Royal Court Provides Guidance To Jersey Trustees Involved In Foreign Divorce Proceedings

The judgments in the Representation of HSBC International Trustee Limited [2011] JRC 167 and [2014] JRC 254A address important questions of (i) when trustees of Jersey trusts should submit to the jurisdiction of foreign courts in matrimonial proceedings involving beneficiaries of Jersey trusts, (ii) the circumstances in which a Jersey trustee might make a distribution of assets from a Jersey trust to enable a beneficiary to meet his or her obligations to a former spouse pursuant to an order of a foreign matrimonial court and (iii) the circumstances in which an express power in a Jersey trust instrument to remove or exclude a beneficiary may properly be exercised.

Facts

The husband ("H") is a successful businessman in Hong Kong. The Trust was established in 1995 as a conventional discretionary trust governed by the law of Jersey. The Trust's main asset is a holding of 84.63% of the shares in the Bermuda holding company (the "Company") of the corporate group assembled by H over many years. 70% of the underlying assets of the holding company and its subsidiaries are held in Hong Kong or the People's Republic of China (the "PRC").

The Trustee is a BVI company with a branch in Jersey, and had delegated the administration of the Trust to HSBC Trustee (Hong Kong) Limited, which carries out the administration of the Trust from Hong Kong. H is the protector of the Trust and also retained the power to appoint and remove trustees. The beneficiaries of the Trust are H, his wife ("W"), their surviving daughter and any other lineal descendants of H.

The marriage between H and W broke down and in 2009 divorce proceedings were commenced, resulting in the High Court of Hong Kong granting a decree absolute during 2010.W sought a substantial order for ancillary relief, by reference to assets of the Trust.

Submission to foreign divorce proceedings

On 25 July 2011, the Hong Kong Court granted W's application for the Trustee to be joined as a party to the Hong Kong divorce proceedings. W sought orders from the Hong Kong Courts to the effect that the whole of the assets of the Trust should be regarded as being part of the matrimonial estate, available for distribution between H and W, or alternatively, that the Hong Kong Court should attribute all of the Trust assets to H as a financial resource of H.

The Trustee sought directions from the Royal Court of Jersey as to whether or not it should submit to the jurisdiction of the Hong Kong courts.

The Royal Court recognised in its judgment dated 25 August 2011 that W was not seeking an order by which the terms of the Trust would be altered or varied. On the contrary, the relief that she was seeking (a division and a distribution of the Trust assets as between H and W) was within the powers contained in the Trust deed. H and W were both beneficiaries of the Trust and therefore the Trustee could, in accordance with the terms of the Trust, give effect to an order of the sort requested by W in the Hong Kong divorce proceedings, without contravening (or indeed, varying) the terms of the Trust. The problem of what may happen if a foreign...