J ersey and Guernsey recently introduced legislation¹ to confirm the supremacy of local over foreign law when determining matters affecting local law trusts, their validity and the capacity of those creating them. The new legislation also confirms foreign judgments affecting local law trusts shall be enforceable only to the extent they are consistent with local law. That was an attempt to restrict the ability of foreign courts to make judgments affecting Jersey or Guernsey law trusts. Readers will recall, for instance, the decision in Minwalla ([2005] I FLR 771; later enforced in Jersey, [2005] JLR 359) where the English family court declared a Jersey law trust a sham applying English not Jersey law.

However, for various reasons the new regime is unlikely to rule out cases like Minwalla altogether, as foreign courts may accept jurisdiction, especially where trust assets are located there. That in turn might make local trustees think twice before deciding not to submit and to rely on the local courts to apply the new legislation. Furthermore, in the first case in Jersey testing the effectiveness of the legislation, the court appeared to have ignored it and enforced a foreign order on comity grounds. That decision In Re B Trust [2006] JLR 562 caused concern as it appeared to undermine the purpose and effectiveness of the new legislation. But more recent decisions have sought to clarify the position, and issue guidance on when a local trustee should involve itself in foreign proceedings affecting a trust.

Recent decisions show that the courts in the Channel Islands are prepared to take steps to ensure that beneficiaries of trusts are protected from the impact of foreign divorce proceedings

Historically, the issue has arisen most frequently where the English Family Division has sought to vary a Jersey or Guernsey law trust by exercising its jurisdiction under the UK Matrimonial Causes Act 1973, or to declare that assets within such a trust are a ‘resource’ of one of the divorcing parties, and hence to be taken account of when making a financial order. Worse still, if all else fails, a divorcing spouse may assert a trust is invalid as a sham, and hence becomes an asset that way. Trustees need to know how best to deal with these situations in light of the new legislation.

In Mubarak ([2008] JLR 250 (RC); [2008] JLR 430 (CA)), for instance, the Jersey court was asked to enforce a lump sum order made by the English court in divorce proceedings between Aaliya Mubarak and Iqbal Mubarik. Mrs Mubarak sought enforcement by various means, including varying a Jersey trust of which Mr Mubarik was a beneficiary, to order the trustee to pay. Mindful of the Jersey legislation, the Jersey trustee did not submit to the English court’s jurisdiction, so Mrs Mubarak issued Jersey proceedings seeking enforcement on grounds of comity (as in Re B Trust) or by the court approving the variation for minor or unborn beneficiaries.²

Mrs Mubarak failed on comity grounds, as under the new Jersey legislation the court could not enforce a foreign judgment ordering ‘alteration’³ or ‘variation’⁴ of a Jersey trust, even where the trustee had submitted to the foreign court’s jurisdiction. However, giving directions was not enforcement, so where the variation ordered by the foreign court was not an alteration, the court could give directions to achieve the foreign order’s objectives. Whether it would was a matter for its discretion having regard to the beneficiaries’ interests. Where the variation ordered was an alteration, the court could not give directions allowing trustees to act outside their powers. Mrs Mubarak was excluded as a beneficiary, so the English order was an alteration, and the Jersey court could neither enforce it nor direct the trustee to comply with it.

Mubarak suggests that even if a trustee submits to a foreign court’s jurisdiction, a variation of alteration will not be enforced in Jersey. But submission will remain comparatively rare. Only if the assets or beneficiaries are located there, if foreign law governs the trust or the foreign court requires assistance only the local trustee can give,⁵ will submission be appropriate. Mere provision of information is not submission of itself, and it is often highly desirable to enable the foreign court to reach an informed decision on the matters before it, such as a realistic division of assets in cases of family break down.

Trustees remain well advised to seek directions prior to any action they want to take. In In Re representation of C Trust Company [2009] JRC 048 the trustee successfully sought the Jersey court’s approval under the Public Trustee v Cooper jurisdiction for a notional ring-fencing of assets within a trust for certain beneficiaries, to demonstrate that they were not resources of the husband and to protect them from attack by his divorcing spouse. At the same time the trustee acknowledged it would be bound by any order of the English court, so that it would not formally segregate the funds unless the English divorce proceedings ended, and the Jersey court permitted it to do so.

Accordingly recent decisions show that the courts in the Channel Islands are prepared to take steps to ensure that beneficiaries of trusts are protected from the impact of foreign divorce proceedings – foreign divorce courts only being concerned to ensure a just division between divorcing parties which may adversely affect the interests of beneficiaries under Jersey and Guernsey trusts. The courts of the Channel Islands will have regard to foreign divorce proceedings that affect the beneficiaries under Jersey and Guernsey trusts, but both recent legislation and case law indicate that the Channel Island courts will not hesitate to uphold the rights of beneficiaries even where such rights conflict with decisions made by foreign divorce courts.