IN THE MATTER OF THE A LIMITED FURBS AND THE B EBT [2017] 21/2017

Summary

The recent case of A Limited FURBS decided in the Guernsey Royal Court provides helpful clarification on the question often faced by offshore trustees about whether to submit to the jurisdiction of a foreign court in overseas legal proceedings. This was the first Guernsey case to consider this issue, prior to which it was thought the Guernsey court would take a similar approach to that of the Jersey court.

The decision confirms that Guernsey court will usually take the same approach as the Jersey court, namely that trustees of a discretionary trust should normally resist submission to the jurisdiction of a foreign court. The case clarified, however, that in certain circumstances (for example where the trustee has limited discretion) submission may be appropriate to assist the foreign court. The facts of A Limited FURBS fell into this latter category and so the judge sanctioned the trustee's submission to the jurisdiction of the English court in the underlying matrimonial proceedings.

The case also confirmed that trustees should be encouraged to apply to their "home" court for directions before deciding whether to submit to the jurisdiction of an overseas court.

Background to the case

The case arose during the course of divorce proceedings in the English courts. The wife sought to join the trustee ("T Limited") of a Guernsey trust (the "FURBS") in the matrimonial proceedings in England for the purposes of disclosure; she wanted to know what assets were held on trust. To that end, she obtained a court order from the High Court in England to join T Limited in its capacity as trustee of the FURBS as respondent to the matrimonial proceedings in England.

On receipt of the order, T Limited made an application to the Guernsey (i.e. its "home") court for directions on whether or not to submit to the jurisdiction of the English court. It did this because Guernsey law contains so-called "firewall provisions" which confer exclusive jurisdiction on the Royal Court in relation to matters of Guernsey trusts under the Trusts (Guernsey) Law 2007.

The FURBS was a Funded Unapproved Retirement Benefits Scheme, which is a type of workplace pension scheme. The FURBS held substantial assets, including a number of properties used by the divorcing couple. The whole of the trust fund was held under the terms of the FURBS for the husband as the sole member of the FURBS.

Relevant case law

The Deputy Bailiff explained that the firewall provision contained in Section 14(4) Trusts (Guernsey) Law 2007 had not been the subject of judicial analysis in the Guernsey courts before and that there were no relevant authorities under Guernsey law on the issue raised by T Limited. He then proceeded to review the relevant case law under Jersey law, where there is a body of case law on the question of whether a trustee should submit to the jurisdiction of a foreign court.

In the matter of the H Trust [2006] JRC 057 involved a discretionary trust. A couple divorcing in England were among the beneficiaries and the wife obtained an order joining the trustee to the English proceedings. The trustee sought directions from the Jersey Royal Court. The Court stated that the roles of the two courts (i.e. the English and the Jersey courts) are very different; "the Family Division is concerned to do justice between the two spouses before it. … It has no mandate to consider the interests of the other beneficiaries of any trust involved. … Conversely [the Jersey] Court is sitting in its supervisory role in respect of trusts … [and its] primary consideration is to make or approve decisions in the interests of the beneficiaries." The Court therefore concluded that "it is unlikely to be in the interests of a Jersey trust for the trustee to submit to the jurisdiction of the overseas court which is hearing proceedings between the husband and wife. To do so would be to confer an enforceable power upon the overseas court to act to the detriment of the beneficiaries of a trust when the primary focus of that court is the interests of the two spouses before it."

The decision also indicated that if a trustee were to submit to the jurisdiction of the foreign court, it would lose the protection of the firewall provisions under Jersey law.

In In the matter of the A and B Trusts 2007 JLR 444 the trustee intervened in proceedings in the Family Division of the English High Court without first seeking directions from the Jersey court. It then sought approval from the Jersey court regarding its ongoing participation in the matrimonial proceedings. The Jersey court refused to make the order sought. The judge stated that the trustee had voluntarily submitted to the jurisdiction of the English court by taking part in the English proceedings and for the Jersey court to give the approval sought would be to imply that the trustee now had some choice in the matter. Having decided to submit to the jurisdiction of the English court, the trustee had no option other than to participate in the English proceedings. Submission to the jurisdiction of the English court meant that there was scope for full disclosure in respect of the trusts concerned to be ordered in the proceedings.

In In the matter of the R Trust [2015] JRC 267 the trustee had been presented with the order of the English court dividing up the assets of the couple and had formed the view that it was in the interests of the beneficiaries collectively for it to take certain steps in relation to the trust fund. It sought the blessing of the Jersey court. This avenue was left open because the trustee had not been involved in the matrimonial proceedings in England at all and respected the constraints imposed by the Jersey firewall legislation.

These decisions highlight the importance of consulting the home court in respect of submission to the jurisdiction of the overseas court. The consequences of submission may include extensive disclosure obligations being placed on the trustee in the foreign proceedings and the loss of the protection provided by local firewall legislation.

Decision

Having reviewed the relevant case law, the Jersey cases pointed away from a trustee submitting to the jurisdiction of an overseas court. The Deputy Bailiff, however, was not persuaded to rule in favour of that outcome in this instance. He considered that the nature of the FURBS was such that T Limited was in a different position to the trustee of a discretionary trust. Had the trust in question been a "standard" family discretionary trust with a class of beneficiaries extending beyond the divorcing couple, the judge said he would probably have followed the reasoning in H Trust and concluded that it was best for the trustee not to submit to the jurisdiction of the English court.

However, the judge found that on one reading of the FURBS trust instrument, T Limited had no discretion to exercise – all it was required to do is to make arrangements to pay a pension to the husband or, if the husband so elected, to provide him with a lump sum. T Limited's focus was on the sole member (the husband) and the management of the trust fund. Its role was much more "mechanistic" than that of the trustee of a discretionary trust. Also, it seemed probable that any order of the English court could direct the husband to act in certain ways and T Limited would be obliged to follow any directions the husband then passed on to it.

Another reason for the Deputy Bailiff's order was that he was of the view that T Limited could potentially assist in explaining to the English court the terms on which the various assets within the FURBS were being held. The precise terms on which the assets were held had not been analysed during the English proceedings but were required before the next stage of the proceedings. The judge considered that T Limited could assist the English court in this exercise.

The judge concluded that this was one of those exceptional cases where submission to the jurisdiction of the foreign court was permissible and appropriate and therefore sanctioned the trustee's submission to the jurisdiction of the English court.

The judge also rejected the argument that legal advice received by T Limited is privileged and so should not be disclosed to either the wife or the husband on the basis that it might hamper T Limited in its role to assist the English court.

Significance and practical points arising out of decision

The A Limited FURBS decision provides helpful clarification in respect of whether and in what circumstances trustees should submit to the jurisdiction of a foreign court under Guernsey law.

As the first case to be decided on this question under Guernsey law, the case indicates that the position in Jersey is likely to be followed in Guernsey; in normal circumstances it is best for a trustee not to submit to the foreign court's jurisdiction. The case also confirms that the rule is not absolute, submission may be appropriate in situations similar to the facts of the present case, i.e. where the trustee has limited discretion in respect of the trust.

The case also highlights the significance of considering whether a trustee needs to participate in the matrimonial proceedings in light of any firewall provisions applicable to it. If participation is deemed necessary, the trustee should be allowed and given sufficient time to seek assistance from its home court whether it should submit to the foreign court's jurisdiction.

The principles coming out of A Limited FURBS should be borne in mind by English solicitors when advising clients on trusts issues which have an offshore aspect. It may often be advisable to engage local counsel to prepare applications for directions in the trustee's home court arising out of applicable firewall provisions and advise on any related issues.

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