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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

A HK$1.5 billion trust, two squabbling beneficiaries and a trustee stuck in the middle
 Briefing 
Author
Peter Steen
Date
22 January 2015

A HK$1.5 billion trust, two squabbling beneficiaries and a trustee stuck in the middle

Trustees face a conundrum when deciding whether to submit to the jurisdiction of a foreign court.  This is a decision they typically have to take when their beneficiaries become embroiled in overseas divorce proceedings.

If they do submit to the jurisdiction of the overseas divorce court, an order made against them may be liable to recognition and enforcement against them.  If they choose not to, any order made against them will not be enforceable, but they will be unable to make submissions and advance the interests of their beneficiaries.

A prudent trustee will generally seek directions from its home court before deciding how to proceed.  Courts have historically tended to direct trustees not to submit to the jurisdiction of a foreign court.  In Re H Trust (2006), for example, the Jersey Court held that to do so would "confer an enforceable power upon the overseas court to act to the detriment of the beneficiaries of a trust".

The Jersey Courts have, however, published a judgment this month demonstrating that the appropriate course for trustees will depend on the facts.

In the matter of the Representation of HSBC International Trustees Limited concerned a Jersey law discretionary trust worth approximately HK$1.5 billion, where both the husband and wife in question were beneficiaries.  Ancillary relief proceedings between the husband and wife were underway in Hong Kong. The wife contended that the entirety of the trust assets were matrimonial property and successfully applied to join the Jersey trustee to the Hong Kong proceedings. 

The trustee decided to submit to the Hong Kong court's jurisdiction and sought the blessing of the Jersey Court for its decision.  The Jersey Court gave its approval, observing that, in this case:

  • both the husband and the wife were beneficiaries, and the trustee could therefore give effect to an order of the sort requested by the wife without contravening the terms of the trust and without the Hong Kong court needing to make an order varying the terms of the trust.
  • If the trustee did not submit, any order of the Hong Kong court would nevertheless be enforceable against trust assets situated in Hong Kong (about 70% of the trust assets were located there).
  • If the trustee did appear, it could put forward arguments and produce evidence to ensure that the interests of the other beneficiaries of the trust were fully considered and safeguarded.   

The decision demonstrates that a trustee's decision whether to submit to the jurisdiction of a foreign court will almost always depend upon the particular circumstances of the case.