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

1
The latest of the Chancery v Family debate on
trusts and divorce

• STEP Bermuda February 2013
• Dawn Goodman and Sue Medder
• Withers LLP

2
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?

3
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?

4

• 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

5

• 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

6

• 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

7
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

8
Enforcement of variation (2)

• BUT! telescoping likely to be wrong now after
  decisions inVTB 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

9
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

10
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

11
Inherited wealth / pre-acquired property (1)

• Robson v Robson 2010 EWCA Civ 1171
• 21 year marriage and two children aged 20 and 17
• Hs 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

12
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 Hs father
• Held assets in Y Trust could be taken into
  account because H could be added as a beneficiary

13
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.

14
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)

15
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

16
A different line of attack? (1)

• Re AQ Revocable Trust 2011 WTLR 373
• Trust was a failed testamentary document and
  so invalid

17
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 settlors power of
  revocation for the purpose of restoring trust
  assets to the settlors estate to meet claims

18
A different line of attack? (3)

• Slutsker v Haron Investments Ltd 2012 EWHC 2539
  (Ch)
• Joint or community property claim
• (Claim failed because of husbands acquiescence,
  but pending appeal)

19
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 clauseCayman Islands - In the matter
  of the Trusts Deed dated 21 November 1985 and
  made by A.B. Snr. (2012)

20
What do you do when you get asked the bloody
question? (1)
21
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

22
What do you do when asked the bloody question?
(3)

• Seek Courts directions/guidance if at risk of
  not being believed

23
Risk of non-disclosure (1)

• BJ v MJ 2011 EWHC 2708 if the trustees refused
  to participate meaningfully or helpfully in the
  Courts enquiry, the Court could draw robust
  conclusions as to the likelihood of future
  benefit

24
Risk of non-disclosure (2)

• Trend of increasingly extensive disclosureEg
  Jersey - Perczynski v Perczynski and Others
  2012 JRC 084A
• Recent English authorities suggest the Courts
  increasingly aggressive approach to spouses who
  do not cooperate on disclosure about trusts
• Scot Young (2012)
• Thursfield (2012)

25
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

26
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

27
Consider drastic action! (2)

• Get advice
• Seek directions/guidance from Court