A question of trust

A recent landmark decision clarifies the extent to which offshore courts can enforce foreign matrimonial orders. By James Gleeson

On 15 August 2008, the Royal Court of Jersey delivered a landmark ­decision in the Mubarak divorce case, which decided how foreign matrimonial orders can be enforced on ­Jersey trusts.

The case confirmed that if the variation ordered by the English court involves an alteration of the trust deed, in that it requires the trustee to do something not authorised by the trust deed, the order is unenforceable and cannot be implemented.

If, however, the order varies the trust in a manner which the trustee itself has power to do, the court may give effect to such an order – but only under its general supervisory jurisdiction over trusts and not as a matter of enforcement. Whether the court will do so in a particular case is a matter of discretion depending on the interests of the ­beneficiaries.

This is an exceptional case. Having obtained an award of just under £5m in December 1999, Mrs Mubarak has been engaged in a lengthy attempt to force her husband to pay the award. The Mubarak case has become notorious in the English Family Division, involving some 30 judges, total costs of around £4m and countless reported judgments.

In March 2005, Mrs Mubarak decided to make a claim against the family trust. ­Initially a settlor and beneficiary of the trust, Mrs Mubarak had been revocably excluded as a beneficiary and designated an ­Excluded Person by a deed executed by the husband in April 1998. The main asset of the trust ­comprises shares in a company called Twenty First Century Holdings, a Bermudian holding company which in turn owns shares in a number of companies incorporated in a variety of jurisdictions, the Dianoor Group.

The Dianoor Group is engaged in the ­manufacture and trading of jewellery.
In her March 2005 application, Mrs Mubarak sought, among other things, an order that the English court pursuant to the Matrimonial Causes Act 1973 vary the trust so as to require the trustee to pay her an amount equalling the sums outstanding under the 1999 award.

An issue arose over Mr Mubarak’s right to continue to participate and defend the application. Mrs Mubarak applied under the Hadkinson principle to debar the ­husband from further participation on the grounds of his longstanding contempt of the 1999 court order.

That application resulted in the English court fixing Mr Mubarak with a number of preconditions. One precondition was that he write to the trustee in terms expressed to be irrevocable confirming that he wished the trustee to give effect to whatever orders the English court may make.

After writing in the required terms in August 2006, Mr Mubarak was allowed to participate. In a long, closely reasoned ­judgment, Mr Justice Holman rejected Mrs Mubarak’s other applications but granted an order varying the trust as sought by her. She then issued an application in Jersey seeking to enforce Holman J’s order.

Application issues

The application raised two issues: first, whether the Jersey court had the power to enforce Holman J’s order on the grounds of comity and therefore to vary the trust as ordered by him; second, whether the court should treat all the adult beneficiaries, including Mr Mubarak by virtue of his August 2006 letter, as having agreed to a variation of the trust and the court should lend its consent to the variation on behalf of the minor and unborn beneficiaries in accordance with Article 47 of the Trusts (Jersey) Law 1984.

The Royal Court held that:
• By reason of Article 9(4) of the Trusts Law, it cannot enforce a judgment of the Family Division varying or altering a Jersey trust under the English Matrimonial ­Causes Act 1973, even where the trustees have ­submitted to the jurisdiction of the Family Division.
• Where the variation ordered by the ­Family Division does not amount to an alteration of the terms of the trust, the court may give directions under Article 51 of the Trusts Law that have the effect of achieving the objectives of the English judgment.
• Where (as in this case) the variation ordered by the Family Division does amount to an alteration of the terms of the trust (in the sense that it required the trustees to do something not authorised by the terms of the trust), there is no jurisdiction in the ­Jersey court to give directions that authorise or direct the trustees to act in a manner that is outside the powers conferred on them by the trust deed.

As a consequence, the Jersey court could not direct the trustee to give effect to the English order.

However, as Mr Mubarak had agreed before the English court to write that the trustee should give effect to whatever order the English court made and all other adult beneficiaries had consented, and as the variation was in the interests of the minor and unborn children, the court gave its consent to the variation pursuant to Article 47 of the Trusts Law. As a result, the variation ordered by the Family Division was to be given effect by the trustee.

In light of the variation order, the next issue was how to implement it.

Because Mr Mubarak was hostile and had control of the assets through a corporate structure, the trust lacked liquidity, the assets were outside Jersey, the trustee had no funds for costs and it was unlikely that any other person would act as trustee, as an exceptional remedy receivers were appointed under the court’s inherent supervisory jurisdiction. The receivers were given sufficient authority and a gagging order granted to enable them to act in the meantime.

This is an important judgment providing much-needed clarity on the enforcement of foreign orders varying Jersey trusts. It also constitutes a rare instance where a trustee has been removed and a receiver appointed in place of the trustee over the assets of the trust.

James Gleeson is a partner at Bedell Cristin and appeared as an advocate for
the trustee