Case  

The Representation of Aaliya Mubarak [2008] JCA196.  

Facts  

This was an appeal by Iqbal Mubarik (the “Husband”) from a decision of the Royal Court (c.f. In The Matter of The IMK Family Trust [2008] JRC136) pursuant to which the terms of a settlement known as the IMK Family Trust (the “Trust”) had been altered in an attempt to allow Aaliya Mubarak (the “Wife”) to enforce an outstanding judgment which she had been granted by the English High Court as a result of the couple’s divorce proceedings.  

The basis upon which the Royal Court had agreed to vary the terms of the Trust was that all of the beneficiaries of the Trust either had explicitly consented to that variation or that the Court itself both could and would consent to the variation on their respective behalves. It was this decision that formed the focus of the Husband’s appeal.  

Submissions  

The Husband’s submissions included the following:  

  1. that, whilst Article 47 of the Trusts (Jersey) Law 1984 as amended (the “Law”) gave the Court power to approve any arrangement “varying or revoking” the terms of a trust, the variation of this Trust was so significant that it amounted to a wholesale resettlement and, as such, was beyond the scope of the Court’s authority to approve;  
  1. that, as a matter of policy, the Court should decline to exercise its powers under Article 47 of the Law to approve an arrangement which involved reinstating to the class of beneficiaries of a trust a person who had previously been properly and explicitly excluded from that class (as was the case with the Wife);  
  1. that the Royal Court either (a) didn’t have the power to consent to the variation on behalf of the unascertained beneficiaries or (b) that it hadn’t actually considered their position or (c) that the variation could not be said to be in the interests of the unascertained beneficiaries; and  
  1. that the Husband’s consent to the proposed variation (given in the form of a letter to the trustee of the Trust dated 25 August 2006, the “Letter”) should be set aside on the basis that it was extorted under duress.  

Decision  

The Court of Appeal had little difficulty in rejecting the Husband’s submissions and dismissing his appeal. Taking the points raised in order, the Court found that:  

  1. Article 47 of the Law empowers the Court to approve an arrangement in respect of a trust notwithstanding the fact that such an arrangement might be so far reaching “as to leave little of the existing trust provision extant”, so long as those benefiting were within the ambit of the settlor’s expressed bounty. In this case the Wife had been an original member of the class of beneficiaries and she had only been revocably excluded by the Husband. The variation simply involved revoking that exclusion and directing that certain sums be paid to the Wife and, accordingly, it was fully within the scope of Article 47 of the Law.  
  1. Whilst it was true that persons were often excluded from the class of beneficiaries of a trust for tax reasons and that to re-instate them might lead to adverse tax consequences, to say that this should of itself create a rule of policy preventing such a move was incorrect. In the current case the exclusion of the Wife had not been motivated by fiscal considerations and, moreover, the exclusion of the Wife was explicitly described as revocable. Further, even if adverse fiscal consequences were to flow from such a variation, there might well be circumstances where the benefit conferred on the class of beneficiaries as a whole by the incurring of such consequences, more than outweighed the negative effects.  
  1. The Court of Appeal made a number of observations in respect of the issue of considering the interests of unascertained beneficiaries for the purposes of an application under Article 47 of the Law. The key points made in dismissing the submissions of the husband were that:  
  1. In the case of the Trust, the unascertained beneficiaries were those whom the Husband might use his power as settlor to appoint to the discretionary class of beneficiaries. Whether or not such appointees subsequently actually derived a benefit would be a matter for the discretion of the trustee of the Trust. The nature of the interest of the unascertained beneficiaries was, therefore, the same as that of the Husband himself (who was also simply a member of the class of discretionary beneficiaries). It followed, therefore, that in consenting to the variation on his own behalf the Husband both could and did consent on behalf of the unascertained beneficiaries, since they could have no interest without him exercising his power of appointment in their favour.  
  1. The Husband’s power of appointment of further beneficiaries remained intact following the proposed variation, and it therefore could not be said that the potential to benefit under the Trust had been removed from any unascertained beneficiaries.  
  1. The Court conceded that it might well be the case that one or more potential appointees to the class of beneficiaries might unanimously be able to block a variation which would adversely affect their potential interest where they were the only potential unascertained beneficiaries who might be the objects of the exercise of the power of appointment. Where, as in this case, the power of appointment was very wide and effectively included everybody in the world, the statutory provisions relating to requirements of consent should (as was the case in England) probably be given a “reasonable construction” - i.e. that the consent of individuals “whose interest is so remote as to be negligible” will not be required.  
  1. In any event, the proper construction of the Letter sent by the Husband to the Trustee consenting to the variation was that it implied a release of the Husband’s power to appoint currently unascertained beneficiaries to the class of beneficiaries to the extent necessary for the variation to proceed.  
  1. A contractual analysis of the Letter was inappropriate and the question of duress did not arise. Even if a contractual analysis were appropriate, the Court found that the Letter had not been given under duress and the Husband had received adequate consideration for giving it.  

Comment  

Essentially, the Court of Appeal’s judgment left the reasoning of the Royal Court intact, and reference should still be had to the original judgment for the important distinction to be drawn between altering and varying the terms of a trust and the question of the degree to which the orders of a foreign court made in respect of a Jersey law trust will be enforced or otherwise given effect to by the Jersey courts. This judgment, however, provides a helpful analysis of the scope of the Court’s powers and discretions under Article 47 of the Law and supports the prevailing view that these are, in theory and in practice, actually very wide.