In a decision that will be welcomed by those who are interested in offshore trusts, the Royal Court of Guernsey has, for the first time, made orders resisting forced heirship arising under foreign laws. In the matter of Rothschild Trust Guernsey Limited v Pateras (unreported, May 2011) Deputy Bailiff Collas made declarations recognising the existence and validity of a Guernsey trust and the actions of its trustee in circumstances where the beneficiaries had challenged the very existence of the trust, having brought proceedings in their home jurisdiction of Greece seeking orders in relation to the trust assets. AO Hall acted for the successful trustee.

Facts

The settlor established the “1995 Trust” for the purposes of holding property in Greece via a Panamanian company. Five years later, the settlor (who was also the sole non-charitable beneficiary) passed away. He left a letter of wishes which requested that the trustee should sell the Greek property in the event of his death. The trustee exercised power to appoint the settlor’s adult children as beneficiaries and engaged in, what turned out to be, a protracted sale process. The substantial residential estate was located a short distance from Athens and, after a six year period of attempts to sell the Greek property, the trustee obtained the best value possible with the assistance of the beneficiaries who were domiciled in Greece. The Panamanian company was subsequently dissolved.

After sale of the Greek property, the beneficiaries (who were apparently disappointed by capital gains tax issues) brought proceedings in the Athens Court of First Instance seeking, among other things, orders that the trust assets (i.e. the Panamanian company shares) had in fact passed to them upon their father’s death. They sought consequential orders that the sale of the Greek property was null and void. The beneficiaries also sought damages against the trustee’s former employees (who were the directors of the Panamanian company holding the Greek property) or, in the alternative, a one year gaol term for each of them.  

The trustee, in response, sought declarations from the Royal Court of Guernsey as to the validity of the Guernsey trust and specifically:

  1. that the trustee was validly appointed;
  2. that the shares in the Panamanian company were validly held trust property;
  3. that the trustee had validly exercised its powers to authorise the directors to sell the Greek property; and
  4. costs.

Fast Track to Relief in Guernsey

The Guernsey trustee had a short period of time to obtain declarations from the Royal Court before the Greek trial was scheduled to commence. The declarations were sought for the purpose of assisting the Greek Court in disposing of the Greek proceedings. The Royal Court recognised the urgency of the matter and ordered that it be dealt with on an expedited basis.

At the same time, the trustee intervened in the Greek proceedings in support of its former employees, and sought leave to have its intervention heard together with the Greek trial. Curiously, the Greek Court declined to hear the intervention at the same time as the trial and instead listed it for determination in October 2013 (i.e. some two and a half years after the Greek trial in May 2011). The intervention therefore appeared to have been rendered otiose.

Whilst the beneficiaries refused to take part in the Guernsey proceedings, they were at all times validly served with documents in relation to the Guernsey proceedings in accordance with Greek laws of civil practice. The declarations of the Royal Court were obtained 8 days before the Greek proceedings were scheduled for trial.

The Decision

The Royal Court held that this was a proper matter in which the Court should exercise jurisdiction in light of the fact that this was a Guernsey law trust, administered in Guernsey with a Guernsey trustee and trust assets located in Guernsey.

Deputy Bailiff Collas held that the Royal Court was empowered to make declarations as to the validity and enforceability of a trust under section 69(1)(b) of the 2007 Trusts (Guernsey) Law (as amended) and, further, that the Court had inherent jurisdiction in accordance with the fourth category of cases identified by Robert Walker J and referred to by Hart J in Public Trustee v Paul Cooper [2001] WTLR 901. This fourth category is where trustees have actually taken action, and their action is attacked as either being outside of their powers or an improper exercise of their powers. Such cases are categorised as hostile litigation, to be heard and decided in public.

As Lord Clarke observed at paragraph 28 of his reasons delivering the opinion of the Board in Spread Trustee Company Limited v Hutchinson and others [2011] UKPC 13, the relevant laws (the 1989 Trusts Law and the replacement 2007 Law) were amended to prevent dispositions of trust being defeated by the application of forced heirship rules in foreign jurisdictions. In considering sections 11A of the 1989 Law and section 14 of the 2007 Law, the Deputy Bailiff observed that whilst it was not known in the present case whether the beneficiary defendants were seeking to assert a rule of forced heirship under Greek law, even if they were, the 1995 Trust would be regarded as valid under Guernsey law by virtue of the 1989 Law and the 2007 Law, both of which provided that all questions of validity are to be determined in accordance with Guernsey law. In granting the declarations as sought, the Deputy Bailiff also made orders that the trustee’s costs be paid out of the estate on an indemnity basis.

Post Script

A mere 8 days after the Royal Court made declarations, the Greek proceedings came on for trial in Athens. The trustee’s former employees were represented and had flown a Guernsey witness to Athens to give evidence, together with the declarations of the Royal Court. However, the Athens Court of First Instance had a heavy case load on the day and, being unable to begin proceedings due to a backlog, acceded to the trustee’s second request to have the trial and the intervention heard together, albeit later in the year. Somewhat surprisingly, the trial and intervention were listed to be heard in October 2013.

Conclusion

Bearing in mind that the real property is located in Greece, it will be interesting to see how the Athens Court of First Instance approaches the matter and, more particularly, the declarations of the Royal Court. It is unfortunate that the parties will have to wait until late 2013 for this matter to be concluded. Nevertheless, the decision of the Deputy Bailiff in Rothschild Trust Guernsey Limited v Pateras provides welcome guidance and certainty to those interested in Guernsey’s offshore trust structures. The decision should be interpreted as providing a measure of assurance that the structures put in place in Guernsey for the protection and benefit of beneficiaries will be readily assisted by the laws and Courts of Guernsey.

It follows that Guernsey is an obvious choice for those wishing to obtain the benefit of an offshore trust structure in a mature offshore financial services centre with a proven track record of stability supported by an enviable body of professional expertise. The certainty afforded to those who seek to avail themselves of the benefits of Guernsey as an offshore financial centre will no doubt be regarded as invaluable, if not essential, to commercial relationships established under the laws of Guernsey.