Foreign Divorces – A Question on Implementation
In the matter of the D Settlement [2017] JRC061
A “momentous decision” case – trustee sought the court’s blessing of its decision to give effect to a decision of the Family Division of the English High Court in respect of acrimonious divorce proceedings.
The issue in the English divorce proceedings centred upon whether the wife (who was not a beneficiary of the trust) should receive a cash settlement, or whether she should receive a shareholding in the trust’s underlying company. The argument put forward by the husband (who was a beneficiary) was that damage would be done to the business if assets had to be realised speedily in order to fund a lump sum payment. The High Court ultimately awarded the wife a lump sum, together with a shareholding in the company and a shareholder’s agreement was drawn up to give effect to that decision and avoid damage to the business. Tax advice was obtained and restructuring was necessary. The trustee therefore sought the blessing of the Royal Court to put that into effect.
The approach of the Court where a trustee applies for approval of a momentous decision (i.e. a decision of real importance for the trust), is well established. It was first laid down in Re S Settlement [2001] JLR N 37 and was approved by the Court of Appeal in Re Otto Poon Trust [2015] (1) JLR N 31, Re Otto Poon Trust [2015] JCA 109. The Court must satisfy itself of three things:
(i) that the trustee’s decision has been formed in good faith;
(ii) that the decision is one which a reasonable trustee properly instructed could have reached; and
(iii) that the decision has not been vitiated by any actual or potential conflict of interest.
An additional factor in this case is that the wife is not a beneficiary of the Trust. As the appointment of the shares in the Company to the husband is to be made in the knowledge that he will then transfer those shares to the wife, the Court must clearly consider whether the exercise of the power would constitute a fraud on the power i.e. whether it has been made for the impermissible purpose of benefiting a non-beneficiary.
With reference to English law on the position the court concluded that “benefit” can be construed to include the benefit to the beneficiary of bringing an end to the divorce proceedings and thus it would not constitute a fraud on a power.
Unfortunately, the key English cases set out at Lewin on Trusts paragraph 29-294 (benefits to non objects) were not cited to the Royal Court. The key point is whether the husband beneficiary has free will whether to pay it to the wife at the moment he receives the distribution.
In this case, the relevant arrangements ordered in the High Court were implemented.
Lisa Says:- “This case dealt with the familiar ground of the Jersey Court sanctioning the implementation of foreign divorce Orders. The calculation was made more difficult in this instance, due to the requirement to give the wife a shareholding in an underlying company, as well as a lump sum, due to insufficiency of liquid assets. Interestingly, the case also deals with the question of whether it is a fraud on a power to make a distribution to a husband beneficiary when it is known he then intends to pay it to a non-beneficiary wife.
This is a topic Mark Renouf dealt with in the Spring of 2017 at our BCR Trusts breakfast. Unfortunately, the key English cases set out at Lewin on Trusts paragraph 29-294 (benefits to non objects) were not cited to the Royal Court. The key point is whether the husband beneficiary has free will whether to pay it to the wife at the moment he receives the distribution.”