The Royal Court of Jersey recently considered the effect of an exclusive jurisdiction clause in a deed changing the trustees of a trust.(1) The court held that such a clause placed no restriction on the ability of beneficiaries to bring claims against former trustees for the recovery of trust assets and did not retrospectively change the law governing the actions of former trustees.
The origins of this case lay in the breakdown in the relationship between Cristiana Crociani (the first plaintiff) and her mother Edoarda Crociani (the first defendant). In particular, a dispute arose in relation to a trust established by the first defendant in 1987, known as the Grand Trust. Broadly speaking, the trust was divided into two funds: one for the benefit of the first plaintiff and the other for the benefit of her sister. The trustees were empowered to pay income and capital to the first plaintiff and her sister during their lifetimes from their respective funds. However, the trustees also had more flexible powers, such as the ability to transfer the whole or any part of the trust fund to another trust.
At the heart of the matter was a difference of opinion over the purpose of the trust. The first plaintiff and her co-plaintiffs (her two minor children, acting through their father as guardian ad litem) asserted that the trust had not been created with the purpose of providing any benefit to the first defendant. They also claimed that the first defendant, acting with the other defendants (the former and current trustees), had taken steps to cut her off financially from the substantial family wealth and to starve her of funds. For their part, the defendants asserted that it had always been the first defendant's intention to be able to benefit from the assets that she had settled into the trust, and that the trustees had at all times acted properly.
Originally, the trust had been established under the laws of the Bahamas, but the proper law had been changed to Jersey before the actions in question. Therefore, the plaintiffs sought relief in Jersey to compensate them for their perceived loss from the trust. In particular, they sought:
- equitable compensation for a number of distributions made out of the trust which (they alleged) ultimately made their way to the first defendant;
- the setting aside of a 2010 appointment out of the trust to another trust, called the Fortunate Trust, over which the first defendant had a power of revocation, which she subsequently exercised in her favour;
- the setting aside of a deed whereby the then-trustees (ie, the first, second and third defendants) purported to retire in 2012 in favour of the fourth defendant (a trust company based in Mauritius) and to change the proper law from Jersey to Mauritius; and
- the setting aside in 2012 of a further appointment out of the trust, this time by the fourth defendant, by which the property that was subject to the 2010 appointment (to the extent that such appointment had been invalid) was appointed to a new trust called the Agate Trust.
Before the substantive issues above could be heard, counsel for the defendants sought a stay of proceedings on the grounds of forum non conveniens. Of particular importance to the defendants' application was the 12th clause of the original trust document (on exclusive jurisdiction), which reads as follows:
"Notwithstanding any of the trusts, powers and provisions herein contained the trustees shall have power at any time or times and from time to time before the Distribution Date and without infringing the rule against perpetuities at the absolute discretion of the trustees by any irrevocable deed or deeds to resign as trustees and to appoint a new trustee or new trustees outside the jurisdiction at that time applicable to the trusts hereunder as trustees hereof and to declare that the trusts hereof shall be read and take effect according to the laws of the country of the residence or incorporation of such new trustee or trustees and upon such appointment being made the then trustee or trustees shall immediately stand possessed of the Trust Fund upon trust for the new trustee or trustees as soon as possible so that the Trust Fund shall continue to be held upon the trusts hereof but subject to and governed by the law of the country of residence or incorporation of such new trustee or trustees and thereafter the rights of all persons and the construction and effect of each and every provision hereof shall be subject to the exclusive jurisdiction of and construed only according to the law of the said country which shall become the forum for the administration of the trusts hereunder (but so that nonetheless the then trustee or trustees or the new trustee or trustees may by deed declare that the trusts hereof shall continue to be read and take effect according to the laws of the said Commonwealth of The Bahamas as provided by Clause FIFTEENTH hereof) and Clause FIFTEENTH hereof shall take effect and be subject to the provisions hereinbefore declared by this Clause." (Emphasis added.)
Essentially, the defendants' argument was that the above clause meant that the matter would be better heard before a court in Mauritius.
The parties agreed that the Royal Court would, in its general approach to forum challenges, apply the same principles as stated in the House of Lords decision of Spiliada Maritime Corporation v Cansulex Limited.(2) In respect of the case at hand, these can be summarised as follows:
- Where the defendants have been properly served within the jurisdiction, as was the case here, the burden of proving that the proceedings in Jersey should be stayed lies with the defendants.
- Therefore, the defendants had to show that Mauritius was a court of competent jurisdiction which was "clearly or distinctly more appropriate" than Jersey for the trial of the action.
- In considering whether Mauritius was the clearly more appropriate forum, the Royal Court would consider with which forum the issues in the action have the most real or substantial connection, including factors such as the relevant law which governs the issues, where the causes of action arose and the convenience of witnesses and the location of evidence.
- If the defendants failed to show that Mauritius was clearly the more appropriate forum then a stay would ordinarily be refused, but if they succeeded then the burden would fall on the plaintiffs to show that justice nevertheless required that the proceedings continue in Jersey.
Ultimately the question was whether the case should be tried "more suitably for the interests of all the parties and for the ends of justice" in Jersey rather than Mauritius.
Counsel for the defendants did not seek to argue that in the absence of the exclusive jurisdiction clause, Mauritius was clearly or distinctly a more appropriate forum than Jersey. The Royal Court had no difficulty in concluding that the plaintiffs' claims, in the absence of such provisions, had their closest and most real connection with Jersey. This was because the impugned transactions (with the possible exception of the 2012 appointment) all took place when the trust was administered in Jersey by a Jersey-based professional trustee and when the trust was governed by Jersey law. Furthermore, the 2010 appointment and the 2012 retirement were stated as being subject to Jersey law and the defendants expressly submitted in those documents to the non-exclusive jurisdiction of the courts of Jersey.
On that basis, the court's view was that the defendants' application for a stay in favour of Mauritius was premised entirely on the exclusive jurisdiction clause. Therefore, the court's first task was to consider whether, on its true construction, the exclusive jurisdiction clause applied at all.
Exclusive jurisdiction clause
The court noted that there was no case that had considered the effect of a change in the proper law of a trust on the rights of its beneficiaries. However, quoting the Jersey Court of Appeal judgment in Koonmen v Bender,(3) it was "a question of the court construing the document to derive from it the presumed intention of the parties". As the first defendant was unable to provide any guidance in relation to the intention behind the exclusive jurisdiction clause and its effect on the rights of the beneficiaries, the court had to consider the deed itself.
The defendants had submitted that the words "and thereafter the rights of all persons… shall be subject to the exclusive jurisdiction of and construed only according to the law of the said country" were exceptionally broad in scope, with the said rights extending to past, present and accrued rights and any claims to enforce such rights. Therefore, it would cover the rights of the plaintiffs as beneficiaries to bring the proceedings, which they said with effect from the 2012 retirement were governed by Mauritius law and subject to the exclusive jurisdiction of the Mauritius courts. The defendants pointed to the use of the words "thereafter the rights" as opposed to "the rights thereafter" as supporting that interpretation.
The court did not find this proposition to its liking. There was no exclusive jurisdiction clause when the trust was established, nor was there any restriction on action being taken outside the Bahamas by a beneficiary to recover trust assets. It would seem odd to impute such an intention specifically to the exclusive jurisdiction clause as a result. As the Royal Court noted:
"Can it have been the intention of the parties to the Grand Trust that on a change of the proper law to a new jurisdiction, the right of a beneficiary to bring such an action should be restricted to the courts of that new jurisdiction, thus preventing the beneficiaries from actioning that trustee in the jurisdiction of that trustee, where any judgment could be immediately enforced?
As significantly perhaps can it have been the intention of the parties to the Grand Trust that on changing the governing law to a new jurisdiction, the law governing previous transactions and the rights of the beneficiaries (and presumably former trustees –'all persons') thereunder, would change to that of the new jurisdiction—a somewhat startling proposition?"
Therefore, the court concluded that the rights of the plaintiffs and the defendants in relation to the impugned transactions, which the defendants accepted were governed by Jersey law at the time at which they were entered into, must be judged by Jersey law only. It followed that the exclusive jurisdiction clause was not intended to apply to such transactions as:
"it cannot have been intended by the parties to the Grand Trust to place any restriction on where claims against former trustees for the recovery of trust assets could be brought or to purport to change the law governing the actions of former trustees and the rights of beneficiaries thereunder; if that is the case then the Exclusive Jurisdiction Clause has no application at all. The law governing the impugned transactions remains Jersey law and the Mauritius courts do not have exclusive jurisdiction...
In our view the purpose of the Exclusive Jurisdiction Clause is to make it clear that where a foreign trustee is appointed and the proper law changed to the jurisdiction of that new trustee, then from that point onwards the domicile of the trust moves from the old to the new jurisdiction, which then becomes the forum for its administration."
The court acknowledged that the 2012 appointment took place after the 2012 retirement. The fourth defendant, as a Mauritius-based entity, could legitimately expect to be actioned in its own jurisdiction. However, the fourth defendant's role was relatively minor. The principal dispute was between the plaintiffs on the one hand and the first three defendants on the other. The fact that the fourth defendant was a party should not be allowed to dictate where the dispute as a whole should be tried, as the court held that "that would be allowing the tail to wag the dog and we decline to allow that".
Royal Court's discretion
To the extent that its construction of the exclusive jurisdiction clause was wrong, and it did apply to the plaintiff's claims, the court considered whether it should in any case exercise its discretion to override those provisions. It held that this would indeed be appropriate on various grounds, including the following:
- In the absence of the exclusive jurisdiction clause, most of the principal claims of the defendants had their closest and most real connection with Jersey.
- The defendants' case as to the exclusive jurisdiction of the Mauritius court was based entirely upon the 2012 retirement, but the validity of this document was itself at issue in the substantive proceedings.
- The 2012 retirement was expressed to be governed by the law of Jersey and the parties submitted to its non-exclusive jurisdiction, therefore as the defendants had at that time agreed that Jersey law governed any issue as to its validity, they should be held to what they had agreed.
This decision offers welcome clarification on an area of law that was previously lacking judicial insight. As a general rule, it cannot be right that the change of proper law that might accompany an appointment of trustees in a new jurisdiction should prejudice the rights of beneficiaries to bring actions against former trustees in the original jurisdiction. Nor should it be the case that actions of former trustees are no longer assessed under the law of the original jurisdiction.
Beneficiaries should find this certainty comforting, but so should trustees. To act in accordance with local trust laws is no easy task, but it would surely be worse if trustees were also expected to act in accordance with the laws of some as yet unknown future jurisdiction that may later become the proper law of their trust.
For further information on this topic please contact Robert Dobbyn at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.