[2010]JCA017
COURT OF APPEAL
21st January 2010
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Before :
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Dame Heather Steel, Q.C., President;
M. S. Jones, Esq., Q.C., and;
Miss Clare Montgomery, Q.C..
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Between
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The C Trust Company Limited
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Representor
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And
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Advocate Mark Howard Temple as guardian for
LD and ZD
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And
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MS
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KD
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JD
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MaD
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MD
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Respondents
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IN THE MATTER OF THE REPRESENTATION OF
THE C TRUST COMPANY LIMITED
AND IN THE MATTER OF THE RONERAGH TRUST AND
THE MILAN TRUST
Advocate L. J. Buckley for MS.
Advocate J. Harvey Hills
for the Trustee.
Advocate M. H. Temple Guardian ad Litem.
Advocate O. Blakeley for MD.
JUDGMENT
JONES JA:
1.
This is
the judgment of the court.
2.
The
respondent to this appeal is the trustee of the R Trust and the M Trust
(“the trusts”) which were settled by KD in 1995 and 2000
respectively. The ascertained
beneficiaries of the Trusts are KD, JD, MaD, MD, MS, LD and ZD.
3.
JD, MaD
and MD are the adult children of KD and his ex-wife, AD. KD and AD separated in
1991 and reached a settlement regarding financial provision in 1997. They were divorced in 2005. KD and MS began a relationship in 1997. LD and ZD are their minor children.
4.
Proceedings
against KD for ancillary relief were commenced by AD in the Family Division of
the High Court of England and Wales
in 2005. The claims made by AD in
those proceedings caused MS to fear that her position and that of her children,
as beneficiaries of the trusts, was insecure. MS has produced to the trusts a detailed
memorandum intended to demonstrate that she made a substantial contribution to
the trust funds. She was concerned that her contribution was invisible
to the English court. After
taking advice, she applied to the trustee for a distribution of 50% of the
trusts’ assets.
5.
By
Representation, dated 5th
February 2009, the trustee sought approval under the provisions of
Articles 51 and 53 of the Trusts (Jersey)
Law 1984 of certain decisions made by it in relation to each trust. One of these decisions, as interpreted by
the Royal Court, is that, without fettering its discretion, it is its intention
to appoint 40% of the net assets of the trusts to and for the benefit of MS and
her two children (who will then cease to be beneficiaries of the trusts) such
appointment not to be made until after the termination of the English
proceedings and subject to the further sanction of the Royal Court. In other words, the trustee would not
consider that proportion of the assets of the trusts to be available for
distribution to KD. By Act of
Court, dated 12th March 2009,
the Royal Court
approved that decision.
6.
On 1st April 2009, during the
course of a hearing in the High Court, AD and KD reached a compromise of
AD’s claim, involving payment to AD of an agreed capital sum, to be made
in two instalments. The terms of
the settlement were recorded in a Memorandum of Understanding but, as it was
explained to the trustee, there would potentially be a major tax advantage if
any payment made by KD to AD was financed out of trust funds and made otherwise
than in the performance of a legally binding obligation. KD confirmed to the trustee that it was
his wish that the trustee should make this funding available to enable him to
pay AD each of the instalments.
7.
Payment of
the first instalment was due on 1st May and was duly made, financed by way of a
loan advanced by the trustee and secured over property owned by KD.
8.
On 15th May 2009, following
the convening of a trustee meeting, the trustee issued a Summons seeking
directions from the court with regard to:-
(i)
a proposal
that the trustee should render financial assistance to KD to enable him to make
payment to AD of the agreed sum, and
(ii) the next steps to be taken in respect of the
trustee’s provisional decision, which had been blessed by the Royal Court on 12th March 2009, to apply
funds to and for the benefit of MS and her children.
9.
After
further procedure in the court below, the details of which it is unnecessary to
rehearse in this judgment, the Royal
Court fixed a hearing on the trustee’s
application, to take place on 5th
October 2009.
10. On 23rd September, the trustee provisionally
decided that it would assist KD by waiving the security which it holds over a
property in France
and which is owned by KD, to the extent necessary to leave him with sufficient
free proceeds on its sale to enable him to remit the second instalment to AD.
(“The decision of 23rd September”.)
11. On 24th September 2009, the Trustee applied ex parte for directions “as to the management of the hearing on 5th
October 2009 and in particular as to disclosure of evidence.” The Royal Court had declared AD hostile to
the trusts. The court was told
that, by this stage, relations within the family were, as the Royal Court has
described them, “fraught”.
The trustee was concerned that
there was a real risk that evidence filed by it in these proceedings might be
disclosed by the parties to AD, either deliberately or inadvertently, to the
prejudice of the trust estates. In
these circumstances, the trustee was anxious to preserve the confidentiality of
advice which it had obtained and of communications with individual
beneficiaries. The Royal Court,
therefore, directed the trustee not to disclose its evidence to the other
parties.
12. The court was informed that the beneficiaries
were aware of the terms of the trusts, of the proposal to facilitate the second
payment and of the value of the trust assets. They had also received the accounts of
the trusts to 5th April 2009.
The court gave liberty to the
beneficiaries to apply for further information to enable them to make informed
submissions the court. The second
part of the trustee’s Summons, which concerned its provisional decision
to apply funds to and for the benefit of MS and her children, was adjourned.
13. Between 24th September and 5th October, there
were significant developments. On
1st October, at the instigation of AD, the High Court issued a letter of
request which sought the civil extradition to England of the trustee’s
managing director, Peter Watts, where he would be compelled to provide to AD
copies of the affidavits sworn by him and filed on the ex parte application and for the 5th October hearing. On 2nd October 2009, again at AD’s
instigation, the High Court issued a letter of request seeking the presentation
to the Royal Court of Mr Watt’s affidavits.
14. When the Royal Court convened on 5th October 2009, AD sought
to intervene in the application for directions. Her application was refused. (An attempt
by her to be joined to the proceedings had also failed on 10th March 2009.) Counsel for the
trustee then began his submissions, but the
hearing could not be concluded on 5th October, and it was adjourned, part
heard, until 9th October.
15.
On 7th
October, the trustee learned that KD was taking active steps to petition for
his own bankruptcy. The
trustee’s view was that its provisional decision to release its charge over KD’s French property was no longer
appropriate, since it would only serve to augment the estate available to
KD’s creditors, should he become bankrupt. Further, it was suggested to the trustee
that it was possible that any payment to AD from the trusts might be capable of
being set aside as a preference.
16.
The trustee took insolvency advice from
counsel, and a trustee meeting was convened on 8th October. At that meeting, it was decided that the decision
of 23rd September could no longer stand and that the most the trustee could do
in the circumstances was to invite KD to give full details of any proposal to
petition for bankruptcy as a matter of urgency and for the trustee to apply to
return to court in one month’s time in the event that KD had not
petitioned for his bankruptcy. An
email to that effect was sent to the Royal
Court on the same day, for the attention of the
Commissioner and Jurats.
17.
When the adjourned hearing resumed on 9th
October, Advocate Harvey-Hills for the trustee told the court what had happened
since the previous hearing, and explained the trustee’s current position
in these terms:-
“... ... the Trustee met
again yesterday and it took the decision that it did not consider it possible
at this stage for its original decision [i.e. the decision of 23rd September] to
remain in place. The new
development had changed that and the Trustee had taken the view that the
appropriate course of action was to take no steps for the time being, ... ... to
write to (KD) to ascertain his intentions in relation to the proposal to have
himself declared bankrupt and then to review the position within one month with
a view to applying once again to the Court for a direction.”
18. It is clear from the terms of a number of
exchanges which passed between the court and counsel during the hearing that
the Royal Court understood the trustee to be seeking approval only of the
decision to wait for a month and then to review the position. An observer might have thought that any
argument about the propriety or otherwise of the decision of 23rd September was
now moot, but the Commissioner invited parties to address the court on the
matter on the view that “we may not
agree with the Trustee that (its decision to facilitate) should be
deferred”. By the time the court rose on 9th
October, neither Advocate Buckley for MS nor the Guardian ad litem had
completed their submissions on the decision of 23rd September. They had however, voiced their opposition
to that decision and had informed that Royal Court that there were substantial
grounds for their opposition. These
grounds raised issues concerning, among other things, the value of the trusts,
the tax implications of the proposed facilitation of the payment by KD to AD,
the reasonableness of such facilitation, KD’s current wishes, and whether
the court should approve a decision of the trustee which was contrary to the
wishes of the settlor and certain of the beneficiaries. Advocate Blakeley for MD had asked for an
adjournment to allow him an opportunity to take instructions and to advise his
client and that request had been refused.
19. Prior to the next hearing, which was fixed for
16th October, the court circulated a draft judgment. The draft contained the following passage:-
“At the resumed hearing on 9th
October, Mr Harvey-Hills for the Trustee informed the Court and the parties,
which now included MD represented by Mr Blakeley, of the Trustee’s
current position, namely that it should do nothing for the time
being other than to ascertain from KD his intentions in relation to his
proposal to have himself declared bankrupt and that the matter should be
reviewed in 28 days.” (Paragraph 27)
That was said in the context
of the court’s having noted that, on 8th October, the trustee’s
decision was that the decision of September 23rd “could no longer stand.” (Paragraph 26)
20. Paragraph 44(ii) of the draft, however, was in
these terms:-
“The Trustee's decision of the 23rd September 2009 and confirmed on the 7th
October (now suspended) to facilitate the second payment by KD to AD by
releasing its security over the French property is approved.”
21. At the hearing which was held on 16th October,
representations were made by all parties who had been present on 9th October,
to the effect that the Royal Court
should not purport to approve the decision of 23rd September, because it no
longer stood, and was not a decision which the Royal Court had been asked to bless. It was also submitted to the court that
there was what was described as a procedural irregularity, namely that two of
the parties present had not completed their submissions, and that MD had been
disadvantaged by the refusal of the request for an adjournment.
22. Following these submissions, the Royal Court amended
the draft judgment. Among a number
of changes which were made, what had been paragraph 44(ii) became paragraph
45(ii), and its terms were adjusted so that it then read:-
“If and when KD reconsiders his position and withdraws the threat
of bankruptcy, the facilitation can proceed without further reference to this
court but on notice to the parties and subject to the parties having liberty to
apply back to the court to address it further on the proposal;”
23. Two Acts of Court were issued on 16th October.
One, which we will refer to as “the first Act of Court” was in
these terms:-
“Upon the Court delivering judgment and for the reasons set out
therein, the Court:-
1. approved
the position taken by the Representor during the course of the hearing namely that
its decision to facilitate the second payment by (KD) to (AD) could not stand
in the face of (KD) taking active steps to petition for his own bankruptcy;
2. directed
that if and when KD reconsiders his position and withdraws the threat of
bankruptcy, the facilitation can proceed without further reference to this
Court, but on notice to the parties and subject to the parties having liberty
to apply back to the Court to address it further on the proposal;
3. directed
that if proceeded with, the Representor may raise the funds by such other means
as it may in its discretion deem fit;
4. directed
that the Court shall be addressed on the proposal that the Representor disclose
its evidence to Advocate
Temple;
5. granted
leave that the judgment and Act of Court may be disclosed to the parties in the
English proceedings and through them to the High Court; and
6. granted
liberty to apply to the Representor and the parties.”
The second Act of Court contained the same
orders, but numbered differently.
24. The directions and the grant of leave contained
in paragraphs 2, 3 and 5 of the first Act of Court, and their equivalent in the
second Act of Court, have been appealed by MS, the Guardian ad litem, and MD. The trustee adopts a neutral position.
25. At the outset of the hearing before this court
on 18th January 2010,
Mr Buckley made an application to have the proceedings conducted in private. In support of that application, he
submitted that, when the court is considering private trust matters, there is
an exception to the general rule that proceedings should be conducted in open
court. He pointed out that the
proceedings which gave rise this appeal were heard in private. His application was supported by Mr
Harvey-Hills and Mr
Temple.
26. We were not minded to grant that application. The principle of open justice forms part
of the Law of Jersey and is of such constitutional, legal and practical
importance that the court should depart from it only if it is necessary to do
so in the interests of justice. (See,
generally, Jersey Evening Post –v-
Al Thani [2002] JLR 542, at paragraphs 12-16, and the cases there cited.) Having regard to (i) the subject matter
of this appeal, i.e. the circumstances in which the court below had issued the
orders which were challenged, and (ii) the terms of the parties’ written
contentions, it was not obvious to us that it would be necessary for
confidential information to be disclosed during the hearing. We proceeded, therefore, to hear argument
in open court, reserving to any party the right to renew the application to be
heard in private if, at any stage in the hearing, that appeared to have become
necessary in the interests of justice.
27. When Mr Harvey-Hills rose to address us, he
renewed the application and, further, asked to be heard alone, advising us that
he considered that it would be necessary for him to disclose confidential
information during the course of his submissions. We granted him leave to address us in
private and alone, but with the proviso that, if he came to matters which could
properly be aired in public, he should advise us so that the other parties
could be invited to return to court. In the event, having heard Mr
Harvey-Hills, we took the view that the substance of his submissions could be
aired in public, without the need to disclose anything confidential and, at our
invitation, he did so. Consequently,
we have been able to determine the issues in this appeal on arguments which
were all presented in open court.
28. Having regard both to parties’ written
contentions and their oral submissions, it is clear to us that the following
matters are not in dispute:-
(i)
By email
sent to the Royal Court on 8th October, and in his submissions during the
hearing on 9th October, Mr Harvey-Hills advised the Royal Court that the
decision of 23rd September had been departed from and that the trustee no
longer sought the approval of the Royal Court in respect of it;
(ii) At no time did the trustee seek the approval of
the Royal Court of any decision to raise the funds which may be necessary to
facilitate payment to AD by such means as it may in its discretion deem fit,
nor had any such decision been taken;
(iii) By the close of the hearing on 9th October, the
only decision before the Royal Court of which its approval was sought was to take no steps for the time being, to write
to KD to ascertain his intentions in relation to the proposal to have himself declared
bankrupt and then to review the position within one month with a view to
applying once again to the court for a direction;
(iv) The Royal Court gave
judgment and issued the Act of Court without having heard submissions from MD
on any of the issues before it, and without having heard full argument from MS
or the Guardian ad litem.
29. It is also not a matter of contention in this
appeal that it is a cardinal rule of natural justice that all parties to a
dispute such as this should be given a reasonable opportunity to be heard
before the matter is determined. The
question is not whether the ultimate decision was correct, but whether the
court’s decision was reached in a process that was fair. In this case, MS, the Guardian and MD
contend that the Royal Court
breached that principle of fairness. We agree.
30. Advocate Harvey-Hills explained to us that it
became evident to him, during a hearing in private in the court below, that the
Commissioner was concerned that, if the Royal Court were to approve only the
decision to do nothing for the time being and leave the initiative with KD by
giving him one month to decide whether or not he would seek his own bankruptcy,
the High Court might take the view that the trustee was not exercising its independent
judgment but, instead, was deferring inappropriately to KD by letting him have
effective control of the activities of the trust. The Commissioner appeared to be anxious
about the consequences which that impression might have for the trust estate, in
the London
proceedings. The Commissioner had
in mind, among other things, the risk of AD’s seeking a binding order from
the High Court, with the possible adverse tax implications that that would have
for any facilitation that the trustee might ultimately decide to provide.
31. We have no doubt that, in acting as it did, the
Royal Court
had in mind the best interests of the trust and of the beneficiaries. We note, also, that the court below
directed that, in the event that KD withdrew the threat of bankruptcy, the
facilitation could only proceed on notice to the parties and subject to the parties having
liberty to apply back to the court to address it further on the proposal. In our view, however, these
considerations do not vitiate the unfairness. In this case, the principle audi alterem partem required that
parties should have been given a fair hearing and that the court’s
deliberations should have been informed by their submissions. The parties were entitled to be heard
before the decision was made, and that entitlement was not met by giving them
the opportunity to apply to challenge the court’s decision at a later
time.
32. In her written contentions, MS makes passing
reference to Article 6 of the European Convention on Human Rights, which
now forms part of the domestic law of Jersey (Human
Rights (Jersey) Law 2000). She does so, however, only in support of
the proposition that she was entitled to expect that the judgment appealed from
would only be given after a fair hearing. She has not sought to advance any basis
on which we could properly hold that, in the circumstances of this case,
Article 6 was engaged. So to hold,
we would have to be satisfied that the proceedings in the court below determined MS’s civil
rights or obligations. It is not
immediately obvious that the determination of these proceedings, raised by the
trustee of a discretionary trust under the provisions of Articles 51 and 53 of
the 1984 Law, qualifies as the determination of the civil rights or obligations
of a named beneficiary of that trust, and we would not be prepared to decide
the point in the absence of full submissions and the citation of appropriate
authority. Given, however, that MS
advanced argument to the effect that there had been a breach of the rules of
natural justice in the court below, in support of which authority was cited, we
were content to decide this appeal by application of the customary law.
33. For the foregoing reasons, we allow this
appeal. Paragraphs 2, 3 and 5 of
the first Act of Court, and their equivalent in the second Act of Court will be
set aside, as will paragraphs 4 and 6, and their equivalent, their having been
superseded. Paragraph 1 stands, as
does its equivalent, because there was no opposition to it in the court below,
and this court was specifically asked to preserve it.
34. Mr Harvey-Hills advised us that matters
continue to develop, and that the trustee is not in a position to seek further
directions. In these circumstances,
we remit the case to the Royal
Court, leaving it to parties to seek such orders
as are required at the appropriate time.
35. In the written contentions for MS, and in the
Notice of Appeal for MD, we are invited to remit to a court constituted
differently from the one which pronounced the orders now set aside. Whilst lack of impartiality is hinted at,
there was no express complaint to that effect, and during the course of the
hearing the suggestion that the Royal
Court should not convene as previously constituted
fell away. Consequently, we make no
order in that regard.
Authorities
Trusts (Jersey)
Law 1984.
Jersey
Evening Post -v- Al Thani [2002] JLR 542.
European Convention on Human Rights.
Human Rights (Jersey)
Law 2000.