Jersey’s Royal Court Protects Trust Assets in Divorce Proceedings - 10 September 2008

In an important judgement issued on 15 August 2008, Jersey’s Royal Court has helped to clarify the circumstances in which it is able to order a variation to the terms of a trust, so as to give effect to an order of a foreign court. This type of situation usually arises when the Family Division of the High Court in England makes an order in matrimonial proceedings; and that was indeed the situation in this case, in which Birt, Deputy Bailiff, delivered the court’s judgement in the case of Mubarak -v- Mubarak.

Article 9 of the Trusts (Jersey) Law 1984 (the “Law”), which deals with the extent to which Jersey law shall apply to the creation and administration of a trust, was amended in 2006 through Amendment 4 to the Law. Para. 4 of the Law provides that “No foreign judgement with respect to a trust shall be enforceable to the extent that it is inconsistent with this Article irrespective of any applicable law relating to conflicts of law.”; this was interpreted by most commentators as providing that any judgement of a foreign court that failed to apply Jersey law in seeking to vary the terms of a Jersey trust, would not be enforceable. However, shortly after that amendment to the Law came into force, Bailhache, Bailiff, in his judgement delivered in Re The B Trust [2006] 9 ITELR 783, decided on the grounds of comity to enforce a judgement of the English courts that ordered a variation to the terms of a Jersey trust. This ruling had caused some concern amongst Jersey trustees, to the judgment in Mubarak -v- Mubarak will be welcomed.

In his judgement, Birt DB has held that, as a result of the 2006 amendments to Article 9 of the Law, the Jersey courts are unable to enforce a judgement of a foreign court that seeks to vary the terms of a Jersey law trust but which fails to apply Jersey law, even in circumstances in which the trustees of that trust have submitted to the jurisdiction of that foreign court. The judgment also held that if the order of the foreign court does not amount to a variation to the terms of a trust, the Royal Court does have discretion to give directions to the trustee that may have the effect of realizing the aims of the foreign judgement, but the Royal Court will have regard to the interests of the beneficiaries of the trust.

In the Mubarak case, however, in which the Royal Court was being asked to give effect to an order of the Family Division that purported to reinstate Mrs Mubarak as a beneficiary of the trust in question, Birt DB held that order amounted to a variation to the terms of the trust and so the Royal Court is unable to authorise or direct the trustees to give effect to the English Family Court’s order.

The Royal Court found, however, that it was able to give effect to the variation to the trust in the manner ordered by the English Family Courts, in another way. Mrs Mubarak’s former husband, who was the only other adult beneficiary of the trust, had (as a pre-condition to being heard before the English courts) given an irrevocable letter of wishes to the Jersey trustees that they give effect to any order made by the English courts. The Royal Court held that the variation (i.e. the addition of Mrs Mubarak as a beneficiary of the trust, so that she may benefit to the extent order by the English Courts) had been consented to by all adult beneficiaries and was in the interests of the minor children, so the Court gave its consent to the variation, pursuant to Article 47 of the Law (which gives the Royal Court power to vary the terms of a trust in certain circumstances).

The Royal Court also made the highly unusual step of ordering the appointment of receivers of the trust, so that assets of the trust (all held through a company incorporated in Bermuda) could be realised, with a view to appointing assets from the trust to Mrs Mubarak.

The Royal Court’s judgement in Mubarak has attracted much attention in the media, in which it is suggested that as a result of the ruling, more wealthy people might be encouraged to place their assets in the hands of Jersey trustees, so that they might be better protected in the event of divorce. From the perspective of Jersey trustees, the judgement is a welcome clarification of the effect of Article 9 of the Law. From a jurisdictional perspective, the judgement reinforces the comments made obiter by the Bailiff in Re The B Trust, in which he expressed the hope that English courts might in the future exercise judicial restraint and refrain from making orders that purport to vary the terms of a Jersey trust: the Royal Court in Jersey has now sent a very clear signal that it alone has jurisdiction to make such orders.

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