Drafting Trusts – Jersey says avoid these phrases!

 In Trusts

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Drafting Trusts in JerseyThe Jersey Court of Appeal’s recent criticism of certain jurisdictional phrases in trust deeds must be heeded by draftsmen and trustees alike.

Introduction

In the very recent case of Crociani v Crociani [2014] JCA 089 (judgment handed down on 7 April 2014) the Jersey Court of Appeal has come out with very strong advice to those who draft trust deeds. In particular, it advises that the use of phrases such as ‘exclusive jurisdiction’ and ‘forum for administration’ should be abandoned or greatly reduced as they “invite misconstruction” and may have serious unintended consequences. Given the vast legal stature of the members of the Court ignoring such advice would be extremely foolhardy.

Background

Crociani emanated from a family feud concerning which branch of a family should enjoy the fruits of certain substantial trusts. The matter before the Jersey courts was whether the substantive issues should be determined in Jersey or Mauritius. The Appellants claimed that Clause 12 of the trust deed required that all trust disputes had to be resolved in Mauritius but this interpretation was refuted by the Respondents, who were seeking to sue the Apellants in Jersey.

Clause 12

The relevant part of Clause 12 was as follows:

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‘[The] Trustees shall have the power…to resign as Trustees and to appoint a new trusts or new trustees outside the jurisdiction…and to declare that the trusts hereof shall be read and take effect according to the laws of the country of the residence or incorporation of such new Trustee or Trustees…and the construction and effect of each and every provision hereof shall be subject to the exclusive jurisdiction of and construed only according to the law of the said country which shall become the forum for administration of the trusts hereunder’ (emphasis added)

In 2012 the Appellants, who were then trustees, resigned and appointed a new trustee resident in Mauritius. They claimed that this change of trustees, combined with Clause 12, meant that henceforth all trust disputes (including those arising out of matters prior to 2012) had to be resolved in Mauritius.

The Issues

The questions before the court were:

1)      Whether the reference to ‘exclusive jurisdiction’ made Mauritius the only locus where disputes could be resolved (as argued by the Appellants) or whether it only referred to the governing law (as argued by the Respondents).

2)      Alternatively, whether the reference to ‘forum for administration’ made Mauritius the only locus where disputes could be resolved (as argued by the Appellants) or whether it only referred to the place where the trusts were to be administered (as argued by the Respondents).

The Decision

On the facts, the Court of Appeal favoured the views of the Respondent on both issues. As regards exclusive jurisdiction, the court held that while a litigation lawyer might believe that ‘jurisdiction’ referred to the location for resolving disputes; in the trust context, ‘jurisdiction’ could mean the scope of the law itself and that ‘exclusivity’ could also attach to the substantive law rather than the forum. Furthermore, the background facts showed that the Appellants’ construction was unlikely to have been intended by the draftsman.

After going through the background caselaw, and overruling a previous decision of the court (Koonam v Bender 2002/218), the court held there was a distinction between matters of administration and hostile trust litigation and here the reference to ‘forum for administration’ was only concerned with the former. Therefore, Clause 12 and the change of trustees did not affect where the substantive dispute should be heard.

Advice to Trust Draftsmen

Throughout the judgment the court’s disapproval of the phrases ‘exclusive jurisdiction’ and ‘forum for administration’ is clear but is best summed up in Martin JA’s statement that ‘to use the expressions “exclusive jurisdiction” and “forum for administration” in trust instruments is to invite misconstruction’. He states that the intention of the phrases are far from obvious and that in many cases the use of one (or both) of the phrases will have the unintended consequence of conferring exclusive jurisdiction for the resolution of disputes on an unintended jurisdiction.

The advice for trust draftsmen is clear. If the intention is to confer jurisdiction for resolving all disputes then this must done in a clear and obvious manner and the reference to ‘exclusive jurisdiction’ by itself is insufficient. Similarly if the intention is to tell the world (or more likely the taxman) that the trust is administered in a particular place a reference to ‘forum for administration’ is insufficient. It must be done in a clearer (and better) way than by use of this phrase.

Martin JA’s final words on this issue were:

‘In my view, it would be better if the expression “exclusive jurisdiction” were reserved for cases where it is genuinely intended to confer exclusive jurisdiction over all trust disputes on the courts of a particular country; and better if the expression “forum for administration” were abandoned altogether

Coming from one of the preeminent legal minds of our generation these are words which should echo in every draftsman’s mind and a draftsman who ignores this advice does so at his peril.

Warning for those Administering Trusts

The judgment in Crociani should also act as a warning to those administering trusts. Existing trust deeds should be examined carefully prior to appointing any new trustees because otherwise appointing a new trustee may well unwittingly change the forum for resolution of disputes to another jurisdiction. The facts in Crociani were sufficient to outweigh this conclusion in this case but a slight change of facts and the decision might (in accordance with Martin JA’s fears) result in the next case being decided the other way.

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