Unreasonable conduct

The failure of a Jersey law discretionary trust to act in a non-partisan manner in relation to a 2006 divorce case in the English High Court led the Royal Court of Jersey to direct that the trustee give effect to the English court’s order.

In April 2006, the Royal Court of Jersey directed the trustee of the H Trust not to take any part in certain English divorce proceedings between a husband and wife, both of whom were beneficiaries under the H Trust, but to instead provide full information to the parties for use in the English High Court.

The Royal Court encouraged the trustee to assist in giving effect to any reasonable arrangement reached by the parties in ­relation to their affairs.
The English High Court subsequently made certain orders against the husband, by consent, requiring him, among other things, to pay a lump sum to the wife, making it clear that the lump sum was to be paid out of the H Trust, and to procure the transfer of certain UK properties owned by the H Trust to the wife.

The trustee made a counter-proposal that would have required the wife to remain a beneficiary under the H Trust, saying that if agreement could not be reached within a short timeframe it would refer the matter to the Royal Court for directions (the first ­decision).

Some time later, the trustee decided not to apply to the Royal Court, but to await the outcome of certain enfranchisement proceedings concerning UK property owned jointly by the husband and the wife in their own names, and to make no distributions in the meantime (the second decision).

The trustee failed to consult with the wife when reaching this decision (or indeed subsequently), although it was in close contact with the husband.
The husband was receiving £10,000 per month from the trust, and the trustee knew that he was not (contrary to the English High Court order) paying any of this to the wife. She was, in consequence, very short of funds.

The wife was inevitably forced to bring the trustee before Jersey’s Royal Court for directions. The trustee refused to surrender its discretion to the Royal Court, and stood by the second decision. The Royal Court found that the second decision – not to bring the matter before the Royal Court, not to make any distributions and to await the outcome of the UK property proceedings – was one that no reasonable body of trustees could have arrived at, and stood to be set aside on that ground.

The conduct of the trustee in entering into the arena of debate between husband and wife, taking sides and conducting itself in an openly partisan way entitled the Royal Court to exercise its supervisory powers by “giving directions to the trustee as to how its powers should be exercised so as to bring finality to this unhappy state of affairs”.

The Royal Court made it clear that the English High Court order did not override the trustee’s discretion, but that there would have to be good reason for a trustee on the facts of this case not to give effect to such an order. No such reason existed.

As such, the Royal Court concluded that the interests of comity and of the bene­ficiaries lay in achieving the result contemplated by the English High Court order so far as reasonably possible, and accordingly ordered, inter alia, that the lump sum ordered by the English High Court to be paid to the wife should be paid out of the trust fund of the H Trust, and that certain properties owned by the trust be transferred to her.

Counsel for the trustee argued that ­Article 9 of the Trusts (Jersey) Law 1984 (as ­amended in 2006) meant that in considering the matter and giving directions, the Royal Court must ignore the fact that the wife was the wife of the husband, and the English order.

He contended that the exercise of the trustee’s power was a question concerning the administration of the trust, and that the trustee and the Royal Court could not, when considering the exercise of powers under the trust, take into account the relationship between the husband (as settlor) and the wife, or the order of the English High Court as a foreign court of competent jurisdiction adjudicating between beneficiaries.

The Royal Court said that this would be highly artificial, if not impossible, and could not have been intended by the legislature. Further, the court was giving directions to the trustee at the instigation of a beneficiary, under Article 51 of the Trusts (Jersey) Law and was not concerned with whether the H Trust either defeated rights conferred on the wife by English law by reason of her marriage to the husband (as settlor), or ­contravened the terms of the English High Court order.

Article 9 (as amended) was therefore irrelevant. The only question for the Royal Court was whether and to what extent the trustee should be directed to exercise its powers under the H Trust in such a way as to give effect to the English order and the wife’s rights under it. Article 9 (as amended) had no bearing upon the exercise by the Royal Court of its jurisdiction under Article 51 of the Trusts (Jersey) Law.

Robert MacRae is a partner and Victoria Connolly a senior associate at Carey Olsen in Jersey