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The latest of the Chancery v Family debate on trusts and divorce

STEP Bermuda – February 2013

Dawn Goodman and Sue Medder

Withers LLP

Setting the scene

• The White v White revolution - the ‘yardstick of equality’

• Trusts

• part of the assets available for division to satisfy the ‘yardstick of

equality’

• Trustees

• joined to proceedings?

• disclosure obligations?

• assisting the Court?

The methods of attack (1)

• Variation – Ante and post nuptial settlements - Matrimonial

Causes Act 1973 s 24(1)(c):

‘an order varying for the benefit of the parties any ante-nuptial

or post-nuptial settlement (including such a settlement made by

will or codicil) made on the parties to the marriage, other than

one in the form of a pension arrangement’

• Connection between the settlement and the marriage?

• Variation (continued)

• C v C (Ancillary Relief – Nuptial Settlement) [2004] EWCA Civ

1030

• The right to apply for variation under the MCA 1973 s 24(1)(c)

derived not from the settlement but from the matrimonial

regime of the jurisdiction that dissolved the marriage

• The fact that the wife was a joint protector was influential in

the Court of Appeal concluding that the settlement was a

nuptial settlement, even though neither husband nor wife

remained in the beneficial class

• Variation (continued)

• BJ v MJ [2011] EWHC 2708

• Two trusts set up at same time during the marriage – H, W

and son beneficiaries of the first, only grandchildren

beneficiaries of the second

• Trust held interests in interlocking companies

• Both trusts were held nuptial settlements and so trustees

ordered to pay W assets from second trust for the

grandchildren

• Variation (continued)

• Isle of Man - D v D and M Ltd (67/2008)

• Identical provision to s24(1)(c) of the MCA 1973

• Nuptial character established because the structure supported

the family even though trust pre-dated the marriage

Enforcement of variation (1)

• Hope v Krejci [2012] EWHC 1780

• Court had the power to ‘telescope’; to order the transfer to W of English

assets held by an offshore trust through an offshore company

• Power to ‘travel right down the lift-shaft from top floor to the basement,

without having to stop at any floor in between’

• No piercing the corporate veil/finding of ‘impropriety’ needed

Enforcement of variation (2)

• BUT! ‘telescoping’ likely to be wrong now after decisions in

VTB Capital PLC v Nutritek International Corp and others [2013] UKSC

5 Supreme Court (but not wholly definitive) and Petrodel Resources Ltd

& Ors v Prest & Ors [2012] EWCA Civ 1395

• N.B. Prest currently pending appeal next month to the Supreme Court

The methods of attack (2)

• Trusts as a resource (s.25(2)(a) Matrimonial Causes Act 1973)

‘if the husband were to request the trustee to advance the

whole (or part) of the capital of the trust to him would the trustee

be likely to do so?’

Charman No 1 [2005] EWCA Civ 1606

Trust Assets a Resource?

• Nature of assets?

• Inherited Wealth?

‘The nature and source of the asset may well be a good reason

for departing from equality within the sharing principle’

Robson v Robson [2010] EWCA CIV 1171

Inherited wealth / pre-acquired property (1)

• Robson v Robson [2010] EWCA Civ 1171

• 21 year marriage and two children aged 20 and 17

• H’s capital assets mostly inherited pre-marriage valued at £22.3

million (included Oxfordshire stately home and estate)

• Extravagant lifestyle

• ‘Dynastic plan’ argument rejected as assets had funded lifestyle

• W received £7m

Inherited wealth / pre-acquired property (2)

• Whaley v Whaley [2011] EWCA Civ 617

• 20 year marriage, 4 children

• Assets £10 million

• 7 million held in two trusts Y & F Trusts

• H beneficiary of F trust but not a beneficiary of Y Trust

(revocably excluded)

• Trusts settled by H’s father

• Held assets in Y Trust could be taken into account because H

could be added as a beneficiary

Contrast more Chancery approach to treating trust assets as a resource

• G v G [2012] EWHC 167 Fam

‘In my judgment, the cases show that in carrying out the s25 exercise,

the Family court is engaged in considering what is likely to happen if

the relevant trustees act properly in all the circumstances of the case,

as trustees of their trusts, and so in applying trust law and practice,

which introduce the criterion of fairness judged against a different set

of factors and rationales.’

Contrast more Chancery approach to treating trust assets as a resource (continued)

• G v G [2012] EWHC 167 Fam

‘Charman (No 4) confirms, in line with the approach in the much

earlier case of Thomas v Thomas [1995] 2 FLR 668 , that when doing

this the court (a) is taking a view, (b) is not seeking to put pressure on

trustees, and (c) is bringing to its task “a judicious mixture of worldly

realism and of respect for the legal effect of trusts, the legal duties of

trustees and, in the case of offshore trusts, the jurisdiction of offshore

courts”’

(Charles J at para 89)

The methods of attack (3)

• Sham

• There must be a common intention as between the trustees

and the settlors that ‘the arrangement is otherwise than as

set out in the trust deed’ – Munby J

• Family Division jurisdiction to decide allegations of sham

and corresponding proprietary claims against third parties:

• Goldstone v Goldstone [2011] EWCA Civ 39

• Kremen v Agrest [2011] EWCA Civ 232

A different line of attack? (1)

• Re AQ Revocable Trust [2011] WTLR 373:

‘Trust’ was a failed testamentary document and so invalid

A different line of attack? (2)

• Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co

(Cayman) Ltd [2011] UKPC 17:

• a receiver appointed over the settlor’s power of revocation for the

purpose of restoring trust assets to the settlor’s estate to meet

claims

A different line of attack? (3)

• Slutsker v Haron Investments Ltd [2012] EWHC 2539 (Ch)

• Joint or community property claim

(Claim failed because of husband’s acquiescence, but pending

appeal)

Possible risks of an attack

• Cannot claim rights as beneficiary while attacking:

Jersey - In the matter of Re M and L Trusts (2003)

• No contest clause:

Cayman Islands - In the matter of the Trusts Deed dated 21

November 1985 and made by A.B. Snr. (2012)

What do you do when you get asked ‘the bloody question’? (1)

What do you do when asked ‘the bloody question’? (2)

• Whaley v Whaley [2011] EWCA Civ 617

• Importance of providing a reasoned and reasonable response

• Trustees’ letter disregarded by Family Court and Court of Appeal

• RK v RK [2011] EWHC 3910 (Fam)

• Trustees believed but Court ordered greater sum on assumption

that they would assist

What do you do when asked ‘the bloody question’? (3)

• Seek Court’s directions/guidance if at risk of not being believed

Risk of non-disclosure (1)

• BJ v MJ [2011] EWHC 2708: if the trustees refused to

participate meaningfully or helpfully in the Court’s enquiry, the

Court could draw robust conclusions as to the likelihood of

future benefit

Risk of non-disclosure (2)

• Trend of increasingly extensive disclosure

Eg Jersey - Perczynski v Perczynski and Others [2012] JRC

084A

• Recent English authorities suggest the Court’s increasingly

aggressive approach to spouses who do not cooperate on

disclosure about trusts

• Scot Young (2012)

• Thursfield (2012)

Risk of non-disclosure (3)

• Perils to beneficiaries being forced to disclose

Jersey - In the Matter of the M and Other Trusts [2012] JRC 127

Consider drastic action! (1)

• Possibly:

• Remove beneficiary from key roles in the trust

• Change governing law of trust

• Exclude beneficiary from beneficial class

• Decline to provide copy trust documents to beneficiaries - insist on

inspection

Consider drastic action! (2)

• Get advice

• Seek directions/guidance from Court