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  1. Wealth
  2. Tax
June 1, 2008

Theme And Variations

By Spear's

Over recent years, London has become an increasingly attractive place for very wealthy couples, many of whom lead international lives, to establish their homes here.

It has also become the divorce capital of the world for aspiring wives. The effect of the Court of Appeal’s decision in the Charman divorce case is that the courts will start from the presumption that the marital assets are to be divided equally and will only depart from that presumption if there are good reasons for doing so. This might lead to an increasing number of concerned husbands seeking to protect their assets in the event of divorce.

Upon, or after a divorce, the English family courts may make any one or more of various orders, as they think appropriate. These include an order varying, for the benefit of the couple and the children of the family or either or any of them, any pre-nuptial or post-nuptial settlement made on the couple. In deciding whether to make any of these orders, the courts are required to have regard to all the circumstances of the case, giving first consideration to the welfare of any child of the family who hasn’t reached the age of eighteen. In particular, the courts are required to have regard to proscribed matters, which include the income, earning capacity, property and other financial resources that each spouse has, or is likely to have, in the foreseeable future.

If a wife makes an application for a variation of a nuptial settlement, she should serve the trustees with notice of the application. The service of notice alone does not make the trustees parties to the proceedings. The wife should consider joining all the trustees as parties to the proceedings to ensure that the trustees comply with any order varying the terms of a settlement (a ‘variation order’).

In the case of T v. T (joinder of third parties) [1996], in which my firm acted for the wife, the judge refused the application of the Jersey trustees to set aside an order joining them as parties to the proceedings. He said that although there were assets within the jurisdiction against which the wife might enforce an order in her favour, experience showed it could be difficult to enforce claims against trustees who were not parties to the proceedings. The extent of the husband’s control over the Jersey trust fund and the question of enforcement of an order were crucial matters for the substantive proceedings, which would be greatly facilitated by the trustees remaining parties to the proceedings.

If the trust is offshore, the wife may encounter difficulties enforcing a variation order. If the trust is not governed by English law, or if the administration of the trust takes place outside the jurisdiction of the law, the trustees may find it difficult to submit to the jurisdiction of the English courts without obtaining an order authorising them to do so from the courts in the jurisdiction to which the trust is subject.

If the trustees have not submitted to the jurisdiction of the English courts, a variation order may still be made. However, the trustees may instigate proceedings in the jurisdiction of the law of the trust for directions as to whether they should comply with the order in the event that they consider that compliance with the order will leave them in a difficult position. If a conflict of laws might arise, it’s best to take advice from an expert foreign lawyer in the relevant jurisdiction. The extent of the enforcement difficulties will differ depending on the jurisdiction to which the trust is subject. Each jurisdiction will have different laws. Enforcement might be more difficult in a jurisdiction such as Liechtenstein than in other tax havens.

In the Charman divorce case, the husband (Paul, the Bermuda-based insurance tycoon) instigated divorce proceedings in Bermuda after the wife had started such proceedings in England. Her husband applied for the English proceedings to be put on hold so that the Bermudan proceedings could go ahead. He argued that his wife would inevitably apply for a variation of a post-nuptial settlement governed by Bermudan law and that unless the Bermudan corporate trustee voluntarily participated in any application made to the English court, any such order made by the English court was unlikely to be enforceable in Bermuda.

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The wife’s response was that she did not intend to apply for a variation but to contend that the trust assets constituted a resource of the husband that should be taken into account in calculating the lump sum she sought. The judge concluded that ‘the case is as English as Tunbridge Wells.’ In Bermuda, the position regarding the enforcement of a variation order is that if the trustees of a trust governed by the law of Bermuda participate in English matrimonial proceedings and a variation order is made in the form of an order requiring the trustees to raise out of the trust assets and pay to the wife a fixed capital sum, the wife could register the order as a judgment subject to the question of whether the trustees would be able to have the registration set aside. They would be able to do this if they could satisfy the Bermudan court that the English court ‘had no jurisdiction in the circumstances of the case’.

The English court will be deemed to have had jurisdiction if its jurisdiction is recognised by the law of Bermuda. If the trustees voluntarily participated in the English proceedings, the English court would, in common law, be recognised by the Bermudan court as having jurisdiction. Accordingly, there would be no basis to set the order aside. Once the order had been registered, it could be enforced by execution as if it were a judgment of the Supreme Court of Bermuda.

If the trustees did not participate in the English proceedings, it would be more difficult for the wife to enforce any variation order, as the Bermudan court would not be satisfied that the order met the criteria for recognition of an order under statutory and common law. The order would not be recognised. In consequence, it could not successfully be registered, as it would be liable to be set aside on the grounds that the English court did not have any jurisdiction.

Other parts of the Carribean operate in a similar fashion. In Anguilla, on an application for registration of a variation order, the High Court of Anguilla shall order the order to be registered, provided that it has been wholly satisfied and it could not be enforced in England.

A registered order shall be of the same force and effect as if the order had originally been made in the Anguillan court and made on the date of registration. The order will be registered if the English court is deemed to have had jurisdiction (which will be the case if the trustees voluntarily participated in the English proceedings). However, the registered order shall be set aside if the Anguillan court is satisfied that: (a) the English court had no jurisdiction in the circumstances of the case; (b) the trustee did not (notwithstanding that the process may have been duly served on them in accordance with English law) receive notice of the proceedings in sufficient time to enable him to defend the proceedings and did not appear; or (c) the enforcement of the order would be contrary to public policy in Anguilla.

To take another example, the British Virgin Islands (BVI) court would treat any variation order made by the English court in the form of an order requiring the trustees to pay to the wife a fixed sum from the trust assets as a cause of action in itself. This would mean that no re-trial of the issues would be necessary provided the following conditions are satisfied that the English court must have had the jurisdiction according to BVI law; recognition or enforcement of the order in the BVI would not be contrary to public policy; and the English proceedings were not contrary to natural justice. The English order would be treated as a contract containing an implied promise to pay the lump sum and the wife would be able to issue proceedings alleging breach of that contract.

Legislative change has taken place in Jersey, with one of its principal aims being to extend the scope of protection provided to Jersey law trusts from attack. This arose as a result of several recent decisions of the English courts criticising Jersey law trusts. This includes the case of Minwalla in which the judge declared the Jersey trust to be ‘a sham’. In the Jersey enforcement proceedings, the court stated that ‘as a matter of generality, we would regard an assumption of jurisdiction by a foreign court to declare a Jersey trust a sham to be exorbitant and we would be reluctant to enforce any judgment based upon such an assumption’. Other jurisdictions, including the Cayman Islands, have followed Jersey, although to different degrees. However, there is some doubt as to how effective this new legislation will be.

Emma Sparshott (admitted as a solicitor in the BVI) assisted in the preparation of this article.

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