This hearing involved a trustee of two Jersey law governed trusts who sought directions from the Royal Court of Jersey (the 'Royal Court') against the background of English matrimonial proceedings taking place between the settlor (and main beneficiary of one of the trusts, the "A trust") and his wife.
The wife of the settlor had in the course of the matrimonial proceedings obtained a worldwide freezing order over her husband's assets. This included assets contained in the A trust and the trustee, in its capacity as trustee of the A trust, had submitted to the jurisdiction of the English Courts without previously obtaining directions in this regard from the Royal Court.
The trustee sought the approval of the Royal Court on two matters:
- its resolution to raise and distribute £200,000 out of the trust fund to be used in mediation between the settlor and his wife; and
- its resolution to participate in the English proceedings.
Findings of the Royal Court
In relation to the £200,000, the Royal Court in its judgement of 17 July 2007 did give their approval to the distribution, as this course of action was considered to be sensible and in the interests of the beneficiaries, but were very critical about what they considered to be the inadequacies in the disclosure of information by the trustee.
In earlier hearings before the English Court, the trustee said that it had assets worth roughly £3 million available to help settle the matrimonial proceedings and was encouraged by the English court to make £900,000 available to the settlor and his wife. However, at the Jersey hearing the figure available was stated to be only £200,000. The Court felt that they were faced with numerous financial questions which the trustee had inadequately explained:
"The Court found the whole process by which some but not all of the relevant financial position of the A Trust was disclosed to it, piece by piece and often only in response to the Court's own questions, very unsatisfactory."
It was mentioned that if the trustee fails to disclose all relevant information there is a risk of the application being dismissed or adjourned. It was also mentioned that the Court may not be prepared to order that the costs of the application be met out of the trust fund, and should instead be met by the trustee. However, at a later judgment of 2 August 2007 the court did decide on the facts of the case that the trustee should be able to claim its costs out of the trust fund.
In relation to the trustee's decision to participate in the English proceedings, the Court stated that, as they had already submitted to the English jurisdiction, the trustees have no choice but to participate in the English proceedings. They therefore declined to make an order approving the participation. In its decision, the Court mentioned that they could not say whether they would have allowed the trustee to submit to the jurisdiction of the English Court had they not already done so.
Points of interest
From this case the Court's frustration with situations where it believes there is inadequate disclosure can be clearly seen, and their position is summed up below:
"It must follow as a general principle that if a trustee wishes the Court to approve a decision it proposes to make, it must provide the Court with all of the information that the trustee has, or ought to have, in relation to that decision"
Although the failure to do so in this case did not result in a financial penalty against the trustee, for others the threat of such a penalty, or of the application being dismissed or adjourned, certainly serves as a warning against anything other than full disclosure in the future.
Whilst in this decision the Court did not say whether they would have allowed the trustee to submit to the jurisdiction of the English Court, the words of the Deputy Bailiff in the matter of the H Trust were reiterated:
"… in most circumstances, it is unlikely to be in the interests of a Jersey trust for the trustee to submit to the jurisdiction of an overseas Court which is hearing divorce proceedings between a husband and wife, one or both of whom may be beneficiaries under the trust."