[2008]JRC100
royal court
(Samedi Division)
20th June 2008
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Before :
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M. C. St. J. Birt, Esq., Deputy Bailiff, and
Jurats Allo and Newcombe.
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Between
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Mourant & Co Retirement Trustees
Limited
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Representor
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And
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J G
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First Respondent
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H K
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Second Respondent
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IN THE MATTER OF THE TURINO
CONSOLIDATED LTD RETIREMENT TRUST
Advocate J. Harvey-Hills for the Representor.
Advocate L. K. A. Richardson for the First
Respondent.
Advocate L. J. L. Buckley for the Second
Respondent.
judgment
the deputy bailiff:
1.
This is an
application by the representor ("the Trustee") for directions in
connection with the Turino Consolidated Ltd. Retirement Trust ("the
Trust"). It has become
necessary because of divorce proceedings between the first respondent and the
second respondent in the Netherlands. Although the parties are no longer
married, we propose for convenience to refer to the first respondent as the
husband and the second respondent as the wife.
The background
(i) The Trust
2.
The
husband and the wife were married on 7th September 1988. They lived in the Netherlands. On 22nd July 1992, the husband, as sole
director of Turino Consolidated Ltd ("the Principal Employer") sent a
letter to the Trustee requesting the formation of a retirement trust, with the
husband and the wife to be members of the Trust. The Principal Employer appears to have
been an Irish company established for the purposes of the Trust.
3.
The Trust
was formed on 26th February 1993 by means of a deed executed by the
Principal Employer and the Trustee but was stated to have been effective from 7th
September 1992, which was the date upon which the husband and the wife signed
applications to become members under the Trust.
4.
The
contributions made by each member are held on trust by the Trustee in an Accumulated
Fund for that member. Rule 4.2 of
the trust instrument provides that:-
"The Trustees will (after
making an allowance for their reasonable expenses) allocate to a Member's
Accumulated Fund the contributions paid by him and by any Employer in respect
of him and a fair share (determined by actuarial advice) of the income, gains
and losses arising on the assets of this Retirement Trust."
5.
Rule 5
deals with the benefits on retirement and the key provisions are as follows:-
"5.1 No Benefits shall be paid or applied
from this Retirement Trust to or in respect of a Member while such Member is in
any employment with the Employer and the Trustees may accumulate income for the
whole or any part of the Trust Period.
5.2 Subject to Rule 5.1 the Benefits payable
under this Rule during the Trust Period shall be such annuities and lump sums
to be paid to, for or in respect of a Member out of that Member's Accumulated
Fund as that Member shall direct in writing or, in the absence of such
direction and if none is received within three months of it being requested by
the Trustees, as the Trustees shall decide.
5.3 In order to provide
Benefits in accordance with Rule 5.2 the Trustees shall realise such Member's
Accumulated Fund or appropriate parts thereof as and when Benefits become
payable or are to be secured in accordance with Rule 5.4."
6.
The
husband and the wife are the only members of the Trust and the Principal
Employer was dissolved many years ago.
It follows that either member may call at any time for the benefits
referred to in Rule 5.2. They are
between them absolutely entitled to the trust fund.
7.
It appears
from the affidavit of Mr Thomas, the manager of the Trustee with responsibility
for the Trust, that, following the creation of the Trust, the husband assigned
various assurance policies to the Trust which were credited to his Member's
Accumulated Fund. At that stage the
wife did not contribute anything to the Trust.
8.
The
appointed investment adviser to the Trust was a Dutch firm called Independent Consultancy
Group of which the relevant principal was Mr Peter Gibney, who appears to have
been the tax and investment adviser to the husband and had advised on the
establishment of the Trust.
9.
In 1994
the parties wished to buy a larger property in the Netherlands namely Somerset Farm,
Deelhorstweg 22, 7037, CR Beek, Gem Bergh ("the Property"). It appears that they had until then been
living in a property owned by the wife.
Mr Gibney advised that the Property should be acquired through the Trust
and this is what occurred.
Completion took place on 2nd
January 1995. The total
purchase price (including costs and taxes) was NLG 624,247.13. The Trust contributed NLG 520,177.95 and
the wife contributed NLG 104,069.18 from the sale proceeds of the former property. The amount contributed by the Trust was
raised by realising the various assurance policies which had been assigned by
the husband. Although, prior to the
purchase of the Property, the wife's Accumulated Fund was zero, the Trustee
considered that the wife's contribution of NLG 104,069.18 to the purchase price
of the Property was the equivalent of an indirect contribution to her
Accumulated Fund under the Trust.
It therefore allocated the Property to the Accumulated Funds of the
husband and wife respectively in the proportion of NLG 520,177.95 to NLG
104,069.18. This equates to 83.33%
of the Property being allocated to the husband's Accumulated Fund and 16.67% to
the wife's Accumulated Fund. The
wife also utilised the proceeds of the sale of the former home for subsequent
refurbishment and improvements to the Property.
10. The Trust's only current asset is the
Property. Although, in accordance
with Mr Gibney's advice, a rental agreement between the husband and wife on the
one hand and the Trustee on the other at the monthly rental of NLG 1,500 was
entered into with regard to the Property, only NLG 5,000 has ever been paid by
way of rental. That sum has been
used towards fees and has been exhausted.
The present position is that the Trustee has not received payment in
respect of its fees for a number of years and there is no cash in the
Trust. The only other asset of the
Trust is a loan which was made to the husband in 1993 in the sum of NLG
29,489.11. The Trustee has waived
interest on that loan and it remains outstanding.
11. As to the value of the Property, a valuation
was provided by the firm of Maalderink & Lutka Willink to Mr Gander on 18th
May 2000 which valued the Property at not less than NLG 1million
(€453,780). A valuation
report, commissioned by the wife, was produced by Gerrits Lammers on 11th July 2001,
which valued the Property at NLG 1,175,000 (€533,191) for a 'free'
sale. The Trust has attempted more
recently to value the Property but the wife has refused access to the Property.
The divorce proceedings
12. It appears from the various judgments of the
Dutch courts (to which we shall refer shortly) that, before their marriage in
1988, the parties entered a notarial deed excluding community of property. However, by notarial deed of 21st
June 1996 ("the 1996 variation"), they varied the marital conditions
by agreeing that, in the event of divorce, matters should be resolved as though
there had been a general community of property between them i.e. assets would
be shared equally.
13. In April 2000 the parties separated and since
then the wife has been in sole occupation of the Property. A decree of divorce was granted by the
Family Division of the District Court of Zupthen in the Netherlands
("the District Court") on 25th January 2001.
14. On 5th November 2001, following a
telephone conversation between the wife and the Trustee in which she stated
that she was entitled to 50% of the Property, the Trustee was sent by the
wife's legal adviser a certified copy of what was described as a 'letter of wishes'
signed by the husband and wife on 17th May 1999 ("the 1999
letter"). It was addressed to
the Trustee and we set out the relevant parts as follows:-
"……..
notwithstanding the details of the original purchase of [the Property],
…… in the event that the parties should be divorced from each other
…… that [the Property] and/or all income deriving thereto and/or
the proceeds from the sale of [the Property] for any reason whatsoever, shall
in future be considered to be held within the Trust to the benefit of each of
the parties …… in the proportions as stated hereunder:-
[J G] – 50%, [H K]
50%."
15. Following receipt of the 1999 letter, the
Trustee responded to the wife's legal adviser on 16th November
stating inter alia "we hereby
confirm so long as it is in the beneficiaries' best interests, we will abide by
any final court decision in respect of the distribution of this property served
upon us." However the
Trustee did not at that stage take part in the proceedings or submit to the
jurisdiction of the Dutch court.
16. On 21st May 2003 the District Court issued its
judgment on the financial aspects of divorce. Although acknowledging that the Trust
was recognised by the court and that the assets of the Trust were separate from
the assets of the parties, it nevertheless rejected the husband's submission
that the Property should be distributed 83.33% - 16.67% as per the interests
under the Trust. It held that the
parties were bound by the 1999 letter and that accordingly the Property should
be sold and the proceeds divided equally between them. It provided a specific mechanism for
doing this by ordering that the Property should be valued and offered for sale
to the wife; if she did not agree to purchase the Property at the valuation
price within one month, the Property should be placed on the open market; and
if it was not sold on the open market within three months, it should be sold at
public auction.
17. Following this judgment, the husband sent a
letter to the Trustee on 12th
August 2003 stating that the 1999 letter did not have any standing
since it was not an expression of his wishes. He said that it was drafted at the
initiative of his ex-wife and she had made him sign it under duress at a time
when she knew he was suffering from a severe depression. Furthermore he was extremely tired and
vague due to jet lag having only just returned from a night flight via the UK from his
work in a very hot climate in India. He provided a new letter of wishes
("the 2003 letter of wishes") asking that, in the event of his death,
the Trustee should hold the assets of his Accumulated Fund for the benefit of
his daughter (by a previous marriage).
18. The husband appealed to the District Court of
Arnhem ("the Appellate Court").
On 24th
February 2004 that court handed down an interim judgment which
determined certain matters.
(i)
The court
rejected the husband's contention that the 1996 variation to the marital
conditions should be set aside on the basis that he was suffering at the time
from depression, that he did not have the necessary capacity as a result of his
bipolar condition and that he authorised the notarial deed to be signed under
the undue influence of the wife. In
coming to this conclusion the Appellate Court placed some weight on a letter
dated 21st August
1995 from the parties to the Trustee but it appears from the
evidence before us that that letter was never in fact signed or sent. However the Appellate Court also placed
weight upon a letter dated 25th March 1997 from Mr Gibney to the
husband in the course of which he (Mr Gibney) said the following:-
"More importantly
…… all of the present assets within the trust (apart from one small
pension plan which probably has no value now) are effectively in your
name. I am sure that this is not
your intention. I am aware that
you have a 50/50 agreement with Helena
but that is not enough since Jersey
inheritance law is different from Dutch inheritance law. Therefore, when next you are in Holland you MUST sit down
with Helena,
make a list of all jointly held assets (including the trust) and lodge this
with a notary. You will then need a
fairly simple document – signed by both of you – lodged with the
trustees stating that you are both 'tenants in common' of the farm and all land
attached to it. That is the
English legalese for saying that you are 50/50 owners." (emphasis added)
(ii) For much the same reasons, the court also
rejected the husband's contention that the 1999 letter was signed by him when
his capacity was affected by his mental condition, by depression and by jet
lag. The court held that the 1999
letter constituted a binding agreement between the parties which was entirely
consistent with the 1996 variation and the letter of 25th March 1997 from Mr
Gibney.
(iii) In summary the Appellate Court held that there
was a binding agreement between the parties that, on divorce, the assets of the
Trust would be divided equally between them. The court acknowledged that the assets
of the Trust were separate from those of the parties and that the Trustee was
not a party to the proceedings.
However it took comfort from the letter from the Trustee dated 16th
November 2001 (see para 15 above) to the effect that it would abide by any
court decision in respect of the division of the property provided it was in
the beneficiaries' best interests.
The court regarded it as hard to contend that its ruling was not in the
best interests of the parties.
(iv) Having dealt with certain other matters the
court ordered the husband and wife to endeavour to reach agreement on the basis
of the court's decision.
19. The husband and the wife were unable to reach
agreement and the matter returned to the Appellate Court which gave its final
decision on 8th
February 2005. The
court said that the wife had produced a valuation of €415,000 for the
Property and that the husband had not disputed that valuation. In essence the court ordered that the
husband should procure that the Trust sell the Property to the wife and that
the purchase price should be increased by a monthly rental of €681
payable by the wife from April 2000 (since when she had been in sole
occupation) and reduced by the 'owners costs' such as insurance, improvements
etc which the wife had paid since the separation ("the
Formula"). The exact terms of
the ruling were set out in paragraph 4 of the judgment which provided (in
translation):-
"The court, giving judgment at
appeal …………. orders the husband to collaborate in the
necessary steps to ensure that the trustee of [the Trust] within three months
from today sells [the Property] to the wife and conveys it against payment by
the wife to the trust of €415,000, this amount to be increased by the
rent instalments of €681 per month for the period from April 2000 until
the date of conveyance and to be reduced by the amount mentioned in ground 2.7
of €19,637 and the owner costs and house insurance premiums paid by the
wife in the year 2004 and thereafter until
conveyance……….."
The court also ordered that the loan
referred to earlier should be redeemed half and half by the parties.
20. As we shall see, differences arose between the
parties as to the exact meaning of the order of the Appellate Court and these
differences centered upon the court's observations at para 2.7 of the judgment
which (in translation) said as follows:-
"………….
in the light of the above, the court will order the husband to take all
necessary steps to ensure that the trustee within the – generous –
deadline to be indicated sells the house to the wife and conveys it against
payment of the above-mentioned sum of €415,000, and the court also points
out that it is assuming that, if the contrary is not to be assumed, this amount
is indeed a 'market-compatible' price.
Sale for half of the estimated value cannot, in the opinion of the
court be considered. The wife
as the 'beneficiary' must reach a settlement with the trustee, such that the
court assumes that, since the assets placed in the trust belong equally to the
parties, this can take place in such a way that after the settlement half of
the 'purchase price' is paid on the due date and the pledge of the trust assets
should not take place in any other way." [emphasis added]
21. One might have hoped that, given the limited
value of the trust assets, the parties would have proceeded by agreement
following the decision of the Appellate Court. Sadly this has not happened and the
consequence is that costs have been incurred by the Trustee instructing Jersey and Dutch lawyers and the parties have also
incurred legal costs.
22. We have been taken through the correspondence
since the decision of the Appellate Court.
It is prolonged and has essentially got nowhere. We do not think it necessary to lengthen
this judgment by referring to it in any detail. In essence the wife initially said that
the effect of the judgment of the Appellate Court was that she could purchase
the property for half of the stipulated sum (i.e. €207,500) with the net
proceeds then all going to the husband.
The husband and the Trustees did not agree and referred to the
emphasised sentence in the passage quoted at para 20 above. Subsequently the wife indicated a willingness
to proceed at the price of €415,000 provided that she could be assured
that half of the net proceeds of such a sale would immediately be returned to
her. The husband, on the other
hand, whilst willing initially to agree that the Property should be sold to her
for €415,000, argued that the net proceeds received by the Trustee must
then be distributed in accordance with the terms of the Trust i.e. 83.33% to
him and 16.67% to the wife. More
latterly he has become concerned that the valuation is a considerable
undervaluation and that accordingly the Trustee should evict the wife, sell the
Property on the open market and distribute the proceeds as per the trust
deed. The Trustee has been caught
in the middle and has said that, in the absence of the agreement of the
parties, it has no option but to distribute any proceeds in accordance with the
terms of the Trust. It therefore
saw no alternative but to seeking the directions of the Court in the absence of
agreement. The Trustee also made
repeated requests to the wife to allow the Property to be valued but these were
refused.
23. Eventually the wife returned to the District
Court in order to seek to enforce the order of the Appellate Court. She requested the District Court to
order the husband to sign a letter to the Trustee instructing it to sell the
Property to the wife for the price of €415,000 (adjusted as per the
Formula) and to then distribute the net proceeds of that sale (after deduction
of the Trustee's costs) on a 50/50 basis to the husband and the wife. The husband argued that the formal part
in paragraph 4 of the order of the Appellate Court had not referred to a 50/50
distribution but the District Court rejected his argument, stating that it was
clear from the remaining parts of the judgment that it was the intention of the
Appellate Court that the Property be divided equally. The husband also argued that, because
the Property had probably increased in value, he could not be required to
co-operate with the sale by the Trustee at a price of €415,000, as this
was below the market value; but this point was also rejected by the District
Court.
24. In passing the District Court referred to the
passage from paragraph 2.7 of the Appellate Court's decision referred to
earlier but interestingly, the translated version of the District Court's
quotation of para 2.7 reads rather differently from the translation of the
judgment of the Appellate Court supplied to the Trustee and the other
parties. It reads as follows:-
"According to the court, the
sale at half of the appraised value is not at issue. As a 'beneficiary', the wife must settle
with the trustee, whereby the court presumes that, given that the trust
property must be divided equally among the parties, this may be done in such a
manner as to have the wife, on balance, 'pay the purchase price' after the set
off and that settlement of the trust property need not be made otherwise."
This clearly has a rather different meaning
from the passage quoted at para 20 above and shows the difficulty of relying
upon translations. The District
Court went on to clarify that the wife could set off the purchase price of the
Property in such a way as to pay, on balance, half the purchase price. However that is not what it ordered,
because it ordered the husband to sign the formal declaration annexed to the
order which was, as mentioned earlier, an instruction to the Trustee to sell to
the wife for €415,000 (as adjusted by the Formula) and to then distribute
the net proceeds, after deduction of the Trustee's costs, equally between the
husband and the wife. The court
also ordered the husband to refrain from any communication between himself and
the Trustee with a view to invalidating the letter of instruction and also
awarded a penalty should he violate the order.
25. The husband subsequently sought to appeal the
order of the District Court but he is apparently out of time. He and the wife signed the letter of
instruction to the Trustee as directed.
The letter of instruction in the form required by the District Court is
dated 12th April
2007 ("the 2007 instruction) and was sent to the Trustee on 17th April 2007. However the husband endorsed the 2007
instruction to the effect that it was signed pending appeal, and both before
and since, he has made it clear to the Trustee that it does not truly reflect
his wishes.
26. Because of that, the Trustee has felt unable to
act on the 2007 instruction and on 9th August 2007, it instituted the current
proceedings seeking the direction of the Court. These were adjourned at the request of the
parties on various occasions.
27. In November 2007 the wife instituted
proceedings before the District Court seeking an order that the Trustee be
directed to convey the Property to the wife for half of the figure fixed by the
Appellate Court, subject to adjustment according to the Formula. With the approval of this Court, the
Trustee appeared before the District Court to put its case. The District Court held on 16th January 2008
that the matter was properly before this Court and that this was the appropriate
forum. It therefore declined to
adjudicate upon the wife's claim.
The wife has appealed that decision but we understand that the appeal
has been deferred pending the decision of this Court.
Submissions
28. On behalf of the wife, Advocate Buckley
submitted that the Court should direct the Trustee to comply with the order of
the Dutch court; in particular by directing that the Property should be sold at
the price and in the manner directed by the Dutch court. He pointed out that the Netherlands was
the appropriate jurisdiction to which both parties had submitted and appeared
to argue their case. The Dutch
court had given a final and conclusive judgment which was to the effect that
the husband and the wife had reached a binding agreement that, upon divorce,
their assets, including the Trust, would be divided equally between them. It was not open to the husband to seek
to re-open that finding, which was binding upon him.
29. Mr Buckley accepted that this Court could not
vary the Trust as it was a fixed trust. However he submitted that the Court could
achieve the objective of giving effect to the decision of the Dutch court in
one of two ways:-
(i)
It could
treat the 1999 letter and/or the 2007 instruction (both of which were signed by
both parties) as varying the Trust on the grounds that the husband and the wife
were between them beneficially entitled to the entire trust fund and they could
direct the Trustee accordingly.
(ii) Alternatively, it could direct the Trustee to
discharge the husband's obligation to the wife (which was in effect to pay her
the difference between 16.67% and 50%) by paying half the trust fund to the
wife.
30. On behalf of the husband, Advocate Richardson
submitted that the Trust must be upheld.
It was a fixed trust and the Court had no power to vary it; in
particular the general supervisory power of the Court contained in Article 51
of the Trusts (Jersey) Law 1984 ("the Trusts Law") did not confer a
power on the Court to vary the terms of a trust (save in the limited
administrative respect mentioned in the Article itself). In this context she referred to the
decision of the House of Lords in Chapman v Chapman [1954] 1 All ER 798.
31. She did not accept that the Dutch court had
purported to vary the Trust. But
even if it had, it was not open to this Court to enforce or give effect to a
foreign judgment in the present circumstances. She referred to a number of the cases
which have come before this Court including Re the H Trust [2006] JLR
280, Re the B Trust [2006] JLR 562, Re the H Trust [2007] JRC 187, Re The Fountain Trust [2005] JLR
359 and FM v ASL Trustee
Company Limited [2006] JRC
020A. The effect of these decisions
was that the Court did not 'enforce' a foreign judgment dealing with a Jersey trust.
What the Court did was to consider, when exercising its supervisory
jurisdiction under Article 51, how far it should direct the trustees to act so
as to give effect, wholly or partially, to the foreign judgment. But the extent to which effect could be
given to the foreign judgment depended upon whether the trustees had power
under the trust deed to act so as to give effect to the judgment. For example, if the foreign judgment purported
to vary a Jersey trust by ordering that the
trustees pay £1 million to a wife absolutely, the trustees would have
power to make such a payment if the wife was a beneficiary. Thus, effect could be given to the
foreign judgment not by enforcing it but by the trustees (or the Court in its
supervisory jurisdiction) deciding to exercise the discretionary powers which
already existed under the trust deed in such a manner so as to give effect to
the foreign decision. Conversely,
if the foreign court purported to vary the trust in a manner which could not be
achieved by the trustees under the existing provisions of the trust deed (e.g.
by ordering that £1 million be paid to a wife who was an excluded person
and could not be added as a beneficiary), then there was no power in this Court
to vary the trust so as to enable effect to be given to the foreign order. In short, the ability to give effect to
a foreign order depended upon there being power under the trust deed to act in
a manner which would achieve that objective. To the extent, if any, that the Royal
Court may in some earlier cases have indicated that it did have power to vary a
trust so as to give effect to a foreign judgment on the principle of comity, those
cases were wrongly decided and, in any event, any such ability, she submitted,
had been removed by Article 9(4) of the Trusts Law (as introduced by the
Trusts (Amendment No.4) (Jersey) Law 2006). As the Trust was a fixed trust, there
was no power to distribute the trust fund in any proportion other than
83.33%/16.67%. Accordingly there
was no ability to give effect to the judgment of the Dutch court that the trust
assets should be held in equal shares for the husband and wife.
32. As to the argument that the Court should rely
upon the 1999 letter and/or the 2007 instruction, she submitted that the former
was written under the influence of the wife at a time when the husband was
depressed and suffering from jet lag.
Furthermore, it was expressed to be a letter of wishes, not an
instruction, and the Trustee had not acted upon it as an instruction. As to the latter, it was written upon
the direction of the District Court and clearly did not represent the husband's
true intention. The Court should
not therefore take either of them as being valid instructions to the Trustee to
vary the Trust so as to hold the assets for the husband and wife in equal
shares.
33. Finally she submitted that if, contrary to her
primary submission, the Court determined that the trust fund was now held for
the husband and wife equally, the Court should order an updated valuation. There was strong evidence (based on the
earlier valuations referred to at para 11) that the sum of €415,000 was
an under-valuation at the time of the Appellate Court's decision, but it was
certainly so now. The wife should
not be able to take advantage of her refusal to allow a valuer into the
Property. The husband accepted that
the Property could be sold to the wife but only if she paid the true market
price.
34. On behalf of the Trustee, Mr Harvey-Hills
asserted that it was adopting a neutral position as between the husband and
wife but, in pursuance of its duty to bring all relevant matters to the
attention of the Court, it pointed out the real difficulty which would result
from the husband's proposed course of action. The Property was the sole asset of the
Trust and there was no liquidity.
The Property was situated in the Netherlands and the Dutch courts
therefore had ultimate control of the position. The wife would not proceed with any
purchase save in accordance with the order of the Appellate Court. If this Court found for the husband, the
only way of realising the Property would be to seek to evict the wife before
the appropriate court in the Netherlands
so as to be able to sell the Property on the open market. The Trustee anticipated that this would
be a course of action fraught with difficulty, with limited prospects of
success and a substantial likelihood of incurring further costs. The Trustee would be inviting a Dutch
court to evict the wife in circumstances where there was in existence an order
of the Appellate Court to the effect that she could stay there and should be
able to purchase the Property for €415,000, which order the Trustee would
be failing to comply with. It
seemed highly unlikely that any Dutch court would evict the wife. The more likely outcome was either that
the Dutch courts would ensure that the Property was ultimately sold over the
head of the Trustee so as to comply with the order of the Appellate Court or
there would be an impasse with ownership of the Property remaining in the
Trustee, the wife remaining in occupation but without paying any rent and no
capital being available for distribution to the husband. For these reasons the Trustee believed
that it would be in the interests of both beneficiaries for effect to be given
to the decision of the Appellate Court by selling the Property to the wife for
€415,000 adjusted by the Formula and after allowing for the Trustee's
costs.
35. Mr Harvey-Hills agreed with Advocate Richardson
and Advocate Buckley that this Court had no jurisdiction to vary a fixed
trust. However, he agreed that the
Court could achieve the desired end result by either of the two methods
suggested by Advocate Buckley. The
Trustee was happy to accept that the Trust had been varied by the parties if
this was confirmed by the Court.
But, even if the Court found that the parties had themselves varied the
Trust so that it was now held for them in equal shares, the question remained
as to what action the Trustee should take in connection with the sale of the
Property. In normal circumstances
it would wish to sell at the market price so as to ensure that each party
received an equal share of the trust fund.
However, for the reasons just mentioned, this would require it to take
action against the wife in the Dutch courts which would be unlikely to succeed
and would incur costs where there was no liquidity and the husband was not in a
position to fund the Trustee. It
therefore sought directions that, in the unusual circumstances of this case, it
should be authorised to sell the Property to the wife for the sum of
€415,000 either by way of receiving the full price (adjusted by the
Formula) and then paying the net receipts to the beneficiaries in equal shares
or by netting off the consideration after allowing for the Trustee's costs, the
Formula and the wife's 50% interest.
Discussion
36. On any view the present position is highly
unsatisfactory. The husband is aged
63 and has since the separation lived in England in rented
accommodation. He continues to
suffer from his medical condition and relies on state benefits for his
income. Indeed, following the
hearing he suffered a relapse in his mental condition and was declared unfit to
give instructions to his advocate.
The wife is aged 55. She
suffered from polio when young and has had 'Bechterw' disease from 1990. She has been assessed as being 100%
occupationally disabled since 1988 and she relies upon Dutch state benefits for
her income.
37. The parties' sole capital asset is the
Property. The dispute between them
has eaten into the amount which each of them may ultimately receive. The Court is not aware of the extent of
any legal fees which they may individually have incurred but their failure to
resolve matters by agreement has meant that the Trustee has spent much time on
the matter, which has generated substantial fees payable to the Trustee. Furthermore, the Trustee has had to seek
legal advice in both Jersey and the Netherlands. The Court was informed that outstanding
remuneration and legal fees of the Trustee may amount to as much as
€200,000. It is clearly in
the interests of both beneficiaries that this matter be brought to a conclusion
as soon as possible whilst there is still some equity left in the Property.
38. However the Court can only act in accordance
with the law. The Trust is a fixed
trust. All counsel agreed that the
Court has no power of its own volition to vary such a trust. Advocate Richardson's submissions are correct. Even if, which is disputed, the
Appellate Court has purported to vary the Trust so that it is held equally for
both beneficiaries, there would be no power in this Court to enforce or give
effect to any such judgment because this Court has no power to vary a fixed
trust (save in the circumstances envisaged by Article 47 where the Court may
approve on behalf of minors and unascertained beneficiaries a variation which
is agreed by all the adult beneficiaries).
39. However, in our judgment, the Appellate Court
was scrupulous not to purport to vary the terms of the Trust. It made clear that it accepted the
existence of the Trust and that the assets of the Trust were separate from
those of the husband and wife. What
it did hold was that the husband and the wife had entered into a binding
agreement that, in the event of divorce, the assets would be shared equally
between them and that this agreement extended to the assets of the Trust. Because, between them, they were
entitled to the entire beneficial interest of the Trust, that was an agreement
which they could put into effect.
The Appellate Court rejected the husband's case that he did not have the
necessary mental capacity because of his illness or that he was under the undue
influence of the wife or that his jetlag was relevant. In our judgment the
finding that there was such an agreement is binding upon both parties and the
husband is estopped from denying the agreement. Indeed Advocate Richardson did not argue
to the contrary.
40. It is trite law (the rule in Saunders v
Vautier (1841) Cr & Ph 240) that where all the beneficiaries of a trust
are in existence, have been ascertained
and are of full age, they may require the trustees to terminate the
trust. This is reflected in Article
43(3) of the Trusts Law. It is
equally true that they can vary the terms of the trust. As Matthews
& Sowden, The Jersey Law of Trusts (3rd Edition)
correctly state at para 13.6:-
"Just as all the beneficiaries
of a trust, if of full age and sound mind, can put an end to a trust and direct
the trustees to transfer the trust property as they direct (para 15.12 below)
so too they can vary the trusts of the settlement. In a sense, this is just one application
of the rule that beneficiaries who between them own the trust property can
direct how it be dealt with …."
41. In our judgment the 1999 letter was effective
to vary the Trust once it was communicated to the Trustee in November
2001. The letter was signed by the
husband and the wife who between them were beneficially entitled to the whole
of the trust fund. The letter
directed the Trustee that, in the event of divorce (which has happened) the
Property (as the sole asset of the Trust) should be held for the husband and
wife in equal shares. The fact that
the 1999 letter is headed 'letter of wishes' makes no difference in our
judgment. The text of the letter
was in terms which amounted to a direction to the Trustee to vary the terms of
the Trust so as to hold the trust fund equally for the parties in the event of
a divorce. We hold that the Trustee
was entitled to treat the Trust as varied by the 1999 letter.
42. It is true that, since August 2003, the husband
has purported to renege on that direction, but in our judgment he is not
entitled to do so. Having giving
the direction to the Trustee, the trust fund was held upon the terms of the
Trust as varied by the 1999 letter i.e. for the parties equally. It could only be further varied by the
direction of both beneficiaries and that has not been forthcoming. It follows that the Trustee continues to
hold the trust fund upon trust for the husband and the wife in equal shares as
directed by the 1999 letter.
43. We would emphasise that this part of our
decision does not arise directly out of the decision of the Appellate
Court. The Trust has not been
varied by reason of any order of the Appellate Court or any order of this
Court. Nor is the 2007 instruction
relevant; we agree that that instruction was given under the compulsion of the
District Court and cannot be relied upon.
The Trust was varied, in accordance with standard principles of trust
law, by the two beneficiaries themselves giving the appropriate direction to
the Trustee in the 1999 letter. The
sole relevance of the decision of the Appellate Court in this context is that
that Court found the husband to be of sound mind and not under the undue
influence of the wife when he signed the 1999 letter. As we have said, it is not open to the
husband, having had the opportunity of arguing the matter fully in the Dutch court,
to now go behind that finding. But
in any event there was clearly ample evidence to support the finding of the
Dutch court given that the terms of the 1999 letter are entirely consistent
with the 1996 variation and with the letter of 25th March 1997 from Mr Gibney
referred to earlier. The upshot
therefore is that the Trustee holds the trust fund upon trust for the husband
and the wife in equal shares.
44. The Trustee seeks then the direction of the
Court as to what action it should take in relation to the Property.
45. The legal position is that a trustee is under a
duty to act in the best interests of the beneficiaries and to be impartial as
between them. Thus, in ordinary
circumstances, the duty of the Trustee in this case would be to sell the
Property for the best price that could be obtained i.e. its current market
value – whether such sale was to the wife or to a third party. Only by selling the Property for its
full market value would the Trustee be fulfilling its duty to the beneficiaries
and ensuring that they each benefited equally from the trust fund.
46. It is at this point that the existence of the
order of the Dutch court becomes relevant.
The fact is that the Property is situated in the Netherlands and
is therefore subject to the ultimate control of the Dutch court. The husband argues that the Trustee
should not comply with the order of the Appellate Court. He says that the Trustee should obtain a
current market valuation and should only sell the Property to the wife (if she
is willing to proceed) or to a third party at that price. If the wife will not agree to purchase
the Property for its current market value, the Trustee should take proceedings
in the Dutch courts to evict her so that it can sell to a third party.
47. In our judgment the difficulties of such a
course are correctly summarised in the submissions of the Trustee recorded at
para 34 above. On the evidence
presently before us, it would not seem to be a practical proposition. The likely outcome would be the
incurring of further time and expense by the Trustee (to the prejudice of the
beneficiaries) with no satisfactory outcome. We think it would be more damaging to
the interests of the beneficiaries (including the husband) than to proceed with
a sale at the price of €415,000.
At least, by that route, the husband would receive something pursuant to
the sale whereas, for the reasons articulated by the Trustee, he may well not
receive anything if the Trustee endeavours to proceed in the Netherlands in
contravention of the order of the Appellate Court.
48. However, we have to say that, although the
husband must bear considerable responsibility for much of the delay in this
matter, it does seem rather unfair that, if in fact the value of the Property
is more than €415,000, the husband should receive a sum calculated by
reference to the lesser figure. The
agreement between the parties, which was upheld by the Dutch court, was that
the assets of the parties, including the Property, should be divided equally
between them. There would in fact
be no equal division if the wife were to be able to buy the Property at less
than its true market value.
49. We think that the appropriate method of
proceeding would be as follows:-
(i)
The
Trustee should take legal advice in the Netherlands on whether there are any
steps open to it to seek to achieve a situation whereby the Property is
re-valued and sold at its current market value, whether this is by application
to the Dutch court to vary its existing order, by taking proceedings to evict
the wife and sell to a third party or otherwise.
(ii) If the Trustee is advised that there are good
prospects of achieving a sale at current market value, all well and good. It could then seek further directions
from this Court as to whether to proceed with the advised course of action.
(iii) If, as perhaps seems more likely, the Trustee
is advised that the order of the Appellate Court is binding in the Netherlands
and that there is no good prospect of achieving an outcome whereby it can sell
the Property for its current market valuation, it would be in order for the
Trustee to sell to the wife at €415,000 because, in the particular
circumstances of this case, that it is the best price that it can achieve. A trustee should not be criticised for
bowing to the inevitable by complying with an order of the court in whose
jurisdiction the real property in question is situated. The price should of course be adjusted
as per the Formula laid down by the Appellate Court and should also take
account of the Trustee's costs (to which we shall refer in a moment). We do not think it matters whether the
sale goes ahead by way of payment of the gross price (adjusted by the Formula)
to the Trustee, deduction of the Trustee's fees and the prompt distribution of
50% of what is left to each of the parties or by a netting off on the part of
the wife whereby she only has to pay the net amount (after deduction of her 50%
of the net proceeds after allowing for the Trustee's fees and the Formula) to
the Trustee. The difference in
outcome would merely be one of short term cash flow.
50. Under Rule 14 of the trust instrument, the
Trustee is entitled to remuneration as well as to reimbursement of its proper
expenses. The entitlement of each
of the beneficiaries to half of the trust fund is therefore subject to prior discharge
of the remuneration and expenses of the Trustee. It follows that the Trustee is entitled
to deduct from the sale price the amount of its reasonable remuneration and
proper expenses and the beneficiaries are entitled only to the net amount left
after payment of such remuneration and expenses.
51. Both the husband and the wife have made
criticisms of the Trustee although, not surprisingly, they have done so from
opposite standpoints. Both are
clearly concerned at the level of fees and expenses which are said to have been
incurred. It is not for us today to
rule on the level of fees or expenses billed or claimed by the Trustee. However, in order to try and assist the
parties in resolving this matter by agreement, we think it right to make
certain observations:-
(i)
Although
we have held that the 1999 letter was effective to vary the Trust with effect
from November 2001, we do not think it unreasonable for the Trustee to have
required the comfort of an order of this Court in view of the subsequent
changes in position by the husband.
(ii) Given the lack of agreement between the
beneficiaries and the concern raised over the valuation used by the Appellate
Court, we do not think it unreasonable for the Trustee to have required an
order from this Court before agreeing to sell the Property to the wife at a valuation
of €415,000.
(iii) Given the wording of para 2.7 of the judgment
of the Appellate Court of 8th February 2005 as contained in the
original translation (quoted at para 20 above) we do not think it unreasonable
for the Trustee to have been unwilling to proceed by way of a sale at a price
which netted off the wife's 50% interest.
(iv) We do not consider it to have been unreasonable
for the Trustee to have instructed Jersey and
Dutch lawyers to advise it in connection with these matters.
52. In summary, we direct the Trustee to proceed as
set out in para 49. We are willing
to hear counsel on the exact terms of the order.
Authorities
Chapman v Chapman [1954] 1 All ER
798.
Re
the H Trust [2006] JLR 280.
Re
the B Trust [2006] JLR 562.
Re
the H Trust [2007] JRC
187.
Re
The Fountain Trust [2005] JLR 359.
FM
v ASL Trustee Company Limited [2006] JRC 020A.
Trusts Law (as introduced by the
Trusts (Amendment No.4) (Jersey) Law 2006).
Saunders v Vautier (1841) Cr & Ph
240.
Matthews & Sowden, The Jersey Law
of Trusts (3rd Edition).