I. Mubarik -v- A. Mubarak, The Craven Trust Company Limited, S. Mubarak, N. Mubarak and Renouf 2008 JLR 430

Introduction

This Court of Appeal decision relates to appeals in respect of orders made by the Royal Court in April 2008 (the "April Orders") and on which judgment was issued by the Deputy Bailiff on 15 August 2008 (the "Royal Court Decision"). The judgment, which was delivered by McNeill JA, is principally of importance for its consideration of Article 47 of the Trusts (Jersey) Law 1984, as amended (the "Trusts Law") and the powers of the court to approve variations or arrangements pursuant thereto.

The Royal Court Decision is, and continues to be, of particular importance for its consideration of the powers of the courts in Jersey to enforce or give effect to orders made by courts of other jurisdictions, such as those made by the Family Division of the High Court of England and Wales in the context of matrimonial proceedings. In the proceedings before the Royal Court, the court considered a representation for an order enforcing or giving effect to an order made by the Family Division, pursuant to Section 24(1) of the Matrimonial Causes Act 1973, varying a Jersey trust known as the IMK Family Trust (the "Settlement") so as to require the trustees to pay to Mrs. Mubarak all sums owing to her pursuant to an order made in the Family Division in 1999. The Deputy Bailiff found that, in view of Article 9(4) of the Trusts Law, the Royal Court could not enforce a judgment of the Family Division which varied or altered a Jersey trust under the Matrimonial Causes Act 1973. Where an order of the Family Division required the trustees of a settlement to do something which they were empowered to do, pursuant to the terms of the trust, then the Royal Court could, in the exercise of its discretion having regard to the interests of the beneficiaries, issue directions under Article 51 of the Trusts Law which would have the effect of achieving the objectives of the English judgment. However, if the order of the Family Division required the trustees to do something which they were not empowered to do pursuant to the terms of the settlement, the Royal Court did not have power to give directions under Article 51 to authorise or direct the trustees to act in a manner not authorised by the powers conferred by the trust instrument.

The Royal Court's analysis of Article 9(4) of the Trusts Law and the powers of the court to give directions pursuant to Article 51 thereof in the context of applications to enforce or give effect to foreign matrimonial orders affecting Jersey law trusts was not altered by the Court of Appeal judgment and, as noted below, was only referred to briefly by McNeill JA.

Issues before the Court of Appeal

The matters addressed by the judgment are:

(1) Mr. Mubarak's Second Notice of Appeal – his first Notice of Appeal was withdrawn – pursuant to which Mr. Mubarak sought the dismissal of certain aspects of the April Orders pursuant to which the Royal Court (a) approved an arrangement varying the Settlement, pursuant to Article 47(1) of the Trusts Law, (b) appointed receivers of the Settlement, and (c) made certain ancillary orders;

(2) Mr. Mubarak's Notice pursuant to which it was sought to re-argue an alternative line of argument rejected by the Royal Court;

(3) Mrs. Mubarak's summons which questioned whether Mr. Mubarak should be barred from bringing his appeals.

1. Whether the appeals constituted an abuse of process

Mrs. Mubarak claimed that Mr. Mubarak should be barred from proceeding with his appeals from the Royal Court Decision as he had chosen not to represent himself or to instruct legal representatives to appear on his behalf at the hearing before the Royal Court in April. Mr. Mubarak's legal representative had indicated by e-mail communication on the morning of the day on which the hearing was due to start in April that Mr. Mubarak was "disinstructing" him, albeit Mr. Mubarak was to remain party to the proceedings, with the court being asked to take account of the arguments which had been put forward at previous hearings and as set out in his skeleton argument as filed that day.

The Court of Appeal considered that Mr. Mubarak's legal representative should have attended at court to explain the situation and that the court should have required his attendance so as to ensure clarity of his position with regard to submissions made by Mrs. Mubarak and other parties. It was noted that Mr. Mubarak's skeleton argument for the April hearing contained detailed argument (quoting the views expressed by Professor Jonathan Harris in his article in the June 2007 issue of the Jersey and Guernsey Law Review) to the effect that the Royal Court should distinguish the decisions in In re B Trust 2006 JLR 562 and In re H Trust [2007]JRC187, or find them contrary to the proper interpretation of Article 9 of the Trusts Law. The Court of Appeal found it surprising that Mr. Mubarak withdrew instructions from his advocate to make submissions at the April hearing where Professor Harris' arguments would, it was assumed, have played a significant part.

The Court of Appeal considered that:

"The interests of justice in any jurisdiction comprise not only the interests of individual parties to litigation, and the State within which the jurisdiction is exercised but, also, all those with access to the jurisdiction within that State and the State itself … It does not lie in the hands of respondents in Jersey to decide at which level of the Court structure they wish to engage."

Whilst McNeill JA described Mr. Mubarak's participation in the proceedings before the Royal Court as "extremely singular, if not unique" and considered that he had "sought to manipulate the processes of the court", he nevertheless did not consider that Mr. Mubarak's approach could be characterised as an abuse of process in the sense of conduct so reprehensible that Mr. Mubarak should be prevented from participating in further proceedings.

2. The Second Appeal

I. Article 47 of the Trusts Law

Various arguments were presented to the effect that Article 47 of the Trusts Law did not confer the necessary power upon the Royal Court to make the April Orders.

(1) Did the arrangement, as set out in the April Orders, amount to a wholesale re-settlement which could not be approved pursuant to Article 47 of the Trusts Law?

Article 47(1) of the Trusts Law provides that " … the court may, if it thinks fit, by order approve … any arrangement … varying or revoking all or any of the terms of the trust …"

The Court of Appeal referred to In re Osias Settlements 1987-88 JLR 389 in which the then Deputy Bailiff (Tomes DB) had to consider an application by the trustee, under what was then Article 43 of the Trusts Law, seeking the court's approval of an arrangement varying the trusts of two Jersey law settlements so that all the trusts would be constituted under Florida law and the trust assets transferred to trustees resident in the United States.

In that case, Tomes DB concluded that the jurisdiction of Article 43 of the Trusts Law was as beneficial as the UK Variation of Trusts Act 1958 and should be construed widely. However, a reservation was expressed in relation to the "substratum" doctrine (as referred to in In re Ball's Settlement Trusts [1968] 1 WLR 899). Tomes DB considered that there could be a practical difficulty in determining when the substratum had changed. The only limitation on the court's power to give consent was that contained in Article 43(2), namely that the carrying out of the proposed arrangement appeared to be for the benefit of those on whose behalf the court was being requested to give approval. Accordingly, the court was empowered to approve an arrangement which effectively revoked existing trusts and established new trusts.

The Court of Appeal held that Article 47 of the Trusts Law "empowers approval of an arrangement even though the arrangement might be so extensive as to leave little of the existing trust provisions extant; but so long as those benefiting were within the ambit of the settlor's expressed bounty." However, McNeill JA expressed a qualification in relation to Tomes DB's rejection of the "substratum" argument:

"In the first place … whilst … there can be a cessation as well as a revocation … the trust is not come to an end, the assets must remain dedicated to some form of trust purposes. I would not see it as within the power of the court to allow trust assets to be held in some way that the beneficiaries could not call on a court for protection. I would not immediately be inclined to allow assets to be transferred to the private patrimony of an individual against whom the beneficiaries stood only as creditors. In the second place I note that in In re Osias, the Royal Court was prepared to allow the trust assets to be transferred to be held in another trust jurisdiction. I would think it a matter for careful consideration in individual cases where approval of an expatriation was sought as to whether that transferee allowed broadly similar protections to that of this Island."

Looking at the circumstances before it, the Court of Appeal did not agree with Mr. Mubarak's contention that the proposals constituted a re-settlement. The April Orders revoked the revocable exclusion of Mrs. Mubarak which had been made by Mr. Mubarak, gave her an interest as a re-instated beneficiary to the extent of her entitlement under the orders made in the English divorce proceedings, and provided for the receivers to apply to the court for directions. Mrs. Mubarak's entitlement remained one under the Settlement and the trust assets were not being diverted out of the patrimony of the trust estate.

(2) Reinstatement of an Excluded Person

Mr. Mubarak had revocably constituted Mrs. Mubarak as an Excluded Person under the Settlement, in exercise of the powers of exclusion conferred upon him by Clause 9 of the Settlement. The Court of Appeal did not consider there to be any reason in principle why the revocation of such a revocable exclusion could not be part of an arrangement approved under Article 47 of the Trusts Law.

(3) Approval on behalf of unascertained beneficiaries

It was argued that the Royal Court had not granted approval pursuant to Article 47 of the Trusts Law on behalf of the unascertained beneficiaries and had not considered the potential beneficiaries under Clauses 8 and 9 of the Settlement, which were in the following terms:

"8. PAYMENTS TO CHARITY AND TO INFANTS

(a) IN exercise of the trusts and powers hereinbefore contained the Trustees may at the request of any Beneficiary if they in their absolute discretion shall so think fit pay or apply any part of the capital or income of the Trust Fund to or for the benefit of any charitable institution or other charitable objects or purposes approved by such Beneficiary and any such payment or application shall be deemed to be for the benefit of such a Beneficiary …

(b) …

9. POWER OF ADDITION

(a) THE Husband or (if the Husband shall release the power herein conferred) the Protector during the Husband's lifetime and after the Husband's death the Trustees during the Trust Period shall have power from time to time to add to the class of Beneficiaries in respect of all or any part or parts of the Trust Fund such one or more persons (not being an Excluded Person or Excluded Persons) as the Husband (or the Protector) or the Trustees shall in his or their absolute discretion respectively determine.

(b) …"

The Court of Appeal did not accept these arguments. McNeill JA considered it a matter for individual courts in individual jurisdictions which allow variations of trusts to determine how to provide for the representation of those who are without legal capacity, unascertained, or as yet unborn.

The court was of the view that the interests of all relevant parties had been considered in the Royal Court, albeit certain phrases (such as "minor and unborn" or "minor and unascertained") might have been used, interchangeably, to refer to the various parties who were not capable of consenting.

McNeill JA expressed "some doubt as to whether a representative ought to be appointed to consider the interests of either a non-existent person (an unborn) or an unascertainable person; but if there is to be representation for those interests I am inclined to accept the persuasiveness of the views of Tomes DB [in In re Osias Settlements] that it is perhaps best covered by the trustee or trustees, unless their position is not neutral."

The court considered that there was no doubt that Advocate Renouf had been directed to represent, among others, the unascertained beneficiaries. Accordingly, the fact that the April Orders did not refer to the unascertained beneficiaries could be regarded as a mere slip. However, the court recognised that it was possible that the reference in the proceedings before the Royal Court to "unascertained" beneficiaries might have been intended to refer only to unborn beneficiaries within the class described in the second schedule to the Settlement, namely "All other children or remoter issue of the marriage of the Settlors born after the date hereof and prior to the expiry of the Trust Period." In the event that this was the correct interpretation, however, the Court of Appeal could itself consider, under Rule 12(2) of the Court of Appeal (Civil) Rules 1964, the position of the unascertained beneficiaries and determine whether approval ought to be granted.

(4) Having regard to Clauses 8 and 9 of the Settlement, did the circumstances permit the Court of Appeal to grant approval on behalf of unascertained beneficiaries?As an initial point, the court confirmed that it was satisfied that the application was for the benefit of the minor beneficiaries and any unborn beneficiaries within the class of the second schedule to the Settlement. The Court of Appeal did not agree with the argument that there was no power to grant approval under Article 47 of the Trusts Law because there was no benefit in the proposal for the Clauses 8 and 9 beneficiaries.

In relation to Clause 8, the court concluded that the interests of potential charitable recipients did not need to be considered by the court when deciding whether or not to grant approval. Article 47(1)(b) of the Trusts Law protects those " … who may become entitled … to an interest under the trust …". The Court of Appeal equated this to "Beneficiaries" and noted that the Settlement defined "Beneficiaries" to include Clause 9 nominees, but not Clause 8 nominees and that Clause 8 provided that, notwithstanding a request, a payment would be deemed to be for the benefit of the Beneficiary and not the particular charity. As McNeill commented, if the argument put forward for Mr. Mubarak were correct, no trust containing such a clause as Clause 8 could ever be varied "as every Charity in the world would have to consent."

In relation to Clause 9, it was noted that, whilst Mr. Mubarak could add any of his appointees to the class of beneficiaries, the trustees still had discretion to determine which beneficiaries were to benefit from the trust assets.

The court noted that the arrangement in this case did not extinguish the power of adding beneficiaries, but just suspended such powers until Mrs. Mubarak's interest was satisfied. Also, the satisfaction of Mrs. Mubarak's interest could be regarded as a permutation of what happens in many variations where, for example, a life interest is expanded to an interest in capital or where an arrangement provides for an appointment from a discretionary class.

McNeill JA considered the possibility of a future spouse being added pursuant to Clause 9, but thought that such a person's position was little different from that of every other person, natural or legal, in the world and concluded that such matters did not require to be taken into account as there was no exclusion of the unascertained beneficiaries.

(5) Do the Jersey courts have power to grant approval on behalf of unascertained beneficiaries where there is an unreleased power?

It was argued that, as Clause 9 conferred a power of addition upon Mr. Mubarak, which had not been released, the court could not give approval on behalf of Clause 9 beneficiaries.

The Court of Appeal considered first the statutory position and noted, as had Tomes DB in In re Osias Settlements, that Article 43(1)(b) of the Trusts Law is more truncated in form than Section 1(1)(b) of the UK Variation of Trusts Act 1958. The Court of Appeal noted that the latter section, and the Trusts (Scotland) Act 1961, contained a provision which could be considered to mean that the courts in England and Scotland do not have the power to grant approval on behalf of unascertained but existing persons. In the absence of an equivalent statutory restriction in the Trusts Law, McNeill JA considered that, on an ordinary reading of the legislation, the courts in Jersey have power to grant approval on behalf of unascertained beneficiaries notwithstanding the existence of a potential member of the relevant class.

The court next turned to consider the nature of the right of unascertained beneficiaries under Clause 9 and referred to Lord Walker of Gestingthorpe's judgment in Schmidt -v- Rosewood Ltd [2003] 2 AC 709, where it was indicated that the object of a fiduciary power can block an arrangement unless the trustees have authority to release or extinguish the power granted to them.

In the context of an application under Article 47 of the Trusts Law, where approval can be given even though a potential beneficiary is alive and of full age and capacity, McNeill JA considered that such an unascertained beneficiary does not have the power to block an arrangement. Whilst the court may take such a person's views into account, where he or she is a member of a wider class of potential beneficiaries, the court would be bound to take into account the interests of the class as a whole. Accordingly, the Court of Appeal concluded that only where the Jersey court was considering either (a) the position of a single default beneficiary or (b) a restricted class from whom one or more must be selected, where the whole class was united in objecting, could it be said that the object of a fiduciary power would have the power to block an application for the approval of an arrangement.

McNeill JA did not think that, where there was a wide power of appointment (e.g. one covering everyone in the world), the mere existence of such power, without release, would prevent court approval of an arrangement under Article 47 of the Trusts Law. Reservation was also expressed as to whether such a power could be regarded as fiduciary in the absence of a defined class within which there were individuals with the right to expect their interests to be taken into account by the person holding the power.

If wrong in this view, McNeill JA considered that the Clause 9 power was not a fiduciary power of the nature envisaged by Lord Walker in Schmidt -v- Rosewood Trust Ltd and consequently did not prevent approval being given. This was because the power was not to benefit anyone but to add a person's name to the list of beneficiaries whom the trustees could choose to benefit.

If this was also wrong, and the combination of the power to nominate and the resultant membership of the discretionary class constituted a fiduciary position, it would then follow that approval could not be given unless the power had been released. In this context, the letter written by Mr. Mubarak as a precondition to being heard in proceedings in the English courts (the "2006 Letter") needed to be considered and the Court of Appeal concluded that it indicated consent to variation and that that must bring with it release of any power.

For all of the above reasons, McNeill JA did not consider that the existence of Clause 9 (or indeed Clause 8) prevented the court from granting approval on behalf of unascertained beneficiaries.

Turning to the 2006 Letter, the Court of Appeal agreed with the Royal Court that this was written as a matter of choice, and rejected the argument that it should be analysed in accordance with principles of contract law. The letter was to be construed as an instruction to the trustees of the Settlement and it confirmed that the trustees did not need to ask Mr. Mubarak whether he consented to whatever order was proposed as the letter confirmed, irrevocably, that he did. The Court of Appeal did not consider it relevant that the 2006 Letter did not expressly consent to a particular variation or to a particular variation in the context of an application to a Jersey court.

II. Appointment of Receivers

The power of the court to appoint receivers, as the Royal Court did as part of the April Orders, was initially questioned on behalf of Mr. Mubarak. Whilst it was subsequently accepted that Article 51 of the Trusts Law is drafted in sufficiently broad terms as to allow for such orders to be made, it was argued that the exercise of jurisdiction was excessive.

The Court of Appeal considered that, without a very clear foundation for such a contention, it was not appropriate for it simply to take the view that it would not have granted such an order. Moreover, McNeill JA noted that he was in "entire agreement with the reasoning of the learned Deputy Bailiff" with regard to the appointment of receivers.

Conclusion on the Second Appeal

In view of the above, the Second Appeal failed and the Court of Appeal determined that, although approval on behalf of unascertained beneficiaries was unnecessary, it would nevertheless grant approval on their behalf, as there was no disbenefit to them.

3. Respondent's Notice

The Respondent's Notice sought to re-argue the issues of law raised in the Royal Court during the April hearing and, in particular, the impact of Article 9(4) of the Trusts Law. The Court of Appeal noted that an academic debate in this context had been conducted in the Jersey and Guernsey Law Review and that Mr. Mubarak and Mrs. Mubarak had each relied on the protagonist whose views were in his/her favour. McNeill JA concluded that he "did not find it necessary or appropriate to express, in this litigation, a view on the issue under Article 9(4) of the 1984 Law as to whether or not the Royal Court can enforce a judgment of the Family Division varying or altering a Jersey trust under the Matrimonial Causes Act 1973."

Determination

In view of the query raised as to whether the April Orders gave approval on behalf of unascertained beneficiaries, and because it considered it appropriate to confirm that (all necessary consents having been given) the Settlement had been varied, the Court of Appeal recast certain of the provisions of the April Orders (exercising the power conferred by Rule 12(2) of the Court of Appeal (Civil) Rules 1964) and set out the whole of the arrangement approved by the Royal Court, as amended.