documents of a trust when they are attacking the heirship of that trust
In a recent case – In the Matter of the CA Settlement (Jersey unreported 2 May 2002) – the Royal Court of Jersey considered the issue of whether the court had jurisdiction to make an order that documents be disclosed to strangers to a trust, and if so the circumstances in which that jurisdiction should be exercised. The court also had cause to consider the forced heirship provisions in the Trusts (Jersey) Law 1984 (as amended) (the 1984 law).
The facts in brief were that the applicant (the representor) was the sole daughter of the settlor, who was previously resident in Switzerland. In December 1991, the settlor moved to Jersey; he died domiciled in Jersey in January 2000 and by his will left everything to his son. Subsequently, the representor had applied to “reduce the will ad legitimum modem” (in other words to establish her right to one-third of the estate under the rules ofégitime under Jersey customary law).
However, it transpired that the settlor's estate was only of nominal value. Upon enquiry, the representor had established that shortly prior to the settlor's move to Jersey he had created a Jersey settlement, it being asserted by the representor that virtually all of the settlor's assets were transferred to that settlement. The representor had no further information other than that she was not the beneficiary of the settlement.
The representor conceded that she wished to establish whether there was grounds for setting aside the settlement. If the settlement was set aside, the assets transferred into the settlement would be deemed to form part of the estate of the settlor. On that analysis, she would then have a right to a share of those assets pursuant to her rights ofégitime under Jersey law.
Against that background, the representor brought proceedings under Article 47 of the 1984 law for an order that the trustees should disclose information and documents requested, which included the Trust Deed, a schedule of all distributions made, any Letters of Wishes, and memoranda and minutes that might evidence how the settlor wished the trustee to exercise its discretion as regards distributions.
The court had regard to the Isle of Man decision in Rosewood Trust Limited v Varden Schmidt (2001), which held inter alia that a non-beneficiary has no standing in relation to trusts and thus no entitlement to disclosure of trust documents or information.
The Royal Court considered that, while Rosewood reflected the law in the Isle of Man and perhaps other jurisdictions, the question of the Royal Court's jurisdiction in this area was dependent on the wording of Article 25 of the 1984 law.
Article 25 provides as follows: “Subject to the terms of the trust and subject to any order of the court, a trustee shall not be required to disclose to any person any document which:
a) discloses his deliberations as to the manner in which he has exercised the power;
b) discloses the reason for any particular exercise of such power or discretion;
c) relates to the exercise or proposed exercise of such power or discretion;
d) or relates to or forms part of the accounts of the trust – unless, in a case to which sub-paragraph (d) applies, that person is a beneficiary under the trust.” (Emphasis added.)
The aforesaid provision has attracted much criticism as it is not easy to construe due to the use of the double negative (see Re Rabaiotti 1989 Settlement (2000) and the Jersey Law Commission Consultation Paper No 1 – 'The Rights of Beneficiaries to Information Regarding a Trust' (1998)).
The court held that, on the face of it, the section provides that, subject to any order of the court, a trustee is not required to disclose to any person (the expression held to include non-beneficiaries) documents falling within sub-paragraphs (a) to (c), but is required to disclose certain documents to a beneficiary. The court held the fact that a trustee was not required to disclose any of the categories of documents to a non-beneficiary “subject to any order of the court” had to mean that there was jurisdiction for the court to order disclosure to a non-beneficiary in appropriate cases.
As regards the exercise of that jurisdiction, it was noted that the general principle of litigation in Jersey was similar to that in England, and indeed in other common law jurisdictions – namely, that a potential plaintiff is not entitled to an order requiring a potential defendant to give discovery of documents so that the potential plaintiff may establish whether or not they have a cause of action.
The court held that Article 47 of the 1984 law “should not be used as a back-door method of allowing pre-action discovery to a non-beneficiary who wishes to attack a trust”, and dismissed the representor's application.
The court placed reliance on the Cayman Islands case of Re Lemos Trust Settlement (1992-1993). In that case, certain beneficiaries of a Cayman Islands trust brought an action in the Greek courts to set aside the trust. They then sought an order from the Cayman Island Court for disclosure of various trust documents from the trustees. The Cayman Island Court upheld the decision of the trustees not to supply documents to the beneficiaries on the grounds that the documents were being sought in order to attack the trust, as in those circumstances it was clear that disclosure would not be in the interests of the trust or the beneficiaries as a whole.
The thrust of the court's reasoning in Re CA Settlement is that the principle established in Re Lemos, in which those attacking the trust were beneficiaries, applies a fortiori where the potential plaintiff is not a beneficiary.
It is clear from an analysis of the judgment that, having held that on a technical reading of the 1984 law the court had jurisdiction to order disclosure to a non-beneficiary in appropriate circumstances, the court was keen to ensure that such a potential remedy should not be exploited by strangers to trusts. The court concluded: “It follows from what we have said in this judgment that, save in very exceptional circumstances, there would be no serious issue to be tried in the event of a stranger to a trust seeking similar relief in future. We would therefore not expect leave under Article 47 (3) [of the 1984 law] to be given to such a person to bring a similar application.”
There was a further interesting issue canvassed during the hearing which is touched upon in the judgment, relating to the forced heirship provisions under Jersey law.
The trustees contended that the representor was in error in asserting that she would inevitably obtain discovery of the documents in the event that litigation was commenced, as there was a potential preliminary issue to be determined under Article 8(A) of the 1984 law.
Articled 8(A) provides that, where a person domiciled outside Jersey transfers property to a trust during their lifetime, no rule relating to inheritance or succession (includingégitime or forced heirship) of the law of their domicile or any other system of law should affect such a transfer.
The provision (which was an amendment to the 1984 law made in 1989) was clearly intended primarily to address the problem of transfers to Jersey trusts by persons domiciled outside Jersey being affected by provisions of forced heirship or similar provisions in their country of domicile, or indeed in other foreign countries.
In Re CA Settlement, the settlor was domiciled outside Jersey at the time of the transfer of assets to the settlement, but thereafter moved to Jersey and was domiciled in Jersey at the date of his death. On that basis, the rules of Jersey law relating toégitime applied to his estate.
It was arguable, however, that by reason of Article 8(A), theégitime provisions under Jersey law (upon which the representor relied) could not invalidate the transfers of property to the Jersey trust.
The aforesaid argument was raised purely as a potential future preliminary issue in Re CA Settlement. It is of note that during argument the court expressed interest in this interpretation of the 1984 law without disapproval, although in its judgment, it of course expressed no view on the merits or otherwise of such an argument.
The matter of Re CA Settlement has thus provided a detailed statement of the law in relation to the wholly exceptional nature of the court's discretion to allow a stranger to a trust to obtain trust documents. The judgment also has contained within it reference to an interesting argument under Article 8(A) of the 1984 law, which it is hoped will receive further judicial pronouncement in due course.
Fraser Robertson is an advocate and a partner at Jersey firm Bailhache Labesse and appeared for the trustees In the Matter of the CA Settlement