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Which territory’s laws apply when problems occur with cross-jurisdictional trust to trust transfers?

The recent judgment by Jersey’s Royal Court in the case of Representation of Schroder Cayman Bank and Trust Co Ltd contains interesting commentary on the recognition of foreign judgments in the context of dispositions of assets between Jersey trusts and trusts governed by the laws of other jurisdictions, and the interaction of conflicts of law principles with Article 9 of the Trusts (Jersey) law 1984.

It also highlights the importance of including express governing law clauses in instruments appointing assets between trusts established in different jurisdictions.

The case involved the validity of appointments made in 2011 from a Cayman law governed discretionary trust to three separate and substantially identical Jersey law governed discretionary trusts, all having the same trustee.  The Jersey trusts had been established, following tax advice, specifically to receive those appointments from the Cayman trust.

All three appointments were flawed in two key respects.  Firstly, they purported to benefit a class wider than that permitted under the appointing Cayman trust.  Secondly, they were predicated on the mistaken belief that the beneficial class of each of the recipient Jersey trusts was identical to that of the appointing Cayman trust, and that making the appointments would not give rise to a charge to UK IHT.

On application by the trustee, the Cayman Court had ruled that the appointments to the Jersey trusts were void on the ground of excessive execution (as the trustee was not empowered to appoint assets to a trust having a wider class of beneficiaries than that expressed in the Cayman trust).  The Cayman Court made it clear that, had it found the appointments valid, it would in any event have been willing to set them aside on the ground of mistake.

On the basis that the trustee was, by the time of the Cayman Court’s ruling, supposedly holding the appointed assets as part of the trust funds of the Jersey trusts, it subsequently sought a declaration by Jersey’s Royal Court that the Cayman Court was the proper forum for determining the validity of the appointments, and that accordingly the Royal Court should give effect to the Cayman Court’s ruling that the assets being the subject of the purported appointments should be returned to the Cayman trust.

The starting point for the Royal Court was therefore the question of which jurisdiction’s laws should be applied.

The court referred to Article 9 of the Trust (Jersey) Law 1984.  Article 9(1) sets out a list of trust related matters which fall to be determined by Jersey law without reference to foreign law.  This includes any question concerning the validity or effect of any transfer or other disposition of property to a trust.  Article 9 goes on to provide that the law of Jersey relating to conflicts of law shall not apply to the determination of any question concerning those matters listed in Article 9(1).

However, Article 9(2A)(c) caveats that prescriptive requirement to have regard only to the domestic law of Jersey.  It provides that this applies subject to any express proviso to the contrary in the terms of the trust or disposition.

With regard to that, the Royal Court determined that it was sufficient for the disposition to simply state expressly that it is governed by a law other than that of Jersey.  It was not necessary for it to go further and also state expressly that the disposition’s validity is governed by that other law.

However, the Court did identify that an express choice of governing law was required.  If the disposition was silent, that would not oust the application of Article 9(1), and the proper law would in that case fall to be determined in accordance with Jersey law, by reference to its closest connection or by implication.

Applying that to the appointments from the Cayman trust to the three Jersey trusts, the Court’s conclusion was that the express governing law provision in the appointments meant that the validity of the dispositions they purported to effect fell to be determined in accordance with the law of the Cayman Islands.

The Court went on to consider the appropriate order it should make, distinguishing enforcement and recognition of foreign judgments.  The Court identified that the applicable conflicts of law principles were more limiting in terms of the Court’s ability to enforce foreign judgments as compared to merely recognising them.

While not ruling out the possibility that it could have enforced the Cayman Court’s judgment, the Court was satisfied that the trustee’s application was properly categorised as a case of recognition and, as there was no restriction on the type of judgment that could be recognised, that the Cayman Court’s judgement could be properly recognised in Jersey.

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The information and opinion expressed in this briefing does not purport to be definitive or comprehensive and are not intended to provide professional advice. For specific advice, please contact Parslows, We are not responsible for, and do not accept any responsibility or liability in connection with, the content of this document or any reliance upon it

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