Asset Protection Litigation

Introduction

The Royal Court of Jersey recently heard a most intriguing case, which will be of interest to all those in lifetime estate planning.

The case in question 1 concerned a Jersey proper law trust known as Key Trust (“Key”). In this case the Egyptian beneficiaries of Key had commenced proceedings in Egypt, challenging the validity of the trust under Egyptian law. The trustees applied to the Royal Court of Jersey for directions over the administration of the trust and, particularly the propriety of continuing to pay distributions to beneficiaries.

The principal difficulty was that if the Egyptian Plaintiffs had been successful in that forum then they may have issued proceedings in Jersey, where the trust assets where situated. In these circumstances the Jersey Court convened the Plaintiffs and, following limited discovery, the Egyptian Plaintiffs decided to issue proceedings in Jersey, challenging the validity of the trust under Jersey Law, as distinct from their initial claim of challenging the validity of the trust under Egyptian Law.

The Jersey trustees were, therefore, faced with two sets of proceedings in different jurisdictions on different grounds, with the possibility of the Jersey proceedings being concluded in favour of the trust but the Plaintiffs then bringing new proceedings in Jersey in reliance upon a prospective favourable Egyptian judgement.

Findings

The Jersey Court confirmed the findings in an earlier case 2 which gave recognition to the concept of Henderson Estoppel, which in summary states that if later litigation is brought on the grounds which could have been raised in the previous litigation, such grounds will not be permitted. Furthermore, the Court held: “It would clearly be unacceptable for the Plaintiffs to litigate some issues in Jersey and some in Egypt, and then seek to bring a new claim in Jersey on the back of a successful Egyptian claim at a later stage”.

In summary, the Courts gave the Plaintiffs notice that if they did try to bring an action in Jersey at a later date based on Egyptian claims, which could have been brought to the Jersey Court earlier, they would find it very difficult to persuade the Court "that such a claim was not an abuse of process".

Commentary

The Key Trust case is a very interesting outcome in that it illustrates the way Jersey trustees can use the Court’s jurisdiction to give directions to control hostile litigation. The thrust of the Court’s efforts for the Key case was to ensure that the Jersey Court dealt with the matters at issue. This case illustrates one way that trustees can use the Court’s jurisdiction to ensure that their home jurisdiction, which may well be the most favourable, is the one in which issues as to validity of Jersey trusts is heard. It should be noted in this case that the Trust’s assets were in Jersey and accordingly only a Jersey judgement could remove them from the trust. This again illustrates the well-known litigation maxim of “always following the money” is the best way to seek to gain control of trustee assets in hostile litigation.

It could be argued, that an interesting result of this judgement would be to indicate that if any adverse party is challenging a Jersey trust, and the assets owned by the trust are held in Jersey, then they would be well advised to bring all their principal litigation in Jersey rather than in some foreign jurisdiction. For example, when the dicta of the Key Trust case is read, it is clear that the Court's attitude is that if the validity of a Jersey trust is being challenged under some foreign law, then that challenge should be heard in front of the Royal Court of Jersey, which is perhaps better equipped to decide on these issues.

March 2004

1 UBS Trustees (Jersey) Limited v Ismail Judgement dated 12 August 2003

2 Ernest Farley and Sons Limited v Takilla Limited (1992)

This document is a brief guide to subject matter covered, and is not intended to be a detailed or comprehensive statement of the law. It should not be treated as legal advice. Clients are urged to take professional legal and other appropriate advice before pursuing any particular course of action. For more detailed information and professional advice on your own situation please contact Edmund Bendelow, Michael Blackie, Frank Gee or Julie Coward at Basel Trust Corporation.

Basel Trust Corporation (Channel Islands) Limited
PO Box 484
3 Old Street
St. Helier
Jersey
JE4 5SS

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