Analysis
The settlement, a discretionary trust governed by the law of Jersey, was established on 18 July 2011 (the settlement). The settlor, then the chairman of an oil exploration company, originally settled £35,000. Subsequently, a further sum of $15m was settled by the settlor’s wife on 12 February 2012. The principal beneficiary, who was the chief executive officer of the oil company, and the immediate members of his family were the beneficiaries of the settlement. The second to fifth respondents (the English claimants) issued proceedings in the English High Court against the settlor, alleging that he had defrauded them, and a worldwide freezing order was made against him. The English High Court ordered that the settlor pay the English claimants the sum of $299m and they now sought to enforce that judgment against, inter alia, the trust assets of the settlement. The English claimants claimed a proprietary interest in the trust assets on the basis that they represented the traceable proceeds of funds misappropriated from them in breach of fiduciary duty by the settlor. The trustee accepted that it would be holding the trust assets as constructive trustee for the English claimants in the event that they succeeded in their proprietary claim and sought the directions of the court by a representation dated 17 March 2020.
The principal relief sought by the trustee was to obtain the court’s blessing of its wish to submit to the jurisdiction of the English High Court and to adopt a neutral position in those proceedings. The trustee wished to disclose, with the consent of the principal beneficiary (though without consultation with the other beneficiaries), three pieces of privileged legal advice in its possession notwithstanding a provision in the settlement prohibiting disclosure, except with the authority of all adult beneficiaries or an order of the court. The English claimants, who elected not to participate in the hearing of the representation, enquired as to whether or not the trustee was in receipt of any indemnity in respect to the settlement or its participation in the proceedings before the English High Court and an order was sought in relation to disclosure of the existence or absence of such an indemnity.
Held (making the directions sought):
As to the court’s approach to an application seeking its blessing for what was clearly a momentous decision to participate in foreign proceedings, it was necessary to be satisfied that the trustee had formed its view in good faith and that the view was reasonable and would not be vitiated by any actual or potential conflict of interest.
Ordinarily, questions relating to the validity of a trust governed by the law of Jersey should be determined by the Jersey court and only in exceptional circumstances should a direction be given to participate in foreign proceedings where the outcome may be that the trust assets were recovered by a third party. Exceptions would include, for example, where all the trust assets were located in the foreign jurisdiction and where it was in the interests of the beneficiaries to submit to that jurisdiction. In this case, the principal beneficiary and the trust assets, which had been loaned to him, were both within the jurisdiction of the English High Court.
The costs of participating in the proceedings were very high, though even in the absence of submission to the jurisdiction they were still high. On balance, however, the court was satisfied that the trustee had formed its opinion to participate in the proceedings in good faith and it was desirable to do so, having regard in particular to the legal advice, and that this opinion was reasonable and would not be vitiated by any actual or potential conflict of interest. Accordingly, the court was prepared to approve the trustee’s decision to participate in the proceedings and direct it to adopt a neutral position. As to costs, the trustee had an indemnity out of the trust assets of the settlement if the principal beneficiary was successful, and alternatively a right of indemnity under s31 of the Trustee Act 2000 if the English claimants were successful, in those proceedings.
As to the disclosure of privileged legal advice, there was uncertainty as a matter of law as to whether a trustee had the power to waive privilege without obtaining the consent of all beneficiaries. There was no clear decision on the point in either Jersey or England. Though it was probably unnecessary for the trustee in this case to obtain the consent of all adult beneficiaries, it was appropriate to seek the court’s direction given the significance of waiving privilege. Accordingly, whether as an exercise of its own discretion or pursuant to the three-stage test set out above, the court was prepared to authorise the trustee to waive privilege in the three pieces of legal advice in its possession and, with the same principles in mind, to disclose to the English claimants the existence and terms of any indemnity that the principal beneficiary or any other persons had provided to it in respect of either the settlement or the proceedings before the English High Court. The legal advice which the trustee had obtained, to the effect it was reasonable to have decided that it was appropriate to submit to the jurisdiction of the English High Court, and that it was reasonable and sensible for the trustee to take a neutral position in relation to those proceedings in order to assist the parties to resolve the dispute as to the ownership of the trust assets, was subject to a joint interest privilege on the basis that such advice was taken for the benefit of the beneficiaries of the settlement. The trustee was not obliged to make disclosure of its advice to the English claimants and, if it wished to do so, should make a further application to the Jersey court. The trustee’s costs of and incidental to these proceedings were ordered to be paid out of the trust assets on the trustee basis in accordance with Art 53 of the Trusts (Jersey) Law 1984
JUDGMENT THE DEPUTY BAILIFF: [1] By representation dated 17th March 2020 the Representor, (the Trustee), Trustee of the Arpettaz Settlement (the Trust) seeks the directions of the Court in respect of how it should conduct itself in the context of litigation extant before the English High Court. [2] We heard submissions in this matter on …Continue reading "Re Arpettaz Settlement [2021] WTLR 1171"