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Drafting Trusts – Jersey says avoid these phrases! Kevin Shanno n
The Jersey Court of Appeal’s recent crit icism of cert ain jurisdict ional phrases in t rust deeds must be heeded by draf t smen and t rust ees 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 draf t trust deeds. In particular, it advises that the use of phrases such as ‘exclusive jurisdiction’ and ‘f orum f or 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 f oolhardy.
Background Crociani emanated f rom a f amily f eud concerning which branch of a f amily should enjoy the f ruits of certain substantial trusts. T he matter bef ore the Jersey courts was whether the substantive issues should be determined in Jersey or Mauritius. T he Appellants claimed that Clause 12 of the trust deed required that all trust disputes had to be resolved in Mauritius but this interpretation was ref uted by the Respondents, who were seeking to sue the Apellants in Jersey.
Clause 12 T he relevant part of Clause 12 was as f ollows: ‘[T he] 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 ef f ect according to the laws of the country of the residence or incorporation of such new Trustee or Trustees…and the construction and ef f ect 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. T hey claimed that this change of trustees, combined with Clause 12, meant that hencef orth all trust disputes (including those arising out of matters prior to 2012) had to be resolved in Mauritius.
The Issues T he questions bef ore the court were: 1) Whether the ref erence to ‘exclusive jurisdiction’ made Mauritius the only locus where disputes could be resolved (as argued by the Appellants) or whether it only ref erred to the governing law (as argued by the Respondents).
2) Alternatively, whether the ref erence to ‘f orum f or administration’ made Mauritius the only locus where disputes could be resolved (as argued by the Appellants) or whether it only ref erred to the place where the trusts were to be administered (as argued by the Respondents).
The Decision On the f acts, the Court of Appeal f avoured the views of the Respondent on both issues. As regards exclusive jurisdiction, the court held that while a litigation lawyer might believe that ‘jurisdiction’ ref erred to the location f or 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 f orum. Furthermore, the background f acts showed that the Appellants’ construction was unlikely to have been intended by the draf tsman. Af ter 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 ref erence to ‘f orum f or administration’ was only concerned with the f ormer. T heref ore, Clause 12 and the change of trustees did not af f ect where the substantive dispute should be heard.
Advice to Trust Draf tsmen T hroughout the judgment the court’s disapproval of the phrases ‘exclusive jurisdiction’ and ‘f orum f or 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 f ar f rom obvious and that in many cases the use of one (or both) of the phrases will have the unintended consequence of conf erring exclusive jurisdiction f or the resolution of disputes on an unintended jurisdiction. T he advice f or trust draf tsmen is clear. If the intention is to conf er jurisdiction f or resolving all disputes then this must done in a clear and obvious manner and the ref erence to ‘exclusive jurisdiction’ by itself is insuf f icient. Similarly if the intention is to tell the world (or more likely the taxman) that the trust is administered in a particular place a ref erence to ‘f orum f or administration’ is insuf f icient. It must be done in a clearer (and better) way than by use of this phrase. Martin JA’s f inal words on this issue were: ‘In my view, it would be better if the expression “exclusive jurisdiction” were reserved f or cases where it is genuinely intended to conf er 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 f rom one of the preeminent legal minds of our generation these are words which should echo in every draf tsman’s mind and a draf tsman who ignores this advice does so at his peril.
Warning f or those Administering Trusts T he judgment in Crociani should also act as a warning to those administering trusts. Existing trust deeds should be examined caref ully prior to appointing any new trustees because otherwise appointing a new trustee may well unwittingly change the f orum f or resolution of disputes to another jurisdiction. T he f acts in Crociani were suf f icient to outweigh this conclusion in this case but a slight change of f acts and the decision might (in accordance with Martin JA’s f ears) result in the next case being decided the other way.