[2010]JRC164
royal court
(Samedi Division)
7th September 2010
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Before :
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J. A. Clyde-Smith, Commissioner, and Jurats
Liddiard and Nicolle.
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Between
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AA
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Representor
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And
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B
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Respondents
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And
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C
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IN THE MATTER OF THE REPRESENTATION OF AA
AND IN THE MATTER OF THE D DISCRETIONARY TRUST
AND
IN THE MATTER OF ARTICLES 26, 32, 34 AND 51 OF THE TRUSTS (JERSEY)
LAW 1984 (AS AMENDED)
Advocate A. D. Robinson for the Representor.
Advocate J. P. Speck for the Respondents.
judgment
the commissioner:
1.
On 6th August, 2010,
the Court set aside the service of proceedings on the respondents and stayed
the representation. We now
set out our reasons.
The D Discretionary
Trust (“the Trust”)
2.
The Trust
was declared by B on 26th
March, 2007, in order to receive assets from a BVI settlement for
the benefit of E and his family.
3.
Clause 3
of the Trust provided as follows:-
“3 PROPER LAW AND FORUM FOR ADMINISTRATION.
3.1 SUBJECT TO Clause 3.2 this Trust is
established under and shall be governed in all respects by the laws of the
Island of Jersey which shall be the proper law of this Trust and the courts
thereof shall be the forum for the administration of this Trust.
3.2 The Trustees may at any time or times
by instrument in writing declare that thenceforth, or from such date as may be
specified in the instrument, this Trust shall be governed in all respects by
the law of the jurisdiction specified in the instrument and thereupon that law
shall be the proper law of this Trust and the courts of that jurisdiction shall
be the forum for the administration of this Trust.”
4.
We were
informed by Mr Speck that Jersey law was
selected on tax advice but it was always intended that the Trust would be
administered in Guernsey, as indeed it has
been. The Trust has no connection
with Jersey other than by virtue of clause 3.
5.
By deed of
appointment dated 21st
August, 2007, C, a wholly owned subsidiary of B was appointed an
additional trustee. Both B and C
are Guernsey registered companies and are
regulated by the Guernsey Financial Services Commission. We will refer to them hereafter as
“the former trustees”.
6.
The
Protector of the trust was F. On 8th October, 2009,
he was succeeded as Protector by G, managing director of the Representor, a
company which carries on trust business in Geneva. We will refer to the Representor
hereafter as “AA”. The
Protector has the power to appoint and remove trustees. On 25th June, 2010, G nominated E as
Protector and on 1st
July, 2010, G exercised his power as protector to remove the former
trustees as trustees of the Trust and to appoint the Representor as trustee in
their stead.
Background to the Representation
7.
From
August 2007 onwards the former trustees worked closely with H as a joint
venture partner, adviser and as the provider of equity and senior, junior and
mezzanine debt in relation to a variety of transactions.
8.
On 19th December, 2007,
the former trustees entered into a framework agreement with H and a group of
companies within the trust structure the general purpose of which was to secure
long-term financing for the activities of these companies and to provide H with
additional security for the provision of that financing.
9.
According
to the former trustees, the practice had been developed that if funds were
required to be moved within the trust structure for working capital or other
purposes, intra group transfers were made to move the relevant funds where they
were needed. Apparently these were
then recorded in the accounting records of the relevant companies as a series
of informal loan arrangements. The
arrangements were usually recorded as a series of loans streamed up the structure
from the provider company to the former trustees through any intermediate
companies and streamed back down from the former trustees to the recipient
companies through the intermediate companies. On occasion they may have been recorded
as direct transfers between the provider and the recipient of the funds. As a consequence significant loan
balances were apparently established between the Trust and some of the
companies within the trust structure, which we will refer to as the
“creditor companies”.
These loan arrangements were made in Guernsey
and are arguably governed by Guernsey
law.
10. H collapsed financially in October 2008 and the
creditor companies have gone into liquidation in the BVI. If the loan balances apparently due by
the Trust to the creditor companies are found to be payable, then there are
insufficient assets within the Trust to meet the same and the trust structure
will effectively be insolvent.
11. On 12th March, 2010, the former trustees
brought proceedings against the creditor companies before the Guernsey court
for its determination as to whether the loan arrangements are and remain
binding and, if they are enforceable, as to their terms and to the extent of
the claims (in particular whether they extend to the personal assets of the
former trustees). The creditor
companies have counterclaimed in these proceedings for repayment of these
loans. We will refer to these
proceedings as “the first application”.
12. On 19th May, 2010, the former trustees applied to
the Guernsey court for the following
directions, namely:-
(i)
Directions
as to the steps they ought to take to ascertain the liabilities and the values
of the assets and liabilities of the Trust.
(ii) Directions as to the basis on which assets
should be used to meet liabilities if the assets of the Trust were not
sufficient to meet its liabilities in full.
(iii) Specific directions as to what if any action
they should take in relation to particular investments.
(iv) Directions in relation to what steps they
should take in proceedings in the Commercial
Court in England in which they are defendants.
(v) Directions for the payment of various costs and
expenses of the former trustees, both administrative and legal, out of the
assets of the Trust.
We will refer to these proceedings as
“the second application”.
13. E has been convened to the second application,
and, as we understand it, G, in his then capacity as Protector of the Trust,
has been ordered to file evidence. E
has submitted to the jurisdiction of the Guernsey
court in the second application.
14. The former trustees have also given notice that
they intend to apply for further directions as to the steps they should take in
relation to the first application.
The Guernsey court has ordered E and G
to file such evidence as they wish in relation to these proposed directions.
15. Following the appointment of AA as trustee, it
has now been convened to the second application. It has applied separately to this Court
for directions as to whether it should submit to the jurisdiction of the Guernsey court.
That potential application and an application by the creditor companies
to be joined in as parties to the second application was due to be heard on the
Monday following the hearing before us, namely Monday 9th August,
2010, in a three day hearing set aside for that purpose.
16. The former trustees have recognised the
appointment of AA as trustee of the Trust but have declined to vest the assets
in AA pending receipt of directions from the Guernsey
court and in exercise of their right to withhold assets to meet liabilities,
which might in this case exceed the value of the assets within the Trust.
The Representation
17. Shortly after its appointment as trustee, AA
brought the Representation with which we were concerned and obtained leave to
serve it on the former trustees out of the jurisdiction, pursuant to Rule 7(j)
of the Service of Process Rules 1994, namely that the claim or
application is brought within the terms of Article 5 of the Trusts (Jersey)
Law 1984. The former trustees
appeared under protest as to jurisdiction and on 2nd August, 2010,
issued a summons to set that service aside and to stay the Representation.
18. In the Representation AA seek the following
orders as against the former trustees:-
(i)
Directions
requiring the former trustees to provide AA with information and documentation
relating to the Trust.
(ii) An injunction restraining the former trustees
from dealing with the assets of the Trust without the prior approval of AA.
(iii) Declarations that the former trustees are not
entitled to (a) a right of indemnity in respect of any liability they may have
to the creditors against the assets of the trust; and (b) retain or administer
the trust funds.
(iv) Directions requiring the former trustees to
take all such steps as may be necessary to vest legal title to the assets of
the Trust in AA.
19. We agreed with Mr Speck that this relief cannot
properly be characterised as an application by AA for directions as to how it
should act as trustee; rather it constitutes hostile proceedings against the
former trustees. In particular an
allegation that a former trustee is not entitled to an indemnity is an
allegation that it has acted in breach of trust.
20. AA were only proposing to proceed at this stage
with the directions in relation to disclosure, the injunction and the
directions requiring vesting of legal title in the assets (18 (i), (ii) and
(iv) above).
Jurisdiction
21. On the face of it both the Jersey
and Guernsey courts have jurisdiction in this
matter, pursuant to their respective laws.
The Jersey Court
has jurisdiction under Article 5 of the Trusts (Jersey)
Law 1984 because the Trust is a trust whose proper law is the law of Jersey.
22. The Guernsey
court would appear to have jurisdiction under section 4 of the Trusts (Guernsey) Law 2007 which provides that it has
jurisdiction in respect of a trust the trustee of which is resident in Guernsey or any property of which is situated or
administered in Guernsey. It was not in dispute that the assets of
the Trust were and still are administered in Guernsey
and the Guernsey court would therefore appear
to have jurisdiction at least under that head.
Legal principles to
be applied
23. It was not in dispute that on an application to
serve proceedings out of the jurisdiction in accordance with the Service of
Process Rules 1994, AA must show the following three things:-
(i)
That the
Court had jurisdiction to hear the matter;
(ii) That there is a serious issue to be tried; and
(iii) That Jersey is
clearly the most convenient forum for the resolution of the issues.
See Koonmen-v-Bender and Others
[2002] JCA 218.
The burden in each case is on AA. The former trustees did not dispute that
(i) and (ii) were made out and the issue was therefore whether AA could satisfy
the Court that Jersey was clearly the
appropriate forum.
24. Mr Robinson relied essentially on clause 3.1 of
the Trust deed which he submitted on its true interpretation conferred an
exclusive jurisdiction on the Jersey court in connection with all disputes
arising out of the Trust. In
support of that submission, he relied on the Court of Appeal decision in Koonmen
which he submitted was concerned with a not dissimilar jurisdictional
clause in respect of which the Court of Appeal held that the Royal Court should have given greater
weight. The interpretation and jurisdictional clauses in Koonmen
were in the following terms:-
“The “Proper
Law” means the law to the exclusive jurisdiction of which the rights of
all parties and the construction and effect of each and every provision of this
Settlement shall from time to time be subject and by which such rights
construction and effect shall be construed and regulated” (clause 1(i) (k), the
interpretation clause)
“PROPER LAW
This Settlement is established
under the laws of Anguilla and subject and without prejudice to any transfer of
the administration of the trusts hereof to any change in the Proper Law and to
any change in the law of interpretation of this Settlement duly made according
to the powers and provisions hereinafter declared the Proper Law shall be the
law of Anguilla which said Island shall be the forum for the administration
thereof” (clause 2)
25. The Court of Appeal held that the reference to
the “exclusive jurisdiction” of the proper law in the
interpretation clause and the reference to the forum of administration in
clause 2 amounted to a provision conferring jurisdiction on the Anguillan
courts for the resolution of all disputes. The judgment of Rokinson JA went on to say this at paragraph 49:-
“[49] Unlike an arbitration clause which now by statute must
in most cases be respected, the courts still retain a discretion to override an
express choice of forum in a contract or trust deed. But prima facie, the court’s
function is to interpret and apply the agreement of the parties or the
expressed intention of those creating the trust deed, and as a general rule the
courts will give effect to a choice of forum. The court will override an agreed choice
of forum only in exceptional circumstances. The rule is clearly stated in Dicey and
Morris in r32(2) and in the following text and the cases thereafter cited. Although it may be argued that the
presumption in favour of applying the express provisions of a trust deed may
not be as strong as that in favour of holding parties to a contract to the
terms of their agreement, I see no reason why the presumption should not be
just as strong as between the settlor and those claiming to have been “standing
behind” the settlor, as Mr Koonmen and Mr Bender were in this case, and
the trustees. Further, I consider
that, as an important element in the structure of the trust in respect of which
any would-be beneficiary claims an interest, it should prima facie be binding
on such beneficiary.
[50] Certainly, in the context of service of
proceedings on a foreigner out of the jurisdiction, where the burden on the
plaintiff is a heavy one in any event, to give leave in the face of an express
choice of a forum other than Jersey would require very special circumstances,
which in my view do not exist in the present case.”
26. The decision on Koonmen has been
criticised by Paul Matthews in his article entitled “What is a trust jurisdiction
clause?” published in the Jersey and Guernsey Law Review in
October 2003 where he said at paragraphs 21 and 22:-
“21. Secondly, the Court of
Appeal thought that the reference to the forum for the administration of the
trust in clause 2 (even though headed “Proper Law”, which must
surely have been seen as a clue) confirmed the interpretation of clause 1 as an
exclusive jurisdiction clause.
Again, this cannot be right.
The “forum for administration” of a trust is a quite
different concept from an exclusive jurisdiction for the resolution of disputes
(whether arising from trusts or otherwise). The administration referred to here is
not intended to include contentious breach of trust litigation. On the contrary, it is concerned with
aspects of the administration of the trust which, for one reason or another, require
the assistance of the court. These
might well include trustees seeking to clarify the true construction of the
trust terms (for example whether they might invest in such and such an
investment), or trustees seeking a direction as to whether they might safely
distribute assets when there are contingent claims from third parties still in
the air, whether they should disclose trust documents or information to
beneficiaries, or whether they should take or defend legal action against third
parties (so called “Beddoe” applications.) Indeed, it might even involve an
application to remove a trustee from office and appoint another. This is the “domestic
jurisdiction” of the Chancery Court, which under the old Rules of the
Supreme Court 1965 in England
was represented by the provisions of Order 85. The predecessor of that Order itself was
introduced in order to avoid the need in every case to have a full action to
administer the trust – a so-called “administration
action”. This jurisdiction
– usually, but not invariably, invoked by the trustees – continues
today in England. A similar jurisdiction exists in Jersey and, for that matter, in Guernsey.
22. Hence,
the phrase “forum for administration” referred directly back to the
nineteenth century (and earlier) idea of the court which would take on the administration
of the trust if need be. The most
usual forum for that, of course, was the forum of the proper law. So strictly there was no need to state
the forum for administration. And
it is doubtful that selecting a different forum from that of the proper law
could require the trustees to seek directions only from the nominated
court. But such an administration
action was in effect procedural rather than substantive. It was a means of dealing with matters
of administration and construction.
It was not – could not be – used to deal with breach of
trust issues, characteristic of the kind of hostile trust litigation for which
an exclusive jurisdiction clause might be needed. So there could not be any suggestion
that this “forum for administration” was automatically intended
also to be the exclusive jurisdiction for the resolution of contentious
disputes involving beneficiaries.
As the leading cases in England show, that was an entirely different
question, resolved – in the days before the adoption of forum non
conveniens as a part of English law – by a straightforward application of
the ordinary rules of national jurisdiction. In England and other common law
countries this depended initially on where the defendants were to be physically
found, and a similar rule was originally applied in Jersey. Thus it mattered who the defendants
were. They might or might not have
been the trustees, but the important point to notice is that it is the
plaintiffs who would have had to make that decision, and they would probably
not have been the trustees.
Accordingly, the use of the phrase “forum for
administration” could not, with respect, support the interpretation
placed on clause 1 by the Court of Appeal”.
27. Drawing from that article, Mr Speck
submitted that the Court of Appeal in Koonmen had made the mistake of
treating the “forum of administration” clause in the relevant trust
instrument as being a contractual provision. The Court of Appeal had ignored the
reasoning in EMM Capricorn Trustees Limited-v-Compass Trustees Limited [2001]
JLR 205 where Birt, Deputy Bailiff,
said this at paragraph 16:-
“16. Miss Gilbert argued that an exclusive jurisdiction
clause in a trust deed should be given the same weight as in a contract. But that is to ignore the difference
between the two documents. If A and
B agree in a contract that they will refer any dispute to the court of a
particular country, one can well understand why they should generally be held
to their bargain. They have agreed
it; why should one of them then be allowed to go back on what has been freely
agreed? But the position is very
different in relation to a trust.
The exclusive jurisdiction provision of a trust deed will have been agreed
only between the settlor and the original trustee. Actions in relation to the trust may be
brought by beneficiaries who were never parties to the trust deed; indeed they
may not even have been alive at the time of its execution. The policy considerations which lead to
a party to a contract being held to his choice of exclusive jurisdiction cannot
apply to a beneficiary who played no part in the choice of exclusive
jurisdiction made in the trust deed.”
28. The Grand Court of the Cayman Islands has
recently decided not to follow Koonmen, holding that a “mandatory
forum for administration” clause did not encompass a claim for breach of
trust--see Helmsman Limited-v-Bank of New York Trust Company (Cayman)
Limited 11th June 2009.
In doing so, it cited Paul Matthews’ criticisms with
approval.
Decision
29. Whilst clause 3.1 of the Trust and clause 2 of
the Koonmen deed are similar, there is no interpretation of the proper
law in the Trust. This gives rise
to an important distinction between the two deeds in our view as it is clear
that it was the reference to the “exclusive jurisdiction” in the
interpretation clause in the Koonmen deed that was central to the Court
of Appeal’s interpretation of the jurisdictional clause:-
“[46] Clause 1(i)(k) read on
its own is admittedly somewhat confusing. It purports to define the phrase “the
Proper Law” but does so in terms which include an express reference to “exclusive
jurisdiction”. The concept of
a reference to the exclusive jurisdiction of a system of law is obscure, but if
this was not intended to be a reference to the jurisdiction of the relevant
forum or court, it would be redundant. This interpretation is confirmed when one
considers cl 2, which, although headed “Proper Law”, clearly
includes a reference to the forum for the administration of the trust.
[47] I conclude that, looking as
one must, at the deed as a whole, and construing cl 2 in the light of cl 1(i)
(k) and cl 14, the clear presumed intention of the draftsman was that, unless
and until the trustees decide to change the proper law under cl 14, (which
there is no suggestion they ever did in this case) the forum charged with the
administration of the AEBT and so the resolution of any disputes in relation
thereto was to be the court of Anguilla.”
30. As the Court of Appeal made clear at paragraph
45, it is at the end of the day a question of the court construing the
particular deed before it in order to derive from it the presumed intentions of
the parties. That exercise has to
be conducted against the background of the surrounding circumstances or matrix
of facts existing at the time when the document was executed (see Alhamrani-v-Alhamrani
[2005] JLR 236).
31. In brief the Trust was declared by a Guernsey trustee, B, to receive assets from a BVI
settlement. It was intended to
administer the Trust from Guernsey. It has no connection with Jersey at all save for the adoption of Jersey
law as the proper law and the Jersey courts as
the forum for administration. In
construing clause 3.1 against that background and noting the absence of any
reference to “exclusive jurisdiction” as contained in the Koonmen
deed, it was our judgement that it was not the intention of the draftsman of
the Trust that the courts of Jersey should have exclusive jurisdiction over all
disputes in relation to the Trust. Accordingly
we concluded that the Jersey courts did not
have exclusive jurisdiction over the matters raised in the representation of AA.
We further concluded that the Guernsey court was the most convenient forum for the resolution
of such matters.
32. The situation in relation to the Trust is fast
moving and complex. The assets of
this potentially insolvent trust are administered in Guernsey
by the former trustees, two Guernsey regulated
trust companies. The Guernsey court is already seized of the first application
which will decide whether or not the Trust is solvent and therefore in whose
interests the assets are to be held (the beneficiaries or the creditors). It is also seized of the second
application in which the former trustees are seeking directions. E has submitted to the jurisdiction of
the Guernsey court in that application and the
former Protector of the Trust has been ordered to file evidence. The creditors, who have a clear interest
in the matter, are seeking to be joined in to the second application and AA
have already been joined (subject to possible challenge). The laws of the two jurisdictions in
relation to trusts are of course closely related.
33. For the Jersey Court to seek to assert
jurisdiction over the former trustees for the purpose of granting the (hostile)
relief set out in the representation would in our view be exorbitant and would
lead to confusion and uncertainty.
The interests of all the parties and the ends of justice were best
served by the matters raised in the representation being tried by the Guernsey court.
34. If we were wrong in our interpretation of
clause 3.1 and it does purport to confer exclusive jurisdiction on the Jersey
courts then in the exercise of our discretion and applying Koonmen, we
determined that the circumstances outlined above were exceptional, justifying
the Court in overriding the express choice of forum provision. Mr Robinson was unable to explain how a
clear line of separation between the roles of the two courts could be
established. It was difficult to
see how that could be achieved when this Court would be asserting an exclusive
jurisdiction over all disputes in relation to the Trust. In essence, he submitted that the Guernsey court would be bound to accede to the
submissions made by AA, if they submitted to its jurisdiction in the second
application, that it had no jurisdiction to make any orders against or give any
directions to the former trustees in relation to the Trust or its assets.
35. We therefore concluded that AA had failed to
satisfy us that Jersey was clearly the most
convenient forum for the resolution of the issues set out in the prayer to the Representation. Clause 3.1 did not confer exclusive
jurisdiction on the Jersey court but even if
it did, the circumstances were exceptional and justified the Court in
overriding clause 3.1 so as to enable the Guernsey
court to continue to exercise its jurisdiction without interference by this
Court.
36. Our decision did not, of course, close the door
to AA applying for directions to this Court as to how it should act as trustee
of the Trust of the kind summarised by Mr Matthews in his article.
Authorities
Service of Process Rules 1994.
Trusts (Jersey)
Law 1984.
Trusts (Guernsey)
Law 2007.
Koonmen-v-Bender
and Others [2002] JCA 218.
EMM
Capricorn Trustees Limited-v-Compass Trustees Limited [2001] JLR 205.
Helmsman Limited-v-Bank of New York
Trust Company (Cayman) Limited 11th
June 2009.
Alhamrani-v-Alhamrani [2005] JLR 236.