1. Trustees vs Beneficiaries - Separation and the Family Trust

2. INTRODUCTION Peter Steen, Partner Antonia Felix, Associate
Peter is a Partner in Mishcon Private. He has a wealth of experience in a wide spectrum of disputes, including trust disputes and shareholder disputes. He acts predominantly for corporate and individual trustees, beneficiaries, protectors, third parties with claims against trustees, shareholders, and companies defending claims brought by shareholders. His work is frequently international and, amongst other jurisdictions, he has recently been involved in high value cases in England, Bermuda, the BVI, Jersey, Guernsey and Switzerland.
Antonia Felix is an Associate in the Family department. She specialises in all aspects of family law with a particular emphasis on complex financial remedy cases often involving assets in different jurisdictions and complicated trust structures. Antonia also advises on cohabitation disputes and private law children matters, including applications for leave to remove children from the jurisdiction. She is experienced in advising on pre and post-marital agreements and cohabitation agreements.

3. J v V JvV (Disclosure: Offshore Corporations) [2004] 1FLR 1042
“Sophisticated offshore structures are very familiar nowadays to the judiciary trying ancillary relief proceedings and do not impress, intimidate or fool them or anyone else”

4. Matrimonial causes act 1973
S.25 (2) Matrimonial Causes Act 1973
"the income……property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future"

5. Form e 2.14 Details of any other assets
INCLUDE (the following is not an exhaustive list):
Trust interests (including interests under a discretionary trust), stating your estimate of the value of the interest and when it is likely to become realisable. If you say it will never be realisable, or has no value, give your reasons…….

6. ADDITIONAL DISCLOSURE QUESTIONS
A copy of the trust deed and all subsequent deeds such as deeds of appointments;
Copies of the trust accounts for the last 3 available years;
Documentary evidence in the form of a schedule prepared or authenticated by one of the trustees of all capital advanced and income paid to the spouse from the trust since its creation, together with any loans made;
An estimate of the income, and if applicable, capital advances which the spouse can reasonably expect to receive from the trust in the foreseeable future;
A copy of all letters of wishes and other documents stating the settlor's wishes;
Please explain the nature of the investments held by the Trust(s) and provide a chronology of significant dealings (including withdrawals) in respect of the Trust(s); and
Provide details, by way of a schedule, of all funds settled by the H in trust, setting out in each case the source and destination.

7. THOMAS v thomas [1995] no2 flr 68 (ca) WAITE L J (Page 670)
"…..if justice is to be achieved between spouses at divorce the court must be equipped, in a society where the forms of wealth-holding are diverse and often sophisticated, to penetrate outer forms and get to the heard of ownership. For their part, the judges who administer this jurisdiction have traditionally accepted the Shakespearean principle that "it is excellent to have a giant's strength but tyrannous to use it like a giant". The precise boundaries of that judicial self-restraint have never been rigidly defined – nor could they be, if the jurisdiction is to retain its flexibility….."

8. THOMAS v thomas [1995] no2 flr 68 (ca) WAITE L J (Page 670)
'…that where a spouse enjoys access to wealth but no absolute entitlement to it (as in the case, for example, of a beneficiary under a discretionary trust or someone who is dependent on the generosity of a relative), … there will be occasions when it becomes permissible for a judge deliberately to frame his orders in a form which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court's view of the justice of the case.‘

9. Glidewell LJ (p )
Where as husband can only raise further capital, or additional income, as the result of a decision made at the discretion of trustees, the court should not put improper pressure on the trustees to exercise that discretion for the benefit of the wife. The court should not, however, be "misled by appearances"; it should "look at the reality of the situation". If on the balance of probability the evidence shows that, if trustees exercised their discretion to release more capital or income to a husband, the interests of the trust or of other beneficiaries would not be appreciably damaged, the court can assume that a genuine request for the exercise of such discretion would probably be met by a favourable response.

10. To submit or not to submit
Refusal to submit: compliance with fiduciary obligations; no jurisdiction, no breach of trust
But: risk of punitive order against spouse; reputational consequence

11. separate roles, poles apart
The Family Court’s role is to “do justice between the two spouses before it…to achieve the fair allocation of assets.” R H Trust [2006] JLR 280
The trustee’s role is to consider…all those other possible beneficiaries.

12. An impossible bind for the trustee?
Pros of not submitting
Avoids possible variation of the trust to the detriment of beneficiaries.
Preserves their position, perhaps with a view to later compliance.
Belt and braces approach: directions
Cons of not submitting
Court could obtain the ‘wrong picture’.
Court could then make an order which trust cannot comply with.

13. A third way?
Trustees can follow a third way and try to assist the English proceedings without submitting. This:
Gives the court accurate information re trust assets.
Participate qua witness (BJ v MJ)

14. Submission – what does it mean?
Remember ‘once submitted, always submitted’.
If you decide not to submit, know what submission involves and be careful at every stage

15. submission in personam
Voluntary presence in the jurisdiction, temporary or permanent, will be taken as submission.
Service in person and being joined.

16. submission on the facts
Avoid ‘voluntary’ submission – know what counts!
Have you taken a “necessary” or “useful” step in proceedings which the court can construe as submission?
Have you marked correspondence “without prejudice to jurisdictional challenge”?
“economic reality”

17. Firewall legislation The Trusts (Guernsey) Law, 2007 – Section 14(4)
Notwithstanding any legislation or other rule of law for the time being in force in relation to the recognition or enforcement of judgments, no judgment or order of a court of a jurisdiction outside Guernsey shall be recognised or enforced or give rise to any right, obligation or liability or raise any estoppel if and to the extent that –
it is inconsistent with this Law, or
the Royal Court, for the purposes of protecting the interests of the beneficiaries or in the interests of the proper administration of the trust, so orders.

18. cliffhanger Goyal v Goyal [2016] EWFC 50 Spreadbetting
Pension sharing order
paragraph 17: "it is trite that it has been accepted for a very long time that orders for property adjustment can be made in respect of a foreign property or nuptial settlement trust provided that there is clear evidence that such an order would likely be enforced by the foreign court "

19. Goyal v Goyal Mr Justice Mostyn at paragraph 32:
"[counsel for the husband] questions whether the old cases, which state that, at least in principle, and subject to proof of likelihood of reciprocal enforcement, an order can be made varying a foreign nuptial settlement, in fact violate the presumption against extra-territorial effect. In none of those cases was the point considered. In such a case, he says, the relief has the hallmarks of an order in rem. Moreover, it imposes obligations on foreign third parties—the trustees of the overseas trust. These are respectable arguments which will need to be considered when such a case arises. The counter-argument is that it is a very necessary power in many cases, particularly where the overseas trust owns property sited in this jurisdiction. I examined this in my own decision of BJ v MJ (Financial Order: Overseas Trust) [2011] EWHC 2708 (Fam) at [7], [20]–[21], and [23] but I recognise that I did not address the question of the presumption against extra-territoriality and whether an exception to it could be inferred.“

20. Goyal v Goyal
Para 34: "in the absence of such evidence the order would represent an exorbitant act of extra-territoriality"
Summing up:
Generally, don’t submit
If appropriate, get directions from Royal Court
Don’t rely on the firewall provisions
Don’t rely on Goyal … just yet.

21. CONTACT Peter Steen Partner Peter.steen@mishcon.com
DDI:
Antonia Felix
Associate
DDI: