Should the trustee of an offshore trust involve itself in proceedings concerning the trust that take place onshore?  The received wisdom is that an offshore trustee should be slow to do so and it has long been the position of the Jersey Court that, on questions of validity of a Jersey trust, it is unlikely to be in the interests of a Jersey trust for the trustee to submit to the jurisdiction of an overseas court. The introduction of so-called firewall provisions has, if anything, only reinforced that general position. 

However, there are exceptions and, In the matter of the Arpettaz Settlement [2020] JRC 161 (10 August 2020), the Jersey Court was satisfied that it was in the interests of a Jersey trust to do so. This facilitated the early resolution of the proceedings in the English Court, which was settled on terms that provided for certain payments to be made by the Trustee to parties in those English Court proceedings (see the subsequent judgment of the Jersey Court – In the matter of the Arpettaz Settlement [2020] JRC 183 (14 September 2020)).  

 

BACKGROUND

The discretionary trust was established on 18 July 2011 by the former chairman of an oil exploration company incorporated in the Isle of Man. The beneficiaries under the Trust, as listed in Schedule 3, compromised the first respondent in these proceedings, who was the CEO of the oil exploration company (described in the letter of wishes as the ‘principal beneficiary’), and his immediate family (being in this case his siblings and elderly parents).

£35,000 was settled on creation of the trust and, on the same day, the original trustee, settlor and principal beneficiary entered into a deed of undertaking pursuant to which, in consideration of the principal beneficiary working as CEO of the oil company, the settlor agreed to settle a further sum (anticipated to be valued at around $15m) within three years of the date of the undertaking. On 12 February 2012, $15m was duly settled by the settlor’s wife.

The Jersey Court was informed that approximately £7m of the £10.9m of remaining trust assets consisted of a debt owed to the Trustee by the principal beneficiary, with the remaining assets held with an English company.

A year later a fraud claim was made in the English Court against the settlor by the second to fifth respondents. In 2017, the settlor was ordered by the English High Court to pay the second to fifth respondents the sum of $299m plus costs.  The second to fifth respondents were seeking to enforce that judgment against the assets of the Trust, which they claim are proceeds of the settlor’s fraud.

It is claimed in these ongoing English High Court proceedings that the deed of undertaking pursuant to which $15m was settled into the trust was “a secret agreement” designed to hide and disguise the principal beneficiary’s remuneration from his fellow directors and company’s auditors and that, inter alia, the principal beneficiary was not a bona fide purchaser for value without notice and the trust assets accordingly represent traceable proceeds of the settlor’s fraud. The principal beneficiary disputes this and is seeking to summarily dismiss the proceedings issued against him.

The Jersey proceedings were brought by the Trustee, who sought the Court’s blessing to:

  • submit to the jurisdiction of the English High Court and adopt a neutral position in relation to the English Proceedings;
  • to disclose key pieces of legal advice received by the Trustee in relation to the Trust; and
  • to recover costs related to the English Proceedings

In addition, the Trustee sought an order from the Court as to the disclosure, to the principal beneficiary, of advice obtained by the Trustee in relation to its role in the English Proceedings.

 

SUBMISSION TO THE JURISDICTION OF THE ENGLISH HIGH COURT

The Court re-affirmed that the starting point “is that questions of validity of a Jersey trust (which in essence the English Proceedings are, in this context) should be determined by the Jersey court and it will only be in exceptional circumstances that the court will direct a trustee to participate in foreign proceedings where the outcome may be that most of all of the trust fund is recovered by a third party”. After subjecting the decision to the greater level of scrutiny to be applied to questions of litigation (The F Charitable Trust [2017] JLR 26 followed), the Jersey Court decided that these were such exceptional circumstances and blessed the Trustee’s decision to participate in foreign proceedings.

The decision appears to have been based solely on practical considerations, namely the fact that:

  • the principal beneficiary was based in the United Kingdom; and
  • he held the majority of the trust assets (in the form of unsecured interest free loans payable to the Trustee).
    • Even absent the Trustee’s participation in the English Proceedings, the English High Court would have been able to enforce its order without regard to the Jersey Court by way of a third party debt order against the principal beneficiary in respect of the debt owed by him to the Trustee.
  • The assistance the Trustee could provide in the English Proceedings was then weighed against the cost of the Trustee participating in the English Proceedings, with the Jersey Court subjecting the Trustee’s estimated costs of participating in the English Proceedings to close scrutiny (and receiving an assurance from the Trustee that it would investigate ways in which the costs might be reduced).
  • As to the appropriate stance to be adopted by the Trustee in the English Proceedings, the Jersey Court directed the Trustee to adopt a neutral position (as the Trustee had proposed). In a dispute between represented warring parties as to their beneficial interest in the trust assets, the duty of the trustee is to remain neutral.

 

DISCLOSURE

In response to allegations of dishonesty and bad faith against the Trustee (now abandoned) and with the consent of the principal beneficiary (but not the other beneficiaries), the Trustee wanted to disclose several pieces of legal advice provided (1) at the time of agreeing the deed of undertaking in 2011 (2) in 2014, in relation to the propriety of the Trustee receiving payment of £15m in the context of the (at that stage unresolved) claims made in the English High Court (3) in 2015, as to whether the Trustee should consider itself on notice of a proprietary claim in respect of the funds settled into the trust such that it should not make any payments or loans out of the Trust.

Without deciding the point, the Jersey Court expressed the provisional view that the Trustee has the power to waive privilege in legal advice that it has obtained on behalf of the Trust without obtaining the consent of all the beneficiaries. In any event,  the Jersey Court was prepared to authorise the Trustee to waive privilege in relation to those three pieces of advice (whether by way of approving the decision of the Trustee or exercising its own discretion).

Separately, the principal beneficiary had requested a copy of the advice obtained by the Trustee as to its participation in the English Proceedings. The Trustee resisted the request on the basis that such advice was privileged and that, if it were to be disclosed to the principal beneficiary, it should also be disclosed to the second to fifth respondents, who also have a claim to the Trust assets.

The Jersey Court ordered that the advice be disclosed to the principal beneficiary if he continued to request it. Whilst the advice had been paid for by the Trustee personally, the Trustee maintained a right of indemnity from the Trust assets in respect of the cost of that advice, since the advice had been taken for the benefit of the Trust and not the Trustee personally. In those circumstances, the advice is privileged against third parties but not against the beneficiaries.  Between the Trustee and principal beneficiary, it was held that joint privilege applied (Dawson Damer v Taylor Wessing LLP [2020] EWCA Civ 352 followed) and a provisional view was given that the advice is likely to be covered by common interest privilege.

Whilst the Jersey Court did not have to decide whether the advice should also be disclosed to the second to fifth respondents, it noted that the Trustee was not obliged to provide the advice to the second to fifth respondents and warned that an application should be made should the Trustee wish to do so. Here, as elsewhere in the judgment, the Jersey Court drew a distinction between the status of the principal beneficiary (for whom the Trustee was currently holding the trust assets) and second to fifth respondents, who have merely a claim to the Trust assets.

 

COMMENT

Whilst it may seem surprising that a Jersey Court would bless a trustee’s decision to submit to the jurisdiction of the English High Court on questions of the validity of a Jersey trust, this was one of the rare occasions when it was in the interests of the Jersey trust for the Trustee to do so. The location of the Trust assets in the English jurisdictions meant that, even if the Trustee had refused to submit, it would have been unable to prevent enforcement and, in those circumstances, the Court was prepared to bless the decision.

Perhaps slightly more surprising was the order that the Trustee should waive privilege in relation to key pieces of advice received in relation to the Trust. Given that the (relatively serious) allegation made against the Trustee had now been abandoned, it is difficult to see why it was necessary for the Trustee to do so (although we note that the principal beneficiary was supportive of this action).

 

CONTACTS

Richard Norridge

Richard Norridge
Partner, Head of Trust & Estates Disputes & Head of Private Wealth and Charities, London
+44 20 7466 2686

Dan Saunders

Dan Saunders
Senior Associate, London
+44 20 7466 2036