Arpettaz - Factors for Consideration in Applications for Beddoe Relief

The Royal Court of Jersey has recently provided fresh and useful guidance in relation to seeking approval for a decision to become involved in overseas litigation, and on related issues including questions concerning the role the trustee should play and in respect of disclosure and privilege.

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The Royal Court of Jersey has recently provided helpful guidance in relation to seeking approval for its decision to become involved in overseas litigation, and on related issues common in those situations, including questions concerning the role the trustee should play and in respect of disclosure and privilege.

Background

In the matter of the Arpettaz Settlement [2020] JRC 161 concerned an application by the Trustee of the Arpettaz Settlement (the Trust) to the Royal Court, seeking its directions in respect of how it should conduct itself in the context of litigation before the English High Court.

The Trust was established in 2011 by the settlor, a former chairman of an oil exploration company (the Company) and the original trustee. The beneficiaries comprised the First Respondent (the Principal Beneficiary) and immediate members of his family. By a letter of wishes, the settlor expressed the wish that the First Respondent should be regarded as the principal beneficiary. The original trustee and the Principal Beneficiary also entered into a deed of undertaking which provided that the settlor would provide a sum with the anticipated value of US$15m in consideration for the Principal Beneficiary working as Chief Executive Officer of the Company.

In 2013, the Second to Fifth Respondents (the English Claimants) issued proceedings against the settlor pursuant to which: (1) a worldwide freezing order was made against the settlor; and (2) it was held that the settlor had defrauded the English Claimants whilst he was at the Company. The settlor was ordered to pay US$299m plus costs.

The English Claimants were now seeking to enforce that judgment against the assets of the Trust and to join the Principal Beneficiary and the Trustee to the English proceedings. The principal relief sought by the Trustee was to submit to the jurisdiction of the English court and adopt a neutral position. Further directions were sought in relation to disclosure of certain documents.

Submitting to jurisdiction

The application by the Trustee was made under Article 51 of the Trusts (Jersey) Law 1984 (as amended) (the TJL), which provides that the Court may, if it thinks fit, make an order concerning the conduct of the trustee.

The Court noted that a decision to participate in foreign proceedings is plainly a “momentous” one (following the English case Public Trustee v Cooper), but that the general approach of the Court is “slightly more nuanced” than in other decisions. The court made the following helpful observations:

• It will only be in exceptional circumstances that the court will direct a trustee to participate in foreign proceedings which concerns the validity of a Jersey trust and where the outcome may be that most or all of the trust fund is recovered by a third party.

• The introduction of Article 9(4) of the TJL (which limits the recognition and enforcement of the judgements of a foreign court where the judgment has not been made in accordance with Jersey law) does not affect the general position that (a) if a trustee submits to the jurisdiction of a foreign court; and (b) subsequently applies to the Royal Court to bless a decision that has the indirect effect of applying that foreign judgment, the Royal Court is more likely to bless the decision if the Trustee submitted than if it did not.

• A relevant consideration is where the trust assets are located, as a foreign court is likely to have the power to enforce against assets within its jurisdiction (without the trustee being able to prevent such enforcement). Deciding factors in the Royal Court approving the decision of the Trustee to participate in the English proceedings in this case were that the Principal Beneficiary lived in the UK, the majority of the Trust assets were held by him (being a loan due to the Trustee) and the remainder by an English company and therefore an English judgment in respect of the Trust could readily be enforced by way a third party debt order against the Principal Beneficiary in respect of the debt owed by him.

What stance should a trustee adopt?

The Royal Court confirmed that where there were rival claimants to a beneficial interest in the assets of a Jersey trust, as in this case, the appropriate course is for a trustee to adopt a neutral stance. The Royal Court rejected a suggestion by the Principal Beneficiary, that certain steps should only be taken once the trustee had consulted with the Principal Beneficiary’s legal representative.

Disclosure

The Royal Court also provided helpful guidance on a Trustee’s disclosure obligations in these circumstances:

• Where rival parties have beneficial claims, until the determination of who the trust assets are held on trust for, a trustee should consider itself to be holding the assets on trust for those beneficiaries named under the trust deed.

• Frequently it is not necessary to ask the court for an order to disclose to beneficiaries. However, once a trustee does seek such an order, the court will exercise its own discretion with regard to what is disclosed.

• If the disclosure is a matter of “sufficient significance” it will be appropriate to seek for directions.

• Where advice has been received to benefit the trust as a whole (and not the trustee personally), and such advice is (or is intended to be) paid out of the trust assets, such advice will be privileged against third parties, but not as against the beneficiaries.

What about costs?

The Royal Court confirmed that if the costs of participating in proceedings were too high that alone could be a reason for a refusal to bless the trustee’s decision to take part.

The Royal Court was satisfied on balance in this case that the Trustee’s costs in and of itself should not bar the court from blessing the Trustee’s in principle decision. Those costs were estimated to be high (at c. £793,000), but would, even if the Trustee did not submit to the jurisdiction, still be still be substantial (at c.£410,000).

The Court did also order that the costs of the application in Jersey should be met from the assets of the Trust notwithstanding that they were disputed, on the basis that the trustee had acted in good faith and would be entitled to an indemnity in the ordinary course.

Comment

The Arpettaz Settlement provides a useful reminder of the approach the Royal Court will take and the various factors it will consider when deciding whether to approve Jersey trustees submitting to the jurisdiction of overseas courts and taking party in litigation. Questions of costs, enforceability (or its prevention) and disclosure (including privilege) will be considered. Whilst this case concerned what were effectively enforcement claims in respect of fraudulent activity linked to the source of the trust assets, the elements considered by the Court will be of general application for trustees facing the spectre of foreign proceedings of any kind.