Over recent years, trusts have become increasing international in their nature. It is not uncommon for a settlor domiciled in one country to create a trust for the benefit of beneficiaries domiciled in another country, with the trustees and trust assets themselves being in other countries altogether. This can present difficulties should a dispute arise, either between the trustees and beneficiaries, or should there be an attack on the trust by a third party, for example during the course of divorce proceedings or an allegation that the trust itself is a sham.
How and where to resolve a dispute?
Careful consideration needs to be given in those circumstances as to where proceedings to resolve that dispute should be brought, how the parties to those proceedings should be served, and whether any judgment obtained will be enforceable in another jurisdiction.
Two sets of rules determine whether the English court has jurisdiction to deal with a dispute:
- the European Regime which allocates jurisdiction between most EU Member States as well as Norway, Switzerland and Iceland
- the English Common Law.
English common law provides for jurisdiction over foreign parties where there is a sufficient factor connecting the dispute to England and England is the most appropriate forum. This is a matter of discretion for the English courts. The European Regime is mandatory in nature and states that a defendant should be sued in his country of domicile. For trusts disputes Article 5(6) of the Brussels 1 Regulation also applies which provides that a settlor, trustee or beneficiary of a trust may also be sued in the courts of a member state in which the trust is domiciled.
These regimes create an opportunity for potential claimants to choose where to sue in order to try to achieve the best possible outcome. Such a decision can also be influenced by the ease by which any judgment obtained may be enforced in another jurisdiction.
Once a claimant has decided in which country to issue proceedings, consideration will then need to be given as to service on any defendants outside the jurisdiction and whether the court's permission to do so will be required. In England and Wales the rules of service are provided in Part 6 of the Civil Procedure Rules. If the English court has jurisdiction under the European Regime then the court's permission to serve outside the jurisdiction will not be required.
A lengthy and time-consuming process
On a practical note, serving proceedings on defendants outside the jurisdiction can be a lengthy process. Proceedings will generally need to be remitted by the relevant authority here (the Foreign Process Section at the High Court) to their counterpart in the defendant’s home country for service, a process which can take several months. Translations of all documents from English into the defendant’s language will also be required.
Once served, a defendant abroad will need to consider whether to submit to the jurisdiction of the English court. If he takes any step, such as filing an acknowledgment of service, which amounts to a recognition of the court’s jurisdiction, he will be held to have submitted to the jurisdiction.
Offshore trustees who are served with proceedings in, for example, English divorce proceedings should seek advice before taking any step in those proceedings which would amount to submitting to the jurisdiction of the English courts.
Finally, once a final order is made by the court, the matter will not necessarily end there as it may need to be recognised by and enforced in another country. The procedure for both varies from country to country and can, in itself, require further proceedings to be issued abroad.
In short, therefore, trusts disputes are becoming increasingly complex both in terms of the law and procedure. Offshore trusts established many years ago in the hope that they were safe havens for wealthy settlors are coming under attack. Being domiciled abroad is not a bar to being subject to the jurisdiction of the English courts should a dispute arise.