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English Divorce Court denies Royal Court’s Request

otg_f_jersy_imgTrust applications In Jersey – confidentiality under threat: English Divorce Court denies Royal Court’s Request for restraint in the interests of comity

Article by Kathryn Purkis and Dan Boxall, Collas Crill Jersey

In the high-profile matrimonial proceedings of Tchenguiz v Imerman, the Family Division of the English High Court ([2013] EWHC 3627 (Fam)) recently refused the request of Jersey’s Royal Court to refrain from ordering disclosure in the English proceedings of sensitive trust information received by beneficiaries who were convened to a trustee’s application to the Royal Court, in private, for directions under Article 51 of the Trusts (Jersey) Law 1984 (as amended).

The English proceedings concerned the wife’s application for financial relief against the husband. They focussed on certain BVI-law trusts, the trustee of some of which was a Jersey–resident company. Neither the husband nor the wife was a beneficiary of the trusts in question but it was open to the trustee to add them as such. The wife’s application sought that the English court should vary the trusts under the English statutory regime on the basis that they were post-nuptial settlements and/or that it should find that the assets of the trusts were financial resources available to the husband.

The Jersey trustee was joined to the English proceedings. Rather than submitting to the English court’s jurisdiction the trustee applied to the Royal Court, in private and convening the trusts’ beneficiaries, for a blessing of its decisions (a) not to submit but (b) to disclose certain information concerning the trusts and their assets to the husband’s father (who was a beneficiary) in the knowledge that the information would end up being available to the English court and the wife. Fulfilling its obligation of full and frank disclosure on such an application, the trustee provided affidavits, evidence and argument to the Royal Court and to the convened parties, including sensitive information relating to its reasoning and its decision-making process. The Royal Court blessed both of the trustee’s decisions.

Some of the beneficiaries of the trusts, English-resident adult children of the husband, then applied (to the English court) and were granted permission to participate in the English proceedings: they did so in order to make submissions concerning the trusts. As part of that process they gave undertakings to the English court to preserve and make available the documentation which they had received in the course of the trustee’s Royal Court application. Having given such undertakings, and as they would be in contempt of the Royal Court if they disclosed without its permission, the beneficiaries sought the permission of the Royal Court to disclose that documentation if the English court ordered them to do so. Though the Royal Court said that it would normally refuse such an application, in the very unusual circumstances of the case, which included the existence of the undertakings to the English court, it granted the beneficiaries permission to disclose, if ordered, all documentation save for privileged material.

In giving its judgment ([2012] (2) JLR 51) the Royal Court was at pains to state the following:

that it is in the interests of justice that trustees should be able to apply to the Royal Court in private and to speak frankly, confident that what is said or produced will not be released or used elsewhere;

that in blessing the decision of the trustee effectively to provide information for the English proceedings via the husband’s father, the Royal Court had ‘done all that it can to ensure that the Family Division is made fully aware of the financial position of the trusts and the likelihood of the husband benefiting’; and

that in the Royal Court’s view it was highly unlikely that the material disclosed in the trustee’s Royal Court application would add to the relevant knowledge of the English court or would be relevant to the issues which the English court had to resolve.

The Royal Court expressed the hope that, in the interests of comity, the English court would take note of its concerns and invited it ‘to consider very carefully’ whether it needed to make any disclosure order. In particular the Royal Court said it hoped very much that the English court would respect the nature of the trustee’s Royal Court application and not order disclosure of the ‘sensitive material’, which included material showing the reasoning and decision-making process of the trustee or other parties. The English judge, acknowledging only a limited understanding of what the subject material comprised and making clear that he had given ‘considerable weight’ to the Royal Court’s concerns particularly owing to the interests of comity, nevertheless ordered the beneficiaries to make disclosure, including disclosure of the sensitive material. In doing so, he concentrated on a particular comment of the Royal Court, viz.:

The internal thinking of the trustee as to what it considers to be in the best interests of the beneficiaries and the decision of the [Royal] Court in relation to that matter seems very different from the issue of what order should be made by the Family Division in relation to the financial position of the husband and the wife.’.

The English judge disagreed with this fundamentally. Concerning the determination of the issues before him, including the extent to which the trusts’ assets were resources likely to be available to the husband, he said the following:

‘What the trustees consider to be in the best interests of the beneficiaries, and why, are, I would suggest, essential elements of this, factual, determination because it is the trustee who controls the availability of this wealth through the exercise of its discretion. The trustee’s reasons for coming to its conclusion – its thinking – are highly relevant to this determination. This evidence can also significantly inform the issue of whether the Trusts are nuptial.

… given the lack of evidence from the trustee as to its likely approach to the exercise of its powers, any evidence which appears to give the prospect of a window into this factual issue is relevant evidence of considerable significance.’.

Concerning comity, the English judge noted a submission made by counsel for the wife that ‘the Royal Court refers to the interests of comity in circumstances where that Court has approved the trustee’s decision not to participate in the English proceedings although properly joined as a party.’.

In concluding his judgment, the English judge said that he did not see that his order should impede or undermine the interests of comity. He also expressed the hope that ‘cooperation between the English court and the Royal Court of Jersey, and other courts, in cases in which wealth is held in trusts or other similar vehicles will continue to develop.’. A little flex of the judicial biceps? In its own judgment granting permission to the beneficiaries, the Royal Court had put a marker down, making clear that, if it ‘were to find that the Family Division began routinely to make orders requiring disclosure of applications by trustees brought in private, the court would have to consider amending its procedures either so as to heavily redact any material served on English-resident beneficiaries or to preclude material from being sent out of the jurisdiction and allowing only inspection within the jurisdiction.’. One might be forgiven for anticipating that the English court’s approach in this case may not be a one-off; and it remains to be seen how the Royal Court will react.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 

 

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