Case law concerning offshore trusts in matrimonial disputes can be tricky to navigate, necessitating trustees’ lawyers’ full attention.
For a number of years the relationship between the matrimonial jurisdiction of the English courts and the trustees of offshore trusts has been a somewhat uneasy one.
Section 24 of the Matrimonial Causes Act (1973) gives the court a wide jurisdiction to vary nuptial settlements. Section 25 of the act enables the court to have regard, when assessing the financial provision on divorce, not only to the personal resources of the parties to the marriage, but also to those the party “is likely to have in the foreseeable future”.
This latter provision enables the court, in appropriate circumstances, to consider the availability of trust assets to a party to the marriage and make an order based on the availability of such assets. Clearly the ability of the courts to deal with trust assets in this way can cause significant difficulties for offshore trustees. Orders may be made that purport to vary a settlement or assume – or are designed to ensure – that trustees exercise their powers in a particular way.
The recent decision of the Court of Appeal (CoA) in Whaley v Whaley (2011) is a good example of such a case. In Whaley the husband was a beneficiary of certain offshore settlements. When assessing the provision that should be made for the wife on divorce the judge at first instance took into account assets held in the offshore settlements and made an order that could not be satisfied without recourse to the trust assets.
Question of trust
On appeal it was argued that the judge had been wrong to treat the trust assets as being available to the husband and that the order went too far in that it exerted “improper pressure” on trustees to exercise their discretion in favour of the husband, so as to ensure that he could satisfy the order.
The CoA held that, in view of the judge’s finding of fact that the trustees “were likely to do whatever the husband asked, including making capital available to him”, Mrs Whaley had no choice but to treat the assets as his. The pressure being exerted by the order was not, in the CoA’s view, “undue”. Whaley does not represent a major shift in principle, but it shows that the courts are prepared to take a robust approach to offshore trusts.
The willingness of the English courts to include offshore trust funds as assets available for the provision of divorce presents considerable difficulties for offshore trustees.
Trustees always have to consider the question of the extent to which they should participate in the proceedings. Frequently requests (or orders) will be made for disclosure of information relating to trusts. The decision as to whether to comply or not is rarely straightforward and it is hard to set out a universal rule as to whether or not information should be provided: it is very much an issue to be determined on a case-by-case basis.
Similarly, there can often be a dilemma for trustees as to whether they should seek to appear before the court in the substantive claim. On the one hand, the trustees are likely to be well-placed to put forward arguments and evidence to demonstrate that a party to the marriage is not in as privileged a position in relation to the trust as might be asserted by the opposing party in the litigation, but on the other, their doing so will result in their submitting to the jurisdiction of the English court in circumstances where it is undesirable to do so.
A further question is then likely to arise concerning the proper response to an attempt by a party who has obtained an order in the English courts to enforce it in an offshore jurisdiction. This issue has already been the subject of litigation and promises to continue to occupy the courts.
Ultimately trustees have to be guided by the principle that they must act in the best interests of the beneficiaries. The difficulty that arises is that of identifying what
is likely to best serve the beneficiaries’ interests.
Proper legal advice is therefore of the utmost importance, as a wrong move can have disastrous consequences and could result in personal liability for the trustees.
Consequently, cases involving trusts in the context of a divorce continue to keep trust litigators busy. Whaley, and the robust attitude of the CoA, suggests that this workload is unlikely to diminish as more parties in divorce cases seek to obtain relief involving offshore structures. Given the complexities involved, trustees who find themselves in this sort of situation are justified in seeking assistance.
Richard Wilson is a barrister at 3 Stone Buildings