no such message.” [6]

6) On appeal it was submitted, on behalf of the husband, that the High Court had failed to ask itself the question: ‘if the husband were to request the trust to advance him the whole or part of the assets of the trust would its trustee be likely to do so?’ It was submitted that if the Court had asked the question, the judge could reasonably have answered it only in the negative.
 
7) The Court of Appeal was to conclude that the judge had had the question at the forefront of his mind. The Court was to identify the following issues as being determinative of the question:

“(a) the husband was the settlor of Dragon;
(b) its wealth represents the fruits of investment at his request in companies which, substantially as a result of his talents, became very successful;
(c) until after the breakdown of the marriage the operative letter of wishes was that he should “have the fullest possible access to the capital and income of the Settlement”; and
(d) even today, following despatch of the fresh letter, his expressed wish is to be treated as the primary beneficiary.” [7] 

8) The Court of Appeal went on to say:

“… there is another reason why we should draw a line across this argument: it was never raised before the judge… it does not figure in the pleaded grounds upon which the husband has secured permission to appeal nor even in the skeleton argument in support of them; and it was first raised in a supplementary skeleton argument dated eleven working days prior to the hearing of the appeal. In short the argument is brought too late in any event.” [8]

9) The question of ‘whether, if the husband asked the trustee to distribute the assets of the trust to him, would it be likely to do so?’ was a central issue. Clearly this was an issue of fact on which the actual views of the trustee would be determinative, but the trial was to take place without any direct evidence from the trustee. Furthermore there was little, if any, consideration given to the potential interests of the other beneficiaries.
 
10) There was no need for the wife to establish that the trust was a sham, to have it set aside or to claim an interest in it; all that was necessary was for the wife to show that the trust assets were a “financial resource”. In the judgments of the High Court and the Court of Appeal she most certainly did! The Court clearly took a very robust attitude towards the trust and effectively treated the assets as no more than an extension of the husband’s bank account.
 
11) It would seem that the High Court and the Court of Appeal determined that in a typical discretionary trust case the Court can attribute the entirety of the trust assets to the husband for the purposes of division on divorce upon proof of three quite straightforward factors:

(i) the husband is the settlor;
(ii) the trust assets derive from the husband’s business acumen;
(iii) a letter of wishes exists stating that he wants to have full access to the capital and income of the trust and to be the primary beneficiary.

12) Clearly the Court cannot make an order forcing a trustee to advance funds to a beneficiary spouse since such an order would be in total disregard of the trust structure and the trustees’ fiduciary obligations. The only order that can be made is one that takes the resource under the discretionary trust into account and which ‘encourages’ trustees to exercise their discretion to advance trust funds. When making such an order that encourages trustees to make funds available to a beneficiary spouse, the Court must not place improper pressure on trustees to exercise their discretion in a particular manner.[9]

13) As the Charman case clearly exemplified, it has increasingly been the case that arguments put forward by those protecting trust funds are not accepted by the Family Division and inevitably orders are made the effect of which is to include all or part of the trust fund for division on divorce. It is fair to say that the approach of the Family Division is not exclusive to the English Courts and it can also be seen in other Commonwealth jurisdictions[10].

14) Of the greatest concern to those who have trusts in Jersey (or who are contemplating an offshore trust ) and trustees alike is whether or not Jersey trusts can successfully defend attacks from overseas jurisdictions and in particular attempts to enforce judgments of foreign courts against the assets of the Jersey trust.

15) If the Family Division makes an order for the division of assets which include assets held in trust in a case where the trust assets are located in England, then there is unlikely to be much difficulty in enforcement of the English Court order against those assets; even if they are owned by an offshore trust (it is for this reason that the location of the assets is an important issue).

16) However, if the trust fund of an offshore trust (i.e. a Jersey trust) is located elsewhere an application will have to be made to enforce the Family Division English Court order in the Royal Court of Jersey.

17) A relevant factor for the Royal Court to consider will be whether or not the Jersey trustees have previously submitted to the jurisdiction of the Family Division. In such circumstances it is likely that the Royal Court  will take the view that it is difficult not to enforce an order of the Family Division when the trustees have been party to those proceedings[11]. Putting aside any such issues, the overriding objective of the Royal Court is to act in the interests of the beneficiaries (including unborn or unascertained beneficiaries).

18) The actions of the Family Division against trusts were such that the trusts legislation in Jersey was to be amended with the Trusts (Amendment No. 4) (Jersey) Law 2006 coming into force in October 2006.
 
19) Article 9 of the Trusts (Amendment No. 4) (Jersey) Law 2006 states as follows:


 
"(1)    Subject to paragraph (3), any question concerning –

(a) the validity or interpretation of a trust;
(b) the validity or effect of any transfer or other disposition of property to a trust;
(c) the capacity of a settlor;
(d) the administration of the trust, whether the administration be conducted in Jersey or elsewhere, including questions as to the powers, obligations, liabilities and rights of trustees and their appointment or removal; or
(e) the existence and extent of powers, conferred or retained, including powers of variation or revocation of the trust and powers of appointment and the validity of any exercising such powers,
shall be determined in accordance with the law of Jersey and no rule of foreign law shall affect such question.

(2) Without prejudice to the generality of paragraph (1), any question mentioned in that paragraph shall be determined without consideration of whether or not –

(a) any foreign law prohibits or does not recognise the concept of a trust; or
(b) the trust or disposition avoids or defeats rights, claims, or interests conferred by any foreign law upon any person by reason of a personal relationship to the settler or by way of heirship rights, or contravenes any rule of foreign law or any foreign judicial or administrative order or action intended to recognise, protect, enforce or give effect to any such rights, claims or interests.

(3) The law of Jersey relating to –

(a) légitime; and
(b) conflicts of law,

shall not apply to the determination of any question mentioned in paragraph (1) unless the settlor is domiciled in Jersey.

(4) No foreign judgement with respect to a trust shall be enforceable to the extent that it is inconsistent with this Article irrespective of any applicable law relating to conflicts of law.
…..

(6) In this article –

“foreign” refers to any jurisdiction other than Jersey;
…...

(7) Despite article 59, this article applies to trusts whenever constituted or created.” 

20) The equivalent Guernsey provision to Article 9(4) was drafted in much wider terms:

“Notwithstanding any legislation or other rule of law for the time being in force in relation to the recognition or enforcement of judgments, no judgment or order of a court of a jurisdiction outside Guernsey shall be recognised or enforced or give rise to any right, obligation or liability or raise any estoppel if and to the extent that –

(a)   it is inconsistent with this Law, or
(b)   the Royal Court, for the purposes of protecting the interests of the beneficiaries or in the interests of the proper administration of the trust, so order.”[12]

21) I am not however aware of any authorities to date testing the strength of the Guernsey legislation.
 
22) The intervention of the Family Division in matters which the Royal Court considers to be within its sole province has inevitably caused major frustration for the Court. In the case of Re B Trust[13], Bailhache, Bailiff, stated obiter as follows:


 
“ …With some diffidence, we express the hope, however, that English courts might in future exercise judicial restraint before asserting a jurisdiction pursuant to s.24 of the Matrimonial Causes Act 1973 to vary a Jersey trust.  This court has shown itself sensitive (long before the enactment of the Trusts Law amendment) to perceived interference with its jurisdiction to supervise Jersey trusts.  ..…

The jealousy with which the court guards its supervisory jurisdiction over Jersey trusts does not mean that it is insouciant of the reasoned decisions of other courts exercising a matrimonial jurisdiction...…

It would, in our view, avoid sterile argument and expense to the parties if the English courts were, in cases involving a Jersey trust, having calculated their award on the basis of the totality of the assets available to the parties, to exercise judicial restraint and to refrain from invoking their jurisdiction under the Matrimonial Causes Act to vary the trust.  Instead, they could request this court to be auxiliary to them.  Such an approach is adopted by Courts exercising jurisdiction in relation to insolvency and in other areas of law too.  It is true that such jurisdiction to seek assistance from a foreign court may usually have its basis in statute.  Nonetheless, we can see no reason why the trustee, or one or more of the parties before the English court as the case might be, should not be directed to make the appropriate application to this court for assistance in the implementation of the English court’s order.  It appears to us that this would be a more seemly and appropriate approach to matters where the courts of two civilised and friendly countries have concurrent interest.  It would, furthermore, be more likely to avoid the risk of the delivery of inconsistent judgments.” [14] 

23) This case is the more interesting since it came before the Court for consideration on 27 October 2006 (with Judgment being handed down on 8 December 2006), the Trusts (Amendment No. 4) (Jersey) Law 2006 having come into force at midnight on 26 October 2006.
 
24) Re B related to English divorce proceedings that involved a Jersey trust. The Jersey trustee of the B Trust, having sought directions from the Royal Court, had submitted to the jurisdiction of the Family Division and had given evidence. The Family Division had made financial provision for the wife by varying the trust (the court ordered that £1.5m of the £5.3m trust fund should be transferred to a sub-trust in which the wife would have a life interest). The trustee applied to the Royal Court for directions as to how to respond to the variation of the trust. It was argued that the Royal Court could not make an order giving effect to the Family Division order because to do so would be contrary to Article 9(4).The Royal Court ruled that the order would (with one exception) be recognised and given effect because it was not inconsistent with Jersey law and it would be fair to do so as a matter of comity. The exception was that the order removing the Jersey trustees would not be followed as the Royal Court saw good reason for them to remain in place.
 
25) The Royal Court made the following remarks:

“…If the purpose of the amended art. 9 really is to protect trust assets to the extent that a manipulative spouse can evade the enforcement of a carefully considered judgment designed to do justice between the husband and wife on divorce, that would seem to us to be a very unhappy state of affairs….
 
…We find it to be altogether unsurprising that the English courts should have applied English law in the exercise of a statutory jurisdiction conferred in matrimonial proceedings to vary the terms of a trust in order to do justice between the parties…
 
[in relation to the issue of the amended article 9] …We are quite clear what they do not mean and that they do not exclude the application of the doctrine of comity. It would, in our judgment, take very clear and express words to persuade us that the legislature intended to deprive this court of the flexibility to do justice in a wide range of cases on the basis of a principle of almost universal applicability.” [15]

26) This decision caused major consternation for lawyers and trustees alike, since notwithstanding the amended legislation it appeared that the Royal Court was still willing to enforce an order of the Family Division.
 
27) It is helpful to consider the observations of the present Bailiff (Birt) on this matter:

“… I accept that some of the language used in the judgment may have given this impression. However, I do not think that that was a correct reading of the decision. The fact was that, in that case, the variation in question (namely the appointment of a sub-trust in favour of the wife) was something which the trustee had power to do under the trust deed. It was therefore something which the trustee could have done of its own volition and which the court could direct the trustee to do under its supervisory jurisdiction.”[16]

28) A further important decision of the Royal Court concerning this matter is the case of Re H Trust[17]. The husband and wife were beneficiaries under a trust governed by Jersey law. The trust held their entire matrimonial assets, comprising property in various countries and an investment portfolio, which had been used solely for their benefit. The wife instituted divorce proceedings in the Family Division and an order was made that the trust assets be divided equally between the husband and wife. The trustee had not surrendered its discretion in those proceedings. It took legal advice in relation to the English order and decided not to give effect to it but instead to make an alternative proposal to the parties which was a less generous solution than envisaged by the order (so as to prevent a total exhaustion of the trust property). It resolved formally and openly that if its proposal were not accepted it would seek the direction of the Royal Court. The wife rejected the proposal. The trustee then decided to defer making any further decision until it had proceeded with a claim to enfranchise the lease of a property in England owned by the trust (the trustees considered that the enfranchisement might provide substantial funds for the parties). The husband had been aware of and supported this decision but the trustee did not consult the wife and did not inform her for several months. This stance delayed giving effect to the order of the Family Division which left the wife unable to service or discharge her debts. She therefore made application to the Royal Court seeking a direction under Article 51 Trusts (Jersey) Law 1984 that the trustee should give effect to the English order.
 
29) It was submitted on behalf of the trustee that under Article 9(2)(b)[18], when considering this matter and giving any directions, the Court had to ignore entirely the relationship between the husband and wife and the order of the Family Division. It was submitted on behalf of the wife that when giving directions under Article 51[19] the court was not concerned under Article 9 with whether or not the trust itself avoided or defeated the rights, claims or interests conferred on the wife by reason of her marriage, or contravened the Family Division order, but only with whether the trustee should be directed to exercise his powers under the H Trust to give effect to the order and the wife’s rights under it.
 
30) The Court agreed with the submissions made on behalf of the wife. The Court opined that such an approach was consistent with?the approach of the Court in Re B [20] who had determined that Article 9 had no bearing upon the exercise by the Court of its supervisory jurisdiction under Article 51. The only issue for the Court was whether and to what extent the trustee should be directed to exercise its powers under the trust in such a way as to give effect to the Family Division order.
 
31) Both Re B and Re H have been interpreted as suggesting that the Royal Court has an unlimited discretion to give effect to foreign judgments against Jersey trusts. The case law led to further consideration of statutory amendments to Article 9. In the Green Paper on trusts legislation[21] it was proposed that the existing Article 9 should be repealed and replaced with more stringent terms whereby matters in relation to trusts were to be determined ‘only according to Jersey law and that all provisions of foreign law are excluded.’  However, the salient aspect of both cases is that the action which the trustee was directed to take by the Royal Court fell within the powers conferred by the trust deed[22].
 
32) In Mubarak v Mubarik and Others[23] the Family Division, for once,  gave careful consideration to the Jersey legislation when considering an application under section 24(1)(c) of the Matrimonial Causes Act 1973 to vary the terms of a post-nuptial settlement constituted by a Jersey trust (the IMK Family Trust).
 
33) By way of background the husband in this case was an international jeweller who had placed the assets of the business into a discretionary Jersey trust (the IMK Family Trust) during the course of his marriage. The husband, wife, and their children were the original beneficiaries. After the marriage broke down the husband exercised a power reserved to him under the trust and executed a deed removing the wife as a beneficiary of the trust and declaring her as an “Excluded Person” for the purposes of the trust.
 
34) Divorce proceedings commenced and in November 1999 the Family Division ordered the husband to pay to the wife a lump sum of £4.875 million with periodical payments until payment of the lump sum. Prior to the hearing the husband was to concede that he should be treated as owning the assets of the trust. The monies awarded are still unpaid.
 
35) Since the award was made there have been innumerable further court hearings. In 2006[24] the wife applied to the Family Division for an order preventing the husband from participating further in the proceedings, or placing a number of pre-conditions on him, because of his non compliance with Court orders (i.e. he was in contempt of court). The Family Division determined that the husband should not be debarred from defending the proceedings, but certain pre-conditions were placed on him in accordance with Hadkinson[25] principles. One of the conditions placed upon the husband was to require him to write an irrevocable letter to the trustees, asking the trustees to assist him in meeting his obligations to the wife by enforcing the lump sum order. The husband duly did so.
 
36) Against this background the wife invited the Family Division to vary the terms of the trust as a post nuptial settlement. 
 
37) In his judgment Holman J made the following comments:

“I am well aware, and deeply conscious, that this recent change in the law of Jersey, made by an instrument that was first adopted by the States only in April 2006, long after the present application was underway, may make effective enforcement of any order made by me more difficult and perhaps impossible. But it is not for me to decide matters of Jersey law and the opinion of [Counsel] holds out a sufficient prospect of success that I should not, on this ground alone, refuse to make an order, if it is otherwise right to do so.” [26]

38) In considering the decision of the Royal Court in Re B[27], Holman J observed:

“…I myself am very respectful indeed of the sovereignty of the foreign State and of the jurisdiction of the foreign court. I hope I do exercise considerable “judicial restraint”, but the Postscript does not preclude that the English court may yet, in some appropriate case, exercise its variation of settlement power, even in relation to a Jersey trust; and that in such a case, the Jersey court will not be “insouciant of the reasoned decisions” of this court.
……

I deeply appreciate that “as a general rule it will be an exorbitant exercise of jurisdiction for this court to purport to vary the terms of a Jersey settlement.” But, as Mr Justice Bodey said many years ago, this is, or has become, a wholly exceptional case. It no longer attracts general rules………..”[28]

39) Clearly the Family Division was at pains to make it clear that it did not vary the terms of a Jersey trust lightly, however the Family Division acceded to the application. The Mubarak case then moved to Jersey against a backdrop of confusion as to when a foreign judgment might be enforced against trust assets in that jurisdiction.
 
40) The position of the Family Division was acknowledged when the matter came before the Royal Court in Re IMK Family Trust[29]. In a judgment handed down on 15 August 2008, Birt, Deputy Bailiff, stated as follows:

“It has occasionally been the case in the past that the Family Division has made orders in connection with overseas trusts without much apparent regard to the fact that those trusts were governed by the law of the overseas jurisdiction. However, this is not such a case. A reading of the judgement of Holman J shows that he was very conscious of the fact that the Trust is governed by the law of Jersey and he specifically accepted that, as a general rule, it would be an exorbitant exercise of jurisdiction for the Family Division to vary the terms of a Jersey trust….However, he felt that, in the light of the husband’s prolonged recalcitrance, he had no alternative but to make the order and this Court can well understand why he came to that conclusion.”[30]

41) The Court determined that:

“…this Court does not have any inherent jurisdiction to alter a Jersey trust. Whilst one can at any rate see an argument that, where the trustee has submitted to the English jurisdiction, a judgment altering a Jersey trust is capable of being enforced in Jersey even though this Court would not have jurisdiction to make such an order itself, it seems highly doubtful that, where the trustee has not submitted to the jurisdiction of the English court and is therefore not bound by any such order, this Court can somehow find jurisdiction to alter the terms of the trust simply because the English court, exercising a power conferred by an English statue, has such a power…
….
 
…It follows that a judgement of the Family Division varying a Jersey trust under English law is ‘inconsistent’ with Article 9(1) and is accordingly not enforceable in Jersey by reason of Article 9(4).
 
Does this mean that there are no circumstances in which the objectives of an order of the Family Division varying or altering a Jersey trust can be given effect under the Law of Jersey?  In our judgement it does not.  We agree with Bailhache Baliff in Re B Trust and Clyde-Smith Commissioner in Re H Trust that the giving of directions under Article 51 does not amount to enforcement of the overseas judgment in questions to the purposes of Article 9(4).  Why do we say that?
 
Let us take a simple example.  Suppose that, in the case of a conventional discretionary Jersey trust where the beneficiaries include the husband, the wife and their children, the English Court varies the Jersey trust under the 1973 Act by ordering that the sum of £1m. be paid to the wife out of the trust.  This is something which the trustee could do under the powers conferred upon it under the trust deed.  The trustee would not necessarily have to seek directions from the Jersey court.  It would be open to the trustee to take note of the English judgement, to consider the desirability of bringing any financial dispute between the husband and wife to an end and to reach the view that it was in the best interests of all the beneficiaries (including the children) for a capital distribution of £1m. to be paid to the wife so that everyone could get on with their lives.  This would not amount to ‘enforcement’ of the English judgment.  It would be a conventional case of a trustee taking account of all the relevant circumstances (including in this case the existence of an English judgment) and deciding how to exercise its dispositive powers under the trust deed in the best interests of the beneficiaries. 
 
Although a Jersey Trustee might in such circumstances be content to exercise its powers without recourse to this Court, it might wish to seek the approval of this Court to its decision.  In those circumstances, this Court would no more be enforcing the English judgment than the trustee itself.  The Court would simply be fulfilling its usual function of considering the exercise by a trustee of its discretionary powers and deciding whether those powers were being exercised reasonably.  Alternatively, the trustee might surrender its discretion to the Court; in that event the Court would stand in place of the trustee and consider how the powers under the trust deed should be exercised in the interests of the beneficiaries taking account of all relevant circumstances, including the existence of the English judgment.  Alternatively, the Court might be asked to exercise its power to give directions under Article 51 on the basis that a decision of the trustee to exercise its powers to give directions in such a way as to give effect or not give effect (as the case may be) to the English judgment was unreasonable.  In all of these cases there would be no question of any ‘enforcement’ of the English judgment for the purposes of Article 9(4). All that the Court would be doing is exercising its supervisory jurisdiction on conventional grounds.” [31] 

42) The court went on to summarise their views as follows:

“(i) By reason of Article 9(4) of the 1984 Law, this Court cannot enforce a judgment of the Family Division varying or altering a Jersey trust under the 1973 Act even where the trustees have submitted to the jurisdiction of the Family Division. Whether that is an appropriate outcome is not for us to comment. It is the effect of the introduction of Article 9(4).
(ii) Where the variation ordered by the Family Division does not amount to an alteration …….. this Court may give directions under Article 51 of the 1984 Law which have the effect of achieving the objectives of the English judgement. Whether this Court will do so in a particular case is a matter of discretion having regard to the interests of the beneficiaries.
(iii) Where the variation ordered by the Family Division does not amount to an alteration, there is no jurisdiction in this Court to give directions under Article 51 which authorise or direct the trustees to act in a manner which is outside the powers conferred on them by the trust deed.” [32]

43) The word ‘variation’, perhaps somewhat confusingly, was used to cover two different situations:

(i) An alteration of the terms of the trust deed i.e. authorising/requiring the doing of something by the trustees which was outside the powers conferred on them by the trust deed; which was unenforceable.
(ii) Varying the existing trust in a way that the trustees themselves could have done by exercising a power in the trust deed; which was enforceable.

44) The Royal Court, pursuant to the rule established by Saunders v Vautier[33] (which allows a trust to be varied with the unanimous agreement of all the adult beneficiaries to the trust) and Article 47(1) Trusts (Jersey) Law 1984 (which allows the Royal Court to approve such alteration on behalf of the minor and unborn or unascertained beneficiaries), considered whether the letter written by the husband in 2006, requesting that the trustees assist him in complying with the order made in 1999, amounted to his consent to the variations of the trust being requested by the wife. The Court determined that the letter from the husband should be treated as his consent. He had chosen as a matter of free will to write the letter in order to gain the advantage of participating in the Family Division proceedings. The Royal Court therefore managed to find a way to give effect to the Family Division orders even though orders made pursuant to section 24(1)(c) of the Matrimonial Causes Act 1973 to vary a Jersey trust cannot be enforced in Jersey.
 
45) The husband appealed to the Jersey Court of Appeal[34] where the appeal was dismissed.
 
46) In the recent case of Re C Trust Company Ltd[35] the Royal Court adopted a novel approach to protecting the interest of beneficiaries under trusts which were the subject of scrutiny in ancillary relief proceedings in the Family Division.
 
47) The husband and wife had separated in 1991 but were not divorced until 2004 with ancillary relief proceedings being commenced in 2006. In the intervening years the husband began a relationship with another woman (‘MS’). In 1995 the husband settled assets into the R trust and in 2000 into the M Trust. Both were discretionary trusts and the beneficiaries were the husband, his children from his marriage, MS, and her children.
 
48) It was clear that the wife was seeking to treat the trusts as a financial resource available to the husband and would look to the trustee to make good any award made in her favour by the Family Division. MS became concerned that her personal contribution to the trusts was ‘invisible’ to the Family Division and that her position and that of her children was insecure. The trustee proposed, without fettering its discretion, to create a fresh trust for MS and her children which it intended to settle only following the outcome of the proceedings in the Family Division. The trustee wished to seek the blessing of its provisional decision by the Royal Court.
 
49) The Royal Court was to ‘sanction and bless’ the trustee’s decision. The Court stated as follows:

“In essence, the trustee is notionally ring-fencing assets for the benefit of MS and her children, but fully retaining its freedom and that of the Court to act as appropriate following and taking full account of the decision of the Family Division in the English proceedings.”[36]

50) The Court went on to ‘sanction and bless’ the decision of the trustee to provide written evidence to the Family Division and for its Director to present himself to speak to that evidence if required by the Family Division. The Court made reference to the decision in Re H[37] as to the importance of providing the Family Division with the ‘fullest information.’
 
51) Such a pre-emptive approach to ancillary relief proceedings being conducted in the Family Division where trust assets are the subject of scrutiny is clearly something to consider for the future. Only time will tell how the Family Division will respond.
 
Conclusion 
52) From the case law there is an overall impression that the Family Division, with the objective of achieving a fair division of assets, will take an extremely robust approach towards trusts when dealing with obdurate spouses.

53) Jersey, quite understandably, guards its autonomous position with vigour. The Royal Court has made clear its displeasure at attempts by the Family Division (a foreign court) to determine, by reference to the laws of that foreign country, any matters which are governed by Jersey law i.e. the validity of a Jersey trust with Jersey trustees. Furthermore, legislation has been developed to take account of foreign jurisdictions attempted incursions into matters governed by Jersey law.

54) However, on frequent occasions the Royal Court has been seen to enforce an order of a foreign court (the result of which is the outcome envisaged by the foreign court) in the interests of fairness under the Court’s discretionary powers.

55) The only answer that can therefore be given to the question "Is my trust fund protected if I get divorced?" is far from satisfactory. It is an equivocal one, since it will very much depend on the facts of the case!

Notes

[1] See paragraph 39ff above
[2] [2005] EWCA Civ 1606, paragraph 17(b)
[3] [2006] EWHC 1879 (Fam), paragraph 75
[4] [2006] EWHC 1879 (Fam), paragraphs 79-80
[5] [2007] EWCA Civ 503
[6] Ibid, paragraphs 57-58
[7] [2007] EWCA Civ 503, paragraph 52
[8] Ibid, paragraph 55
[9] E.g. Thomas v Thomas [1995] 2 FLR 668; B v B (Financial Provision) [1982] 3 FLR 298
[10] See for e.g. decision of the High Court of Australia in Kennon v Spry [2008] HCA 56
[11] See paragraph 53ff above
[12] Section 14(4) of the Trusts (Guernsey) Law 2007
[13] [2006] JLR 562
[14] Re B Trust [2006] JLR 562, paragraphs 30-32
[15] Re B Trust [2006] JLR 562, paragraphs 13, 15 and 18
[16] Per Birt, DB, “Trusts and Divorce Courts – An Offshore Perspective”, The Jersey and Guernsey Law Review 2009, Vol 13, Issue 1, p19
[17] [2007] JLR 569
[18] See paragraph 77 above
[19] See paragraph561 above
[20] See paragraph 80ff above
[21] Dated 22 July 2008
[22] See observations of Birt,DB, at paragraph 85 above
[23] [2007] EWHC 220 (Fam)
[24] Mubarak v Mubarik [2006] EWHC 1260 (Fam)
[25] Hadkinson v Hadkinson [1952] P285
[26] [2007] EWHC 220 (Fam), paragraph 142
[27] See paragraph 80ff above
[28] [2007] EWHC 220 (Fam), paragraphs 146 & 159
[29] [2008] JRC 136
[30] [2008] JRC 136 paragraph 27
[31] [2008] JRC 136, paragraphs 68, 72-74
[32] [2008] JRC 136, paragraph 76
[33] [1841] 4 Beav 115
[34] [2008] JCA 196
[35][2009] JRC 048
[36] Re C Trust Company Ltd [2009] JRC 048, paragraph 14
[37] See paragraph 37 above