A number of key questions arise for offshore trustees in order to ensure that their fiduciary duties are observed and that the interests of the beneficiaries as a whole are protected and, if necessary, represented in any matrimonial proceedings:
- Why might a trust be relevant to matrimonial proceedings?
The English Court has a statutory power to order the variation of a "nuptial" settlement. It does not matter, in terms of the scope of this statutory power, whether the settlement is administered outside England, that there are no assets here or that the settlement is governed by a law other than English law. As to whether any exercise of the English Court's power is enforceable outside England and Wales is however a different question and will, in part at least, depend on whether the trustees have submitted to the jurisdiction of the English Court (see 3 below) and the situs of the underlying assets.
Whether a settlement is nuptial or not is a question of fact in each case, but trustees should be aware that changes made to a non-nuptial settlement during the course of a given marriage may result in the acquisition of the requisite nuptial element and so could make it vulnerable to variation by the English Court. This should therefore be a relevant consideration each time a change is proposed to a non-nuptial settlement.
Even if a settlement is non-nuptial, the English Court may take its existence into account as a "resource" where one of the divorcing parties has an interest in it. In the absence of persuasive evidence as to why judicial encouragement should not be applied to the trustees and, particularly where there are insufficient alternative assets available to satisfy any award, the English Court may go so far as to make an order which obliges one party to make a payment to the other party on the assumption that the trustees will assist in meeting the terms of the order. In this scenario, it is important to remember that the English Court is concerned only to ensure a just division between the divorcing parties, but clearly there will be instances where the interests of other beneficiaries under the settlement will be materially, and potentially detrimentally, affected by decisions made by the English Court.
- What first steps should the trustees take?
The trustees should take early, independent advice (from both local and English lawyers). It is important to remember that the trustees must act in the interests of the beneficiaries as a whole when considering the impact of English matrimonial proceedings on the settlement. Prudent trustees may also want to obtain a direction from their local Court (whose remit will be wider than that of the English Court and will be focused on what is necessary for the proper administration of the settlement) before taking any steps.
If trustees are at any time encouraged or asked to exclude a spouse from benefit or to move assets to another jurisdiction (to make them less accessible), they should consider the request carefully before taking any steps. This is especially the case if the trustees are aware of difficulties in a given marriage. Trustees should avoid improper partisanship: to favour one beneficiary unreasonably over another could result in breach of trust proceedings, possible adverse costs Orders and might in fact put the "favoured" beneficiary in a worse position in the matrimonial proceedings.
- Should the trustees submit to the jurisdiction?
Trustees must weigh up the advantages and disadvantages of submitting in each individual case. In many instances, it is unlikely to be in the interests of an offshore settlement to submit to the English jurisdiction, although that is not always the case. In deciding whether it is appropriate to submit to the jurisdiction, trustees need to consider:
- where the trust assets are: if significant assets are located in England, then it may be advisable to submit to the jurisdiction, but trustees should be aware that by doing so they may increase the risk of enforcement of an English Court Order against assets outside England;
- whether the local Court will enforce an English Order (if that is likely in any event, it might be advisable to submit and make appropriate representations on behalf of the beneficiaries as a whole);
- possible prejudice to the beneficiaries by submitting (such as beneficiaries who are not parties to or children of parties to the matrimonial proceedings); and
- the likely outcome of the proceedings and the potential costs involved.
Not submitting to the jurisdiction does not preclude the trustees engaging, where appropriate, with the divorcing parties by, for example, providing information which may be relevant and helpful in the English proceedings (see 4 and 6 below) and which it maybe judged to be in the interests of the beneficiaries to provide.
- Should the trustees seek directions?
Trustees can apply to their local Court for guidance on whether to participate in foreign matrimonial proceedings. Obtaining directions in this way can provide the trustees with protection from criticism by beneficiaries / others in terms of how they then act and in relation to costs incurred by the trustees in dealing with the proceedings. In making any such application, the trustees must bring all relevant facts to the Court's attention. Trustees might at the same time wish to obtain the Court's guidance on how to respond to a request for disclosure of trust information.
An application for directions to the trustees' local Court can also help to demonstrate to the English Court that the trustees are behaving responsibly and appropriately.
- Should the trustees indicate to the English Court how they may exercise their discretion tobenefit one party in the future (if it is a discretionary trust)?
Trustees will not wish to fetter their discretion. However, if they provide no indication at all as to future intentions, the English Court may, quite possibly wrongly, conclude that the whole or a significant part of the trust fund would (and should) be made available by the trustees to fulfil the terms of an Order in the matrimonial proceedings. Trustees might wish to seek the guidance of their local Court in relation to any provisional discretionary decision made in connection with the matrimonial proceedings.
- What stance should the trustees take in relation to disclosure?
If the trustees have submitted to the English jurisdiction, they must comply with disclosure obligations. If the trustees have not submitted, they have a duty to preserve the confidentiality of the settlement's affairs. The trustees should carefully consider a request for information by a beneficiary's spouse or any other party and the associated consequences of the provision of information regarding the settlement in circumstances where matrimonial proceedings are on foot (or contemplated).
Disclosure of some information by the trustees might be beneficial (as it may better inform the English Court of the reality of the situation) but trustees must consider what is in the best interests of the beneficiaries as a whole and should think about obtaining the sanction of their local Court as a precautionary measure. In certain circumstances, the English Court has power to issue a "Letter of Request" to the trustees' local Court requiring evidence and/or documents to be disclosed.
- Is an English Court order enforceable in a foreign jurisdiction?
This will depend on whether reciprocal enforcement agreements exist and whether the trustees have submitted to the jurisdiction of the English Court.
Some countries have laws restricting enforcement in order to protect settlements created there. For example, Bermuda, BVI, Cayman, Jersey and Guernsey all have legislation along these lines which is specifically designed to prevent the enforcement of foreign judgments.
In some instances the Order will be enforced as a matter of judicial comity, but the local Court must first be satisfied that enforcement is appropriate (and, as stated above, it may view things differently than the English Court).