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Jersey & Guernsey Law Review – February 2007

JERSEY’S NEW PRIVATE INTERNATIONAL LAW RULES FOR TRUSTS – A RESPONSE

Daniel Hochberg

1       Professor Harris’ article raises a number of interesting points concerning the scope and drafting of the new article 9 of the Trusts (Jersey) Law 1984, which by article 2 of the Trusts (Amendment No. 4) (Jersey) Law 2006 replaces the previous provisions of article 9.

Scope of application: limited to trusts governed by Jersey law

2       Professor Harris is critical of the fact that the new article 9 will apply only to trusts governed by Jersey law.  The position was the same under the previous provisions of article 9 which have now been replaced, and the reason for this is straightforward.  It would be inappropriate for Jersey law to legislate substantively for trusts governed by a system of law other than Jersey law.  An attempt to do so would be liable to attract the same kind of criticism[1] as has been levelled against English courts which, in the course of deciding ancillary relief applications in English divorce proceedings, have asserted power under section 24 (1) ( c) of the Matrimonial Causes Act 1973 to vary the trusts of settlements governed by Jersey law,[2] and, without clearly applying Jersey law, to determine whether a settlement administered and most closely connected with Jersey was genuine or was a sham.[3]  In protecting Jersey trusts from attack from foreign laws and foreign courts, it would be counterproductive to legislate substantively for trusts governed by systems of law other than Jersey law.  Most trusts which are administered in Jersey are governed by Jersey law. Analogous legislative provisions in other offshore jurisdictions are likewise limited in scope.[4]

Scope of application: limited to trusts only where the settlor is domiciled in Jersey

3       Professor Harris criticizes the new article 9 (3) in particular, which states that “The law of Jersey relating to - (a) légitime; and (b) conflicts of law, shall not apply to the determination of any question mentioned in paragraph (1) unless the settlor is domiciled in Jersey.”  He says that article 9 (1) is itself a rule of Jersey law  relating to the conflict of laws, and, therefore, taken literally, article 9 (3) disapplies it unless it is a case in which the settlor is domiciled in Jersey.[5]

4       There can be no doubt that article 9 (1) was not intended to be limited in its application to Jersey domiciled settlors, nor can there be any doubt that this could have been made expressly clear by different language.  The mischief which article 9 was designed to avoid is, however, obvious.  If one had to choose between Professor Harris’ literal construction, which renders the amended article 9 (3) pointless in a very substantial number of the cases to which it was intended to apply, and a purposive construction which excludes the disapplication of the Jersey law of conflict of laws to article 9 (1) in cases in which the settlor is not domiciled in Jersey, one would choose the latter.  Applying English principles of statutory construction to this conundrum, one could give article 9 (3) a purposive construction, as Bennion puts it,[6] by reading article 9 (3) as being subject to an implied qualification that it does not apply to article 9 (1).  The fact that, if interpreted literally, the article 9 (1) conflict of laws rules would apply only in the case of a Jersey domiciled settlor of a settlement governed by Jersey law, a case in which questions of conflict of laws might be thought significantly less likely to arise than in the case of a non-Jersey domiciled settlor, argues strongly in favour of the implied exclusion of article 9 (1) from the scope of article 9 (3), as does the fact that both provisions form part of the same article of the Trusts (Jersey) Law 1984 (as amended).

Matters governed by Jersey law

5       If article 9 (3) can and should be read as being subject to the implied exclusion of article 9 (1), then article 9 (1) applies to a settlor domiciled outside Jersey who creates a trust governed by Jersey law, and to any question of his capacity.  Professor Harris doubts the effectiveness of article 9 (1) in respect of trusts of property (particularly immoveable property) situated outside Jersey.[7]   The question whether the provisions of the new article 9 (1) are effective in respect of trusts of property situated outside Jersey, and, in particular, immoveable property situated outside Jersey, does not arise as a result of the drafting of article 9 (1), but exemplifies the difficulty of obtaining recognition of a trust in a no-trust state which does not recognise the possibility of a split between the legal and beneficial ownership of property.[8]

6       Professor Harris finds it curious that article 9 (1) (a) and (c) reiterate matters to be found in article 8 of the Hague Convention.  But, as well as being convenient for those contemplating the establishment of a Jersey trust and their advisers to be have such provisions clearly set out, the structure of the analogous legislative provisions in the Bahamas,[9] Cayman Islands[10] and the Isle of Man[11] is similar to that adopted by the draftsman in Jersey.  The Jersey provisions are neither more nor less curious than the provisions of those jurisdictions.

7       Professor Harris observes that by article 9 (1) (d) Jersey law alone applies to the administration of the trust, and the possibility that the settlor might specify a different law for administration of the trust from that specified as otherwise governing the trust is ruled out, which he concedes could be done within the framework of the Hague Convention .  This objection would have more weight if there were significant numbers of cases in which the settlor specifies different laws for the administration of the trust from those which otherwise govern it.  In practice, it is extremely unusual for this to be the position.

Non-recognition of foreign judgments

8       article 9 (4) provides that “No foreign judgment with respect to a trust shall be enforceable to the extent that it is inconsistent with this Article irrespective of any applicable law relating to conflicts of law.”[12]  Professor Harris correctly identifies the current concern of the Royal Court about the propensity of the Family Division of the High Court in England to exercise its power under section 24 (1) ( c) of the Matrimonial Causes Act 1973 to vary the trusts of a Jersey law settlement.[13]  To what extent (if any) ought a judgment of an English court varying the trusts of a Jersey law settlement to be recognised and enforced by the Royal Court? 

9       The first point to be made is that article 9 (4) does not provide in absolute and unqualified terms that no foreign judgment with respect to a trust shall be enforceable.  Only if and to the extent that a foreign judgment is inconsistent with article 9, irrespective of any applicable law relating to conflict of laws, is it to that extent unenforceable.  The relevant inconsistency must, furthermore, relate to trust matters.   The Royal Court has no power to determine (for example) ancillary relief questions in English divorce proceedings, as Bailhache, Bailiff made clear in In the matter of the B Trust, where he stated -

“... we do not think that the application of English law by the English court to the question whether the B Trust was a post-nuptial settlement renders the English order unenforceable. ...  We find it altogether unsurprising that the English court should have applied English law in the exercise of a statutory jurisdiction conferred in matrimonial proceedings to vary the terms of a trust in order to do justice between the parties.  Nothing in the law of Jersey could oust such a jurisdiction which is in conformity with the Hague Convention on the law applicable to trusts and on their application; ... This court is however not exercising a matrimonial jurisdiction under Article 27 of the Matrimonial Causes Law. ... We are exercising a jurisdiction under Article 51 of the [Trusts (Jersey) Law 1984 (as amended)] to give directions to a trustee which has sought the assistance of the court. ... Our function ... is to decide whether, and if so to what extent to give effect to the conclusions at which the English court arrived.”[14]

10     It seems clear that, under article 9 in its latest form, the Royal Court may refuse to give any effect to a judgment of the English High Court.  On this view, it is difficult to see how the Royal Court could now follow the reasoning set out in cases such as Compass Trustees Ltd. v McBarnett, which was founded on comity.[15]  The Bailiff’s view in In the matter of the B Trust, which may be characterized as a moderate application of article 9 (as amended) turns on discerning whether there are inconsistencies between the substance of the English judgment, and the substance of the directions contained in the Royal Court’s order.

11     An extreme application of article 9 (4) may also be formulated.  The B Trust was a discretionary trust.[16]  The order of the English court was an order varying the terms of the settlement, and accordingly article 9 (1) (e) of the Trusts (Amendment No. 4) (Jersey) Law is engaged, since it gave rise to a question concerning “the existence and extent of powers, conferred or retained, including powers of  variation ...of the trust and powers of appointment”.  By article 9 (2) (b), any question in article 9 (1) is to be determined by the Royal Court without consideration as to whether or not the trust or disposition avoids or defeats rights, claims or interests conferred by any foreign law upon any person by reason of a personal relationship to the settlor.  It appears that the extended definition of “personal relationship” in article 9 (2) (c) would apply.  In that case, article 9 (4) applies to the English judgment, and the English judgment may not be enforced in Jersey.  All that the Royal Court must discern is whether the judgment of the English court is concerned with a question of the kind set out in article 9 (1).  So long as the English proceedings raise a question of that kind, the judgment ought not to be recognised or enforced; therefore, the trustee needs no direction from the Royal Court as to how to act.  It is hard to think that the extreme application of article 9 can have been intended by the States of Jersey, since it only confirms the difficult position in which the trustee would find itself, being subject to an order of the English court, and being at the same time required by the laws of Jersey to ignore it.

12     Between the moderate position espoused by the Bailiff, and the extreme application of article 9 (4), it is possible that there is some middle ground.  This position would reject the characterization of the Royal Court’s function as being “... to decide whether, and if so to what extent to give effect to the conclusions at which the English court arrived.”[17]  The starting point for the Royal Court, as with its determination of any application under article 51 of the Trusts (Jersey) Law 1984 by a trustee for directions as to how to act in connection with any matter concerning the trust, would be to take into account all relevant circumstances.  The Royal Court could not exclude from its deliberations the fact that there was in existence a judgment of the English Court concerning the trust.  But the Royal Court would exercise its discretion on the basis that its task was to determine what was in the best interests of the beneficiaries, and that might or might not result in the trustee being directed to act in a way which was consistent with the judgment of the English Court.  If the trustee was directed to act in this way, it would not amount to recognition or enforcement of the judgment of the English court.  The process would be quite different from that explained by Parke B. in Williams v Jones.[18]  This approach is consistent with the objectives of the amendment of article 9.

13     The extent to which (if any) a judgment of an English court varying the trusts of a Jersey law settlement ought to be recognised will depend upon the precise circumstances of each case.  If the husband and wife in the divorce proceedings are beneficiaries under the settlement, then they will be convened to the trustee’s application to the Royal Court under article 51 of the Trusts (Jersey) Law 1984.[19] The Royal Court, applying Jersey law, will take into account the interests of all the beneficiaries, including those of the husband and the wife.  The Royal Court may conclude, in the exercise of its discretion, that it is in the best interests of the beneficiaries to direct the trustees to act in a manner consistent with the judgment of the English court.  Even if, however, the husband or the wife are not beneficiaries, then the Royal Court may give leave under article 51 (3) for them to be heard on the trustee’s application for directions, although the Royal Court could not order a distribution to be made from the trust to someone who was not a beneficiary.[20]

14     If the Royal Court, in the exercise of its supervisory jurisdiction, were to conclude that the recognition or enforcement of the English court’s order was not appropriate, then it might be appropriate for an application to be made promptly to the English court seeking an order varying the English judgment on the grounds that it was not, in whole or part, recognised or enforceable in Jersey.  This would represent a relevant change of circumstance since the original English court order had been made.

15     There remains the question of the Judgments (Reciprocal Enforcement) (Jersey) Law 1960, which continues in force.  The Law is concerned with judgments, but “judgment” is defined by article 2 (1) to mean “a judgment or order given or made by a court in any civil proceedings ... for the payment of a sum of money in respect of compensation or damages to an injured party.”  The limited scope of the definition means that it is clearly inapplicable to orders of the English court varying the trusts of a Jersey law settlement, or a property adjustment order.  The jurisdiction of the English court in ancillary relief proceedings is very wide, but it may well be very hard to characterise orders of the kind usually encountered in ancillary relief applications as “sums of money in respect of compensation or damages to an injured party.”  So the scope for conflict between article 9 of the Trusts (Jersey) Law 1984 as it now stands and the Judgments (Reciprocal Enforcement) (Jersey) Law 1960 may be practically non-existent.

Conclusion

16     The amendments made by the Trusts (Amendment No. 4) (Jersey) Law to article 9 of the Trusts (Jersey) Law 1984 extend the scope of protection to Jersey trusts from attack.  It is necessary not to exceed what is sensible in this area.  The amendments to article 9 can be given a sensible interpretation which is consistent with the policy lying behind their enactment. 

Daniel Hochberg, barrister, is in practice at Wilberforce Chambers, Lincoln’s Inn, London WC2A 3QP.    

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