Lord Justice Lawrence Collins:
I Introduction
1. This is an appeal from a judgment of Morgan J dated February 18,
2008, in which he declared that the court had no jurisdiction in a claim
by the three claimants against their mother, the first defendant, arising
out of a trust created by their father. The family is Spanish and the trust
is expressed to be governed by English law. The application involved the
interpretation and application of Article 5(6) of the Council Regulation
(EC) 44/2001 ("the Judgments Regulation") which, so far as material, is
in these terms:
"A person domiciled in a Member State may, in another Member State, be
sued:
…
(6) as settlor, trustee or beneficiary of a trust created by the operation of
a statute, or by a written instrument, or created orally and evidenced in
writing, in the courts of the Member State in which the trust is domiciled;
…. "
2. The appeal raises an important question of principle on the
ascertainment of the domicile of a trust for the purposes of Article 5(6),
and also questions on the interpretation and the application of the
expression "sued …as … trustee or beneficiary" in that Article.
3. The background to this appeal is that on June 11, 1984 a declaration of
trust was made by Fidei Trust Co Ltd, a Jersey corporation. The principal
asset of the trust was certain shares in Gonzalez Byass & Co Ltd, a
corporation incorporated under the law of the Cayman Islands. Gonzalez
Byass is the well known producer of sherry.
4. The effective settlor of the declaration of trust was Alfredo Gonzalez
Diez ("the Settlor"), who died on September 16, 1991, intestate and
domiciled in Spain.
5. Encarnación Gómez-Monche Vives, the first defendant and respondent
on this appeal, is the widow of the Settlor. She is domiciled in Spain
for the purposes of the Judgments Regulation. The Settlor and the first
defendant had five children, all sons, and the claimants (the appellants
on this appeal), José González Gómez, Pablo González Gómez, and Álvaro
González Gómez, are three of those sons. The claimants live in Spain,
Portugal and the United States of America, respectively
6. On September 16, 1999, GB Investment Holdings Ltd, a BVI
corporation, the second defendant and Ansbacher Trustees (Jersey) Ltd
(then called St Helier Trust Company Ltd), a Jersey corporation, the fourth
defendant were appointed trustees in place of Fidei Trust Co Ltd (which
no longer exists). On December 23, 2002, WalPart Trust Registered, a
Liechtenstein corporation, the third defendant, was appointed trustee in
place of Ansbacher Trustees (Jersey) Ltd. Consequently from December
23, 2002, the trustees have been GB Investment Holdings Ltd and
WalPart Trust Registered.
7. The Trust is administered in Liechtenstein. All of the directors of the
third defendant are resident in Liechtenstein, and it is the sole corporate
director of the second defendant. All decisions relating to the Trust are
taken in Liechtenstein, and all of the Trust's bank account and accounting
books are located in Liechtenstein.
II The terms of the Trust
8. The declaration of trust recites that at the direction of the Settlor
6,000 ordinary shares in Gonzalez Byass & Co Ltd, a Cayman Islands
corporation, the holding company of the well-known sherry producer,
were transferred into the name of the Trustee (then, as I have said, Fidei
Trust Co Ltd) to hold the same on the trusts of the declaration of trust.
9. The material terms of the declaration of trust are the following:
Clause 1
"In this Deed the following words shall have the following meanings:–
1.1 Beneficiaries: those persons resident outside the United Kingdom who
are permitted by Article 28(B) of the Articles of Association of [Gonzalez
Byass & Co Ltd] to hold Ordinary Shares in [Gonzalez Byass & Co Ltd].
1.2 Trust Fund: means the Shares, any further property added to these
trusts, all income and capital gains of such Shares and other property and
all property from time to time representing the same.
1.3 The Trust Period: the period from the date hereof until the death of
the survivor of the Settlor and his wife.
1.4 The Appointor: any person or persons who shall be appointed as the
Appointor revocably or irrevocably in writing by the Settlor (or his wife if
he is incapacitated) or by his widow …."
Clause 2
"The proper law of this Declaration of Trust shall be the law of England."
Clause 3
"3.1 The Trustee shall not sell dispose of grant any security over transfer
appropriate to a beneficiary or otherwise deal with the Shares otherwise
than in accordance with Clause 4 below.
…"
Clause 4
"4.1 The Trustee shall hold the Trust Fund upon trust to pay or apply the
same to or for the benefit of any one or more of the Beneficiaries in such
shares and proportions (if more than one) and upon such trusts (if any)
as the Settlor shall in his absolute discretion determine.
4.2 At the end of the Trust Period the Trustee shall hold any balance of
the Trust Fund remaining subject to these trusts upon trust for the benefit
of any one or more of the Beneficiaries in such shares and proportions (if
more than one) … as the Appointor shall appoint within two years of the
end of the Trust Period.
4.3 Subject to any appointment under Clause 4.2 above the Trustee shall
at the end of the aforementioned two year period hold any balance of the
Trust Fund remaining subject to these trusts upon trust for such of the
sons of the Settlor as shall be living at the end of such two year period
and if more than one in equal shares absolutely.
4.4 In accordance with Settlor's instructions the Trustee may during the
period of twenty-one years from the date of this Deed accumulate any
income arising under the trusts hereof and invest the same …."
Clause 6
"The Settlor … or his widow after his death shall have the power to
remove any trustee hereof and to appoint new or additional trustees
hereof."
10. Article 28(B) of the then Articles of Association of Gonzalez Byass
& Co Ltd identified the following persons: "Any lineal descendant (both
male and female) of any male whose surname is Gonzalez Gordon …." The
effect is to prevent shares being transferred outside the descendants of
the two founding families of the Gonzalez Byass business.
11. The broad effect of the trust is said by the claimants to be as follows:
(1) during the Trust Period, the declaration of trust gave the Settlor (but
not the trustees) a power of appointment, in the form of a discretion
to determine to which (or for the benefit of which) of the Beneficiaries
the trustees should pay or apply the trust fund, as to both capital and
income; (2) the Settlor during his lifetime never exercised his power
of appointment as regards capital and so the trustees were bound to
retain the trust property during the Trust Period; (3) as to income, the
Settlor during his lifetime never exercised his discretion, but the trustees
could accumulate income for 21 years (Law of Property Act 1925, section
164 (as amended by Perpetuities and Accumulations Act 1964, section
13 would have prohibited a longer period), i.e. to June 11, 2005) "[i]n
accordance with Settlor's instructions" under clause 4.4; (4) any income
in respect of which the Settlor did not exercise his discretion during his
lifetime is therefore held on resulting trust for the settlor or his estate at
least from the end of the 21 years (i.e. from June 11, 2005) and – if the
declaration of trust means that there could be no accumulation unless he
gave an express instruction – beforehand also.
12. Consequently, the claimants say that income subject to the resulting
trust which arose after the death of the Settlor (December 16, 1991)
therefore fell into his estate. Since he died intestate and domiciled in
Spain, it went according to the Spanish law of intestacy. Spanish law gives
one-third of the income to the first defendant and the rest of the income
to the settlor's children (the claimants and their two brothers). But if any
of the shares settled were acquired during the marriage otherwise than
by inheritance, they were assets within the matrimonial property regime
applying to the Settlor and the first defendant; the first defendant would
then, on the death of the Settlor, have become entitled to half of those
shares and therefore to the income from that half, as well as to her one-
third share of the income from the other half, making a total of two-thirds
of the income of those shares. Consequently, the claimants concede that
the first defendant has been entitled to one-third of the income, from
June 11, 2005 and perhaps earlier.
13. According to the claimants, when clause 4.2 provides that the fund
is to be distributed at the end of the Trust Period in accordance with
any appointment made by the Appointor within two years of the end of
the Trust Period, it is not clear whether it is two years before the end of
the period or two years afterwards. In default of appointment, the trust
property goes to the Settlor's sons living at the end of the Trust Period.
The first defendant was not entitled to be paid all the income but only
some of it; and was entitled to no capital at all.
III Subsequent developments
14. The claimants became concerned as to how the Trust was being
administered, and claim that certain money and capital had been paid to
the first defendant, which they say should have been kept in the Trust
and ultimately paid (in whole or in part) to them and their brothers. The
particular matters about which they complain are these.
15. On May 27, 1997 the first defendant purported to appoint herself as
Appointor.
16. By a deed of appointment dated May 16, 2001 between the then
trustees and the first defendant (who was referred to in the deed as
"the Appointee") the trustees appointed and declared that trust assets
amounting to 6,654,648 Spanish pesetas (about 40,000 euros) be held
on trust for the first defendant absolutely, and be transferred to her or
as she should direct. Recital (D) of the deed of appointment stated that
the first defendant was one of the Beneficiaries of the Trust. Recital (E)
stated that the trustees wished to exercise the powers of appointment
and advancement of capital said to be conferred upon them by clause 4.1
of the Trust in order to appoint the fund to the first defendant.
17. On April 28, 2003 the then trustees resolved to distribute €435,000
to an account with Citibank Jersey, connected with the first defendant.
The resolution referred to earlier deeds of appointment (in the plural) and
to the deed of May 16, 2001 in particular. The appointment made by the
resolution of April 28, 2003 was expressed to be on the same conditions
and with the benefit of the same covenants from the first defendant as
appointee as set out in the deed of May 16, 2001. The resolution contains
a covenant by the first defendant which refers to her being the Appointor
under the declaration of trust.
18. The claimants say that the first defendant has received about 4.6
million euros from the income of the Trust, namely 3 million euros in
dividends and 1.6 million in bonus.
IV The proceedings
19. In October 2006 the claimants sued the third defendant in
Liechtenstein for information. In May 2007 the Liechtenstein court of
first instance granted the claimants relief, and in November 2007 the
Liechtenstein appellate court dismissed an appeal. There is a second set
of proceedings there against the second defendant, in which a challenge
to the jursidiction of the Lichtenstein court was made but failed. This court
was told there were other proceedings in Spain, but was not given any
details of them.
20. On June 26, 2007 the claimants issued the claim form in this action,
and it was served on the first defendant in Spain.
21. On October 18, 2007, the first defendant applied in England for a
declaration that the court did not have jurisdiction or, alternatively, should
not exercise its jurisdiction, to try the claim. The grounds put forward
in the application were that the court did not have jurisdiction over the
first defendant under the Judgments Regulation, alternatively because
Liechtenstein was a more appropriate forum in which to hear this claim.
22. On February 18, 2008 Morgan J declared, pursuant to CPR rule 11(1),
that the court did not have jurisdiction to try the claimants' claim against
the respondent, and ordered that the claim form and service of it in these
proceedings be set aside as against the first defendant. He also decided
that, had it been relevant, he would not have had power to stay the
proceedings on forum non conveniens grounds. Morgan J. granted the
claimants permission to appeal on the jurisdiction issue alone.
23. These proceedings were not served on the second, third and fourth
defendants, and shortly before the claim form was due to expire, the
claimants sought an extension of time to serve them. This court was
told that this application is opposed and has yet to be determined.
They were therefore not parties to the application before Morgan J and
consequently are not represented on this appeal. It is not at all clear why
the proceedings were not pursued more vigorously against the trustees.
They are respectively BVI, Liechtenstein and Jersey corporations. By CPR
6.20(11) the English court may assume jurisdiction where a claim is made
for any remedy which might be obtained in proceedings to execute the
trusts of a written instrument where (a) the trusts ought to be executed
according to English law; and (b) the person on whom the claim form
is to be served is a trustee of the trusts. Subject to any argument on
forum conveniens, there is no possible doubt about the jurisdiction of the
English court to determine claims against the trustees for unauthorised
distributions.
V The claims
24. The claim form identifies the defendant as being "beneficially
interested in" the trusts of the declaration of trust. The particulars of
claim plead that on May 27, 1997 the first defendant purported to appoint
herself as Appointor, as defined in clause 1.4 of the declaration of trust,
and that it was not open to the first defendant to so appoint herself.
25. The particulars of claim plead that the Settlor never made any
determination under clause 4.1 of the declaration of trust. Accordingly
the effect of the declaration of trust is that the Trust Period will end on
the death of the first defendant, and until the expiry of two years after
her death or, alternatively, until her death, the trustee was obliged to
accumulate the income of the trust fund arising before June 11, 2005;
alternatively, the trustee was obliged to accumulate the income of the
trust fund arising before June 11, 2005 in so far as the Settlor so directed
and the remainder became held on resulting trust. In either case, the
income of the trust fund arising on or after June 11, 2005 became held
on that resulting trust; and the trustee was and is obliged to retain the
capital of the trust fund; and on the distribution date, the trust fund will
be held on trust as the Appointor may appoint within two years after the
termination of the Trust Period or alternatively as the Appointor may have
appointed within two years beforehand; but except as so appointed the
trust fund will be held for such of the Settlor's sons as shall be living on
the distribution date (and if more than one in equal shares).
26. It is then pleaded that under Spanish law, which applies to the
devolution of the Settlor's estate (other than immovables), the first
defendant and the Settlor fell within a matrimonial property regime under
which assets (both capital and income) acquired during the marriage
otherwise than by inheritance, called "bienes gananciales", become jointly
owned and other assets, called "bienes privativos", remain separately
owned; the Settlor's estate comprised all of his bienes privativos and one-
half of his bienes gananciales, the other half of the bienes gananciales
passing to the first defendant, so that the first defendant entitled to a
usufruct (a life interest) in one-third of the estate; and subject to the
usufruct, each of his five children is entitled to the estate in equal shares.
27. All or most of the shares in Gonzalez Byass settled on the trusts
of the declaration of trust were the Settlor's bienes privativos when so
settled. Accordingly any income of the trust fund since the Settlor's death
becoming held on a resulting trust was payable, so far as those shares
were bienes privativos, as to one-third to the first defendant (but possibly
one-half down to formal division of the estate) and as to the balance in
equal shares to his five children; and was payable, so far (if at all) as
those shares were bienes gananciales, as to one-half and one-third of the
other half to the first defendant and as to the balance in equal shares to
his five children.
28. The claimants allege (paras 16-20) that the trustees have acted
in breach of trust by failing to pay any income of the trust fund to any
of the Settlor's children; and by paying the whole income of the trust
fund (subject only to trustees' remuneration) to the first defendant or
to nominees of hers. Under the trusts of the declaration of trust the first
defendant is entitled to only one-third of that income, either from June
11, 2005 or alternatively from the Settlor's death. Particulars are given
of the income, consisting of about 3 million euros in dividends and 1.6
million in bonus. It is also alleged that in breach of trust the trustees
have distributed capital of the trust fund to the first defendant or to
nominees of hers, because under the trusts of the declaration of trust
she is not entitled to any such capital. Particulars are given of the deed of
appointment dated May 16, 2001; a resolution of April 28, 2003 by which
the trustees purported to appoint to the first defendant the further sum of
435,000 euros, and which mentioned previous purported appointments of
capital as having been made before that of May 16 2001, the particulars
of which are unknown to the Claimants.
29. The first claim against the first defendant is expressed in the following
terms.
"24B. [The first defendant] is liable for all those breaches of trust and is
similarly bound to reinstate the Trust Fund by reason that:
(1) She received the income and capital so paid to her as a volunteer;
(2) She did so with both notice and knowledge of the declaration of trust
(and in particular was a signatory to the deed of appointment of 16th May
2001 and the resolution of 28th April 2003);
…
25B. [The first defendant] holds all the income and capital so paid
to her as constructive trustee and not for her own benefit. So far as
necessary, the Claimants will contend that in the premises it would be
unconscionable for her to retain that income and capital."
30. In the prayer for relief, the claimants claimed against the first
defendant "an account of all property subject to the trusts of the
declaration of trust received by her and of her dealings therewith", "an
order for payment or transfer to the trustees of the declaration of trust
of all such property received by her or the property now representing
the same" and compensation for breach of trust and interest on such
compensation. I should interpose the point that the claimants now
concede that the first defendant was entitled to some payment.
31. The second part of the claim against the first defendant relates to
her appointment or purported appointment of herself as Appointor as
defined in clause 1.4 of the declaration of trust It is pleaded that it was
not open to her to appoint herself Appointor because: (a) the power to
appoint an Appointor conferred by clause 1.4 of the declaration of trust
is a fiduciary power; and (2) upon its true construction the power does
not permit her to appoint herself. In any case, she is not a fit and proper
person to be Appointor and the court ought to appoint a new Appointor in
her stead. The prayer for relief seeks an order "appointing some fit and
proper person as Appointor in the stead" of the first defendant.
VI The issues and the judge's decision
32. So far as material to this appeal the issues before the judge were
summarised by him as follows: (1) What trust or trusts are identified
by the claimants which come within the words of Article 5(6) which
refer to: "… a trust created by the operation of a statute, or by a written
instrument, or created orally and evidenced in writing …?" (2) Is the
relevant trust domiciled in England? (3) In relation to the first part of
the claimants' claim against the first defendant, is the first defendant
"sued……as beneficiary…"? (4) In relation to the second part of the
claimants' claim against the first defendant, is the first defendant
"sued….as…..trustee…."?
33. The judge decided that: (1) the trust was domiciled in England for
the purpose of Article 5(6) ([61] et seq): English being the proper law, it
followed in the absence of any competing system that the trust was most
closely connected with English law; (2) the claimants were not suing the
first defendant as beneficiary in their primary claim because they were
contending that she was not entitled to the payments she had received
([75] et seq); (3) the claimants were not suing the first defendant as
trustee in their subsidiary claim, because the donee of a fiduciary power
was not a trustee within Article 5(6) ([90] et seq).
34. The claimants appeal from holdings (2) and (3) and holding (1) is the
subject of a respondent's notice.
VII Domicile
35. It is a necessary pre-condition of the exercise of jurisdiction under
Article 5(6) that the trust be domiciled in England, and I will deal with
that question first.
36. Article 5(6) was introduced into the Brussels Convention at the time
of the accession to the Brussels Convention by the United Kingdom,
the Republic of Ireland, and Denmark. After prolonged negotiations the
Accession Convention was signed in 1978. The concept of the trust in the
English sense was unknown to the original six Contracting States (the
original EEC Member States), and it was considered important by the
United Kingdom and the Republic of Ireland to retain a jurisdiction in trust
matters connected with those countries and not to have jurisdiction based
exclusively on the domicile of the defendant trustees or beneficiaries.
37. The 1968 Convention as amended by the Accession Convention was
scheduled to the Jurisdiction and Judgments Act 1982, Schedule 1. Article
5(6) was in substantially the same terms as Article 5(6) of the Judgments
Regulation and Article 53(2) provided, in substantially the same terms
as the Judgments Regulation, that in order to determine whether a trust
was domiciled in the Contracting State whose courts were seised of the
matter, the court should apply its rules of private international law.
38. The history of these provisions is relevant to the question raised
on this appeal concerning the approach which the English court should
take to the determination of the domicile of a trust, and in particular the
weight to be given to a choice of English law to govern the trust.
Schlosser Report
39. The following points emerge from the Schlosser Report on the
Accession Convention: (1) the original provisions of the Brussels
Convention were not always well adapted to the institution of a trust, and
to base jurisdiction on the domicile of the defendant trustee would not be
appropriate in trust matters (para 113); (2) the idea of the domicile of a
trust had been developed mainly for the purpose of determining the legal
system to be applied, usually English law or Scottish law, but the principal
characteristics which led to determining the domicile of a trust for that
purpose could also be used as the basis for founding jurisdiction (para
114); (3) it was to be left to the Contracting States to apply their own
rules of private international law to determine the domicile (para 119),
and in particular (ibid):
"… There are at present no rules of private international law in the
legal systems of the Continental Member States of the Community for
determining the domicile of a trust. The courts of those States will have
to evolve such rules to enable them to apply the trust provisions of the
1968 Convention. Two possibilities exist. It could be contended that the
domicile of a trust should be determined by the legal system to which
the trust is subject. One could, however, also contend that the court
concerned should decide the issue in accordance with its own lex fori
which would have to evolve its own appropriate criteria."
40. It was for this reason that Article 53(2) of the Brussels Convention
provided:
"In order to determine whether a trust is domiciled in the Contracting
State whose courts are seised of the matter, the court shall apply its rules
of private international law."
41. The rules of private international law were introduced by section 45 of
the 1982 Act which provided:
"45. Domicile of trusts
(1) The following provisions of this section determine, for the purposes of
the 1968 Convention and this Act, where a trust is domiciled.
(2) A trust is domiciled in the United Kingdom if and only if it is by virtue
of subsection (3) domiciled in a part of the United Kingdom.
(3) A trust is domiciled in a part of the United Kingdom if and only if the
system of law of that part is the system of law with which the trust has its
closest and most real connection."
42. There are two aspects to the background against which the United
Kingdom negotiated accession to the Brussels Convention which are
relevant. The first is that Order 11, rule 1(1)(e) then provided (as it had
done since first enacted in 1883 as Ord XI, r 1(d)) that the court could
assume jurisdiction if the action was for the execution, as to property
situate in England, of the trusts of a written instrument, being trusts that
ought to be executed according to English law of trusts and which the
person to be served with the writ was a trustee or if the action was for
any relief which could be obtained in any such action. In 1983 the rule
dispensed with the need for the property to be situate in England.
43. The second aspect was the rules for the governing law of a trust
as then recognised in English law. In Duke of Marlborough v. Att.-
Gen. [1945] Ch 78 it had been held that the proper law of a marriage
settlement
"can only be the law by reference to which the settlement as made and
which was intended by the parties to govern their rights and liabilities".
44. Trusts had first been dealt with in Dicey and Morris, Conflict of Laws,
in a section written by Dr Morris himself in the 9th edition, 1973. Rule
122, p 655, as then formulated was as follows:
"The validity, the interpretation and the effect of an inter vivos trust of
movables are governed by its proper law, that is, in the absence of an
express or implied selection of the proper law by the settlor, the system of
law with which the trust has its closest and most real connection."
45. The Comment to the Rule said:
"Although there is no express English decision to this effect, there can be
no doubt that the settlor could select the proper law, at any rate if the
trust has a substantial connection with the chosen law. In the absence of
such an express or implied selection, the court will weigh all the relevant
factors and will endeavour to ascertain the system of law with which
the trust has its closest and most real connection, just as it does when
ascertaining the proper law of a contract."
46. No doubt the reference to the proper law of a contract in this sense
was a reference to the common law principles enunciated in such cases as
Bonython v. Commonwealth of Australia [1951] A.C. 201, 219; Re United
Railways of Havana and Regla Warehouses Ltd. [1961] A.C. 1007, 1068.
47. In the 10th edition, 1980, Dr Morris added the following passage:
"An English court would presumably not allow a settlor creating an
essentially English trust to evade the English rule against perpetuities by
selecting as the proper law of the trust the law of some foreign country
where the rule does not apply. In the absence of such an express or
implied selection, the court will weigh all the relevant factors and will
endeavour to ascertain the system of law with which the trust has its
closest and most real connection, just as it does when ascertaining the
proper law of a contract."
48. That was the position when the Accession Convention was being
negotiated and when the Civil Jurisdiction and Judgments Act 1982 came
to be enacted. The 1982 Act came into force on January 1, 1987.
49. The 1985 Hague Convention on the Law Applicable to Trusts and
their Recognition was given the force of law in the United Kingdom by the
Recognition of Trusts Act 1987, which was enacted in April 1987 and came
into force on August 1, 1987. The Hague Convention gave primacy to a
choice of law by the Settlor.
50. It is apparent from the Explanatory Report on the Convention by
Professor von Overbeck, 1985, para 65, that the Hague Conference
deliberately avoided a requirement (for which some delegations had
argued) of an objective connection between the trust and the chosen law.
51. By Article 3 of the Convention, the Convention applied only to trusts
created voluntarily and evidenced in writing. Article 6:
"A trust shall be governed by the law chosen by the settlor. The choice
must be express or be implied in the terms of the instrument creating or
the writing evidencing the trust, interpreted, if necessary in the light of
the circumstances of the case.
Where the law chosen under the previous paragraph does not provide for
trusts or the category of trust involved the choice shall not be effective
and the law specified in Article 7 shall apply."
52. Article 7 applies where no applicable law has been chosen. In that
case, the trust is governed by the law with which it is most closely
connected. In ascertaining the law with which a trust is most closely
connected, reference is made in particular to four matters. In summary,
these are the place of administration of the trust designated by the
settlor, the situs of the assets of the trust, the place of residence or
business of the trustee and the objects of the trust and the places where
they are to be fulfilled.
53. By Article 8, the law specified by Article 6 or Article 7 governs the
validity of the trust, its construction, its effects and the administration of
the trust. Article 8 provides for a number of matters which, in particular,
are to be governed by that governing law. Article 9 recognises that a
severable aspect of the trust, such as matters of administration, might be
governed by a different law.
54. Those were the substantive rules of private international law in force
in England when the Judgments Regulation came into effect on March 1,
2002. Article 60(3) of the Judgments Regulation provides:
"In order to determine whether a trust is domiciled in the Member State
whose courts are ceased of the matter, the court shall apply its rules of
private international law."
55. The Civil Jurisdiction and Judgments Order 2001 ("the 2001 Order")
was made to implement the Judgments Regulation. The relevant rule of
private international law is contained in the 2001 Order. Paragraph 12(1)
of schedule 1 to the 2001 Order provides the rules required by Article
60(3) for determining where a trust is domiciled. By paragraph 12(2) a
trust is domiciled in the United Kingdom if and only if it is by virtue of
subparagraph (3) domiciled in a part of the United Kingdom. Paragraph
12(3) provides in terms identical to the original section 45 of the 1982
Act:
"A trust is domiciled in a part of the United Kingdom if and only if the
system of law of that part is the system of law with which the trust has its
closest and most real connection."
56. The effect therefore is to apply section 45 of the 1982 Act for the
purposes of Article 5(6) of the Judgments Regulation.
57. The result is that, although the wording of the English rule of
private international law for the purposes of what is now Article 60(3)
of the Judgments Regulation has remained unchanged since its original
enactment in 1982, the background has changed, and there is no longer
any doubt about the effectiveness and scope of the choice of an English
choice of law.
58. In my judgment, the history shows that what was intended from the
start by section 45 was that the English and Scottish courts should have
jurisdiction under Article 5(6) in relation to trust disputes where the trust
was governed by English or Scottish law. It is likely that conclusiveness
was not given to an express choice of law to cater for cases where the
choice was evasive or for some other reason not to be given effect.
59. In Chellaram v Chellaram (No. 2) [2002] EWHC 632 (Ch), [2002] 3
All ER 17, a decision of mine at first instance, the point which arises in
this case was touched on, obiter, and I said: "… [A]rt 5(6) is probably
limited to claims in relation to trusts governed by English law" ([141]).
In that case two of the trusts were agreed to be governed by Indian law
and the other two were governed by Bermudan law. As to the Indian law
trusts I said (at [155]): "It is common ground that they are governed by
Indian law, and there is no possible basis for English jurisdiction". As to
the trusts governed by Bermudan law, I said (at [162])
"… [T]he trusts are not domiciled in England, because they would not (if
they still existed) have their closest and most real connection with English
law. I do not doubt that in deciding whether it is English law with which
the trusts have their closest connection, it is permissible to take into
account the express choice of Bermuda law to negate that connection".
60. The test in section 45 is treated as equivalent to the governing
or proper law of the trust by Hartley, Civil Jurisdiction and Judgments
(1984), page 39 and Layton and Mercer, European Civil Practice (2nd ed
2004), para 42.052, although Kaye, Civil Jurisdiction and Enforcement
of Foreign Judgments (1987), pp 626-629, suggests that, although the
proper law of the trust may usually be expected to be the law having
the closest and most real connection, it should not automatically be so
regarded.
61. In those circumstances it seems to me that, although for the purposes
of the 2001 Order, a choice of English law might not be conclusive, it
is very difficult to see what other circumstances would be sufficient to
outweigh it, so that it would be another system of law with which the
trust had its closest and most real connection. It is more likely that a
foreign choice of law in what would otherwise be an English trust may
be disregarded where it is intended to avoid some important principle of
English law.
62. But I am satisfied that what is not contemplated by the version
of section 45 in the 2001 Order is what the first defendant calls a
multifactorial approach, or counting of contacts, to be derived from the
Hague Convention, when, under the Convention, that approach is only to
be adopted in the absence of choice.
63. It is true that, apart from the governing law, there is no connection
between the trust and England. The place of residence of the trustees is
not England, the trust is not administered in England, the trust assets
and documents are not in England and nor are any of the beneficiaries
domiciled in England. But I am satisfied that the trust is not domiciled
in Liechtenstein, because all of the administration of the Trust is carried
out, either directly or indirectly, by the third defendant in Liechtenstein.
To suggest that the domicile might be the Cayman Islands (because the
principal trust assets, the shares in Gonzalez Byass, were shares in a
company incorporated in the Cayman Islands) is merely fanciful.
64. The connection between a trust and its proper law is in every sense
real and close. A trust is not like a commercial contract where it is only
necessary to consider the content of the applicable law in exceptional
circumstances. trustees in particular have to be intimately aware of their
responsibilities under the general law applicable to the trust. They may
have to know whether they can lawfully accumulate income. Resort to the
law governing the trust is central to their responsibilities. Consequently
the judge was right to find that the trust is domiciled in England.
Kilbrandon and Maxwell Reports
65. Since coming to that conclusion I have consulted two reports, which
lend some support to it. The reports are by committees established in
order to advise the government on the implementation of the Brussels
Convention and the way in which trusts should be dealt with. Each of the
committees placed great weight on the governing law of the trust as the
connecting factor, and their reports suggest strongly (but do not in any
sense prove – even if they were technically admissible, which the first is
certainly not, since it may not have been available to the public) that the
legislative intention was in accordance with that conclusion.
66. The first report is that of the committee which was appointed by the
Lord Chancellor and the Secretary of State for Scotland in March 1972
under the chairmanship of Lord Kilbrandon to advise on any adjustments
which it might be necessary or desirable to negotiate with the Member
States of the EEC with a view to enabling the United Kingdom to accede
to the Brussels Convention. This committee (whose members included
Professor Anton) consulted widely (the consultees included Dr J.H.C.
Morris) and reported in 1973 (Report of the Committee on the European
Judgments Convention, October 1973). The Report dealt with trusts
at paragraphs 162-165. As the committee pointed out, it was natural
that the original Brussels Convention should have made no provision for
jurisdiction in cases concerning trusts, since the institution of the trust
was unknown in the six original Member States. But some provision was
needed to ensure that the jurisdiction of the United Kingdom courts over
British trusts was preserved after accession. Without some adaptation to
the jurisdiction provisions, proceedings concerning trusts would normally
be left to the domiciliary jurisdiction under Article 2, and that would mean
that jurisdiction would be determined by the forensic domicile of the
trustees or beneficiaries. An arbitrary way of determining jurisdiction
would rarely serve the interests of the parties. The most desirable
adaptation would be the reservation of an exclusive jurisdiction for the
United Kingdom courts over trusts requiring to be executed according
to United Kingdom law. But if a sole jurisdiction over trusts was not
acceptable, an adaptation should be sought to enable British courts to
exercise an additional (as opposed to an exclusive) jurisdiction under
Article 5 over proceedings concerning trusts requiring to be executed
according to British Law. If necessary the jurisdiction could be limited to
proceedings concerning trusts expressly embodied in a written document,
although a more general provision applying to all proceedings concerning
interpretation, validity, variation enforcement or administration of any
trusts, whether express, implied, constructive or resulting, would be
preferable and ought to be acceptable.
67. The second report was that of the committee established in 1977 by
the Lord Advocate under the chairmanship of Lord Maxwell to consider
the practical aspects of the implementation of the Brussels Convention
as amended in Scotland. The Scottish Committee on jurisdiction and
enforcement (the Maxwell Committee) reported in the 1980, and
in paragraph 5.64 it rejected the suggestion that the domicile of a
trust could be defined as the place of administration of the trust. The
committee said:
"We are strongly opposed to this proposal. We think that in principal
litigation concerning the affairs of a trust ought to be conducted in
the courts of the legal system which governs it, and the place of
administration may be quite fortuitous.
...
So far as Scotland is concerned we think it would be appropriate for the
statute simply to provide that a trust shall be domiciled in Scotland if
under existing law and practice it is a Scottish trust."
VIII The first claim: "As beneficiary"?
The judge's decision
68. The judge held that the claim against the first defendant was not a
claim against her "as beneficiary". Article 5(6) was to be applied to the
claim made by a claimant and was not to be governed by the nature of
the defence run by a defendant. The principal difficulty with the claimants'
submission was that the relief they sought against the first defendant
depended upon the claimants showing that the first defendant was not
entitled to the monies claimed. That was made clear by the use of the
words "as a volunteer" and "as constructive trustee" in paragraphs 24 and
25 of the particulars of claim. The claimants accepted that the legal basis
of the claim was available where a defendant was someone who was not
entitled under the trust in question at all, just as it was against someone
who was a beneficiary under the trust but who was not entitled to the
receipt in question. It was much easier to say that the claim against the
first defendant was in her capacity as someone not entitled to the monies
received, or in her capacity as a stranger to the trust, rather than in her
capacity as a beneficiary under the trust.
69. On the material available, the trustees paid monies to the first
defendant on the basis that she was a permissible recipient of those
monies as a beneficiary under the trust. But that basis was denied by the
claim made by the claimants. Accordingly, the basis on which the monies
were paid to the first defendant (the claimants say wrongly) was not of
much help in determining the capacity in which the claimants were suing
the first defendant.
70. The conclusion was reached essentially on the basis of the claimants'
own analysis of the nature of the underlying claim coupled with his
conclusion that the words "as a beneficiary" required the claimants
to show that they were suing the first defendant in her capacity as
a beneficiary rather than in her capacity as someone not beneficially
entitled to the monies which are claimed. The words "as beneficiary"
naturally mean: "in the capacity of beneficiary". That conclusion was
supported by the words used in the Lugano Convention, apparently
without intending to change the meaning from the words used in the
Brussels Convention. The construction urged on behalf of the claimants
cut across what was described as a fundamental principle requiring the
court to construe Article 5(6) narrowly or restrictively.
The first defendant's position
71. The first defendant, of course, supports the judge's conclusion. In
particular she says that there is no dispute that Article 5(6) would apply
to a claim for a declaration of whether or not someone was a trustee
or beneficiary and, if so, what his or her rights and obligations were.
However, that does not mean that it extends to cases brought against a
defendant on the basis that he or she was not a trustee or a beneficiary,
as that would turn the language of Article 5(6) on its head. The express
written trust imposes no obligations on the first defendant not to receive
money or to return money to which she is not legally entitled. Thus,
the claimants' claims fall outside their own interpretation of Article 5(6)
as well. The claimants are suing the first defendant in her capacity as
someone not beneficially entitled to the monies which are claimed rather
than in her capacity as a beneficiary. The same claim could be brought
against a stranger to the trust as it does not turn on the first defendant's
status as a beneficiary. As with a claim against a stranger, the terms of
the express trust are relevant as part of the background facts. But the
claim is not based the person's capacity under the express written trust.
Conclusions
72. There is no dispute about the general approach to the interpretation
of the special rule of jurisdiction in Article 5. Because Article 5 is in
derogation from the basic principle of domicile in Article 2, the provisions
of Article 5 are to be construed restrictively: Case 189/87 Kalfelis v
Bankhaus Schröder, Münchmeyer, Hengst and Co [1988] ECR 5565, 5585,
at [19]; Kleinwort Benson Limited v Glasgow City Council [1999] 1 AC
153, 163-164, 166, 171, 173, 179-180, 188. In Case 103/05 Reisch
Montage AG v. Kiesel Baumaschinen Handels GmbH [2006] ECR I-6827
the European Court said
"22 It must be observed, at the outset, that the jurisdiction provided
for in Article 2 of Regulation No 44/2001, namely that the courts of the
Member State in which the defendant is domiciled are to have jurisdiction,
constitutes the general principle and it is only by way of derogation from
that principle that that regulation provides for special rules of jurisdiction
for cases, which are exhaustively listed, in which the defendant may or
must, depending on the case, be sued in the courts of another Member
State ….
23 In that regard, it is settled case-law that those special rules on
jurisdiction must be strictly interpreted and cannot be given an
interpretation going beyond the cases expressly envisaged by Regulation
No 44/2001 ….
24 It is for the national courts to interpret those rules having regard for
the principle of legal certainty, which is one of the objectives of Regulation
No 44/2001 ….
25 That principle requires, in particular, that the special rules on
jurisdiction be interpreted in such a way as to enable a normally well-
informed defendant reasonably to foresee before which courts, other than
those of the State in which he is domiciled, he may be sued …."
73. For convenience I set out again the head of jurisdiction in Article 5(6)
of the Judgments Regulation:
"A person domiciled in a Member State may, in another Member State, be
sued:
…
(6) as settlor, trustee or beneficiary of a trust created by the operation of
a statute, or by a written instrument, or created orally and evidenced in
writing, in the courts of the Member State in which the trust is domiciled;
…. "
74. The Schlosser Report contains the following relevant passages in
paragraphs 109 and 111:
"…. Basically two kinds of legal relationships can be distinguished in a
trust; they may be defined as the internal relationships and the external
relationships.
…
Problems arise in connection with the internal relationships of a trust, i.e.
as between the trustees themselves, between persons claiming the status
of trustees and, above all, between trustees on the one hand and the
beneficiaries of a trust on the other. Disputes may occur among a number
of persons as to who has been properly appointed as a trustee; among a
number of trustees doubts may arise as to the extent of their respective
rights to one another; there may be disputes between the trustees and
the beneficiaries as to the rights of the latter to or in connection with the
trust property, as to whether, for example, the trustee is obliged to hand
over assets to a child beneficiary of the trust after the child has attained a
certain age. Disputes may also arise between the settlor and other parties
involved in the trust."
75. As I have said, Article 5(6) of the Judgments Regulation is
substantially the same terms as Article 5(6) of the Brussels Convention.
Article 5(6) of the Lugano Convention uses the phrase "sued in his
capacity as settlor, trustee or beneficiary". The Jenard-Möller Report on
the Lugano Convention does not shed any light on the reason for the
change.
76. What is the relevant claim and what is the relevant trust?
77. The claimants contend they have both proprietary and personal claims
against the first defendant and are entitled to personal and proprietary
remedies under the Diplock principle (Re Diplock [1948] Ch 465, affd
sub nom. Ministry of Health v Simpson [1951] AC 251) and personal
and proprietary remedies for knowing receipt. Their argument is that a
beneficiary prejudiced by an overpayment to another beneficiary has both
personal and proprietary claims against the overpaid beneficiary. The
personal remedy established in Re Diplock is available to an underpaid
beneficiary of an inter vivos trust against a person who has been
overpaid, whether that person is also a beneficiary or a stranger to the
trust.
78. There was much argument on the relationship between resulting
trusts and constructive trusts and Article 5(6). The claimants pleaded a
resulting trust in paragraphs 11 and 13 of the particulars of claim. The
resulting trust which was asserted to exist was a resulting trust which
came into existence automatically as a matter of law because the Settlor
had failed to dispose of the whole beneficial interest, the income from
the trust assets, which was not permitted to be accumulated: Lewin on
Trusts, 18th ed, para 7.05, 7.06 and 8.02. What the claimants say is that
she is a beneficiary of the trust fund, although the express terms of the
trust do not give her an interest, by virtue of her right under a resulting
trust to part of the income. Accordingly, there was for the purposes of
Article 5(6), "a trust created … by a written instrument" and she is sued
as a beneficiary of it. A resulting trust is not a separate trust: it is merely
the name for the residual beneficial interest created on the execution of
the trust instrument. The trustees have to give effect to it like any other
beneficial interest.
79. I accept the submission that the first defendant is not being sued as
a beneficiary of the resulting trust which the claimants allege. Nor is it
relevant that the first defendant is claimed to be a constructive trustee of
the overpaid amounts. The claim of constructive trust goes to remedy and
not to the question whether the first defendant is sued as a beneficiary
of the written trust. Article 5(6) does not apply to a constructive trust:
Schlosser Report, para 117; Chellaram v Chellaram (No. 2) [2002] EWHC
632 (Ch), [2002] 3 All ER 17, at [138], [162]; Dicey, Morris & Collins,
Conflict of Laws (14th ed 2006), paras 11-316, 29-061; Briggs & Rees,
Civil Jurisdiction and Judgments (4th ed 2005), para 2.170; and Underhill
& Hayton, Law of Trusts and Trustees (17th ed 2006), para 102.229).
80. Consequently the only trust relevant for present purposes is the
declaration of trust, and the question is whether the first defendant is
sued as beneficiary of that trust.
81. The claimants say that their primary complaint is that the first
defendant has been paid both income and capital from the trust to an
extent which the terms of the trust do not allow, and that they, who are
beneficiaries of the trust, primarily complain that the first defendant has
been overpaid as a beneficiary.
82. I have come to the conclusion that in the light of the claim, the
correspondence and the evidence, the claimants are suing the first
defendant as beneficiary because it is accepted that she was a beneficiary
and the claimants are suing her for sums which she received by way of
overpayment of her entitlement. The relief claims an account of all monies
which she has received, including those to which it is conceded she is
entitled, and this is a necessary preliminary to identifying the monies to
which she is entitled.
83. On May 25, 2007 the claimants' solicitors wrote to all the defendants
a letter under the pre-action protocol enclosing the draft particulars of
claim. By a letter of June 6, 2007 the first defendant replied to say:
"I do not understand why you consider proceedings should be brought in
England and your letter does not provide any sensible explanation. I wish
to make clear that I do not accept that the English courts have jurisdiction
over me or over this Trust."
84. In their reply of June 11, 2007 the claimants' solicitors replied
that the basis of the jurisdiction was in Article 5(6) of the Judgments
Regulation. They said:
"The differences between our clients and you will have to be litigated
somewhere and it is surely sensible that the court which decides them
should be applying the law with which it is most familiar, i.e. its own
domestic law."
85. On October 18, 2007 the solicitor for the first defendant made a
statement in support of an application contesting the jurisdiction. She
referred to the previous correspondence and said, but without any
indication of the basis for the payments, that the claimants were not
suing the first defendant as a beneficiary.
86. In his witness statement in response, the claimants' solicitor replied
to Ms Morton's statement that the first defendant was not being sued in
her capacity as a beneficiary of the trust by saying: (a) nothing in the
witness statements produced on behalf of the first defendant disputed the
contention in the particulars of claim that she had at all times received
the whole income of the trust; (b) nothing in the witness statements
disputed the pleaded contentions that she had received the subject
matter of a number of purported appointments of the capital; it was
not immediately obvious to the claimants how the first defendant could
contend that she was not being sued in her capacity as a beneficiary when
it did not seem to be disputed that she had received more than £3 million
of the income and a further £300,000 of the capital.
87. In reply the first defendant's solicitor said that the allegations were
not disputed in her first witness statement because they were irrelevant
to the application. Even if she were a beneficiary under the trust, it was
clear that the action against her was not in her capacity as a beneficiary,
and she was being sued as constructive trustee.
88. Ultimately, the judge was invited by both sides to proceed on the
basis that the first defendant was beneficially interested in the trusts
created by the declaration of trust. The claimants pleaded that the first
defendant was within the class of Beneficiaries. In the course of these
proceedings they reserved their position on this point before the judge:
judgment, para. 13. The claimants and the first defendant agreed before
the judge that the first defendant's application should be determined
on the footing that she was within the class of Beneficiaries. The judge
said that he was not wholly clear as to the extent of the reservation
as to whether the first defendant was a Beneficiary, but noted that the
claimants wished to proceed on the basis that the first defendant was
beneficially interested in the trusts. Consequently he proceeded on the
basis that the first defendant was indeed beneficially interested in the
trusts created by the declaration of trust.
89. I do not consider that this part of the appeal raises a question of the
construction of Article 5(6). It involves a question of the application of
Article 5(6) to the nature of the claim in the light of the particulars of
claim and the evidential material before the court. The claimants are
not asserting that the first defendant was not a beneficiary at all, and so
the appeal does not raise an issue analogous to the problem, discussed
in relation to Article 5(1) (contract jurisdiction), which arises where the
claimant denies the existence of a contractual relationship and seeks a
negative declaration that he is not bound by any contractual obligation:
Dicey, Morris & Collins, para 11-288.
90. The dispute in this case is about the extent of the first defendant's
entitlement, and not its existence. She is sued because she has been
treated as a beneficiary by the trustees and by herself, and she actually
is a beneficiary. On the material before the court, that is the only basis
on which she could claim to retain any of the moneys she has been paid.
The claim involves, and arises out of, what Professor Schlosser called
problems arising in connection with the internal relationships of the trust.
In my judgment the first defendant is therefore being sued as beneficiary
for the recovery of the overpayment.
IX The second claim: "As trustee"?
91. The claimants' second claim is that the first defendant purported to
appoint herself Appointor under the trust when she was unable to do so
or disqualified from doing so and in any event should now be removed.
The essence of the claim against the first defendant was that she was the
donee of a fiduciary power and the Judgments Regulation must be applied
to such a claim.
Judge's decision
92. The judge recorded that the claimants did not develop the claim
in paragraph 28 of the particulars of claim to the effect that the first
defendant was not able to appoint herself as Appointor. The claimants
concentrated on the powers of the court to act where the first defendant
had been validly appointed as the Appointor, but it was said that she
should be removed. The claimants contended that (1) the Appointor had
one function only, and that was to exercise the power of appointment
which takes effect at the end of the Trust Period: see clause 4.2; (2)
this power was a fiduciary power, because (i) the power could not be
used to benefit the Appointor himself or herself; and (ii) the identity
of the Appointor was not fixed in advance, as would be normal with a
personal power. Consequently the Appointor filled an office like a trustee
or protector, and the Appointor filled that office for the benefit of the
Beneficiaries, and therefore the donee of such a fiduciary power was a
trustee of the power.
93. The judge referred in detail to Mettoy Pension Trustees Limited v
Evans [1990] 1 WLR 1587, at 1613-1614, where Warner J referred to
the categories (among others) (1) where a power was conferred on
the trustees of property, or on any other person, as a trustee of the
power itself, which was "a fiduciary power in the full sense"; and (2)
discretionary trusts where someone, usually but not necessarily the
trustees, was under a duty to select from among a class of beneficiaries
those who are to receive, and the proportions in which they are to
receive, income or capital of the trust property.
94. The judge concluded that there were considerable differences between
the office or the capacity of a trustee and the position of a donee of a
fiduciary power. In some circumstances, it might be right to react to
the word "trustee" in an instrument, or even in a statutory provision,
by holding that the parties to the instrument or the enacting authority
intended to embrace not just trustees properly so called, but also persons
who had fiduciary duties where those duties were, in the wide spectrum
of fiduciary duties, close enough to be regarded as analogous to or akin to
the duties of a trustee.
95. It would be quite inconsistent with the restrictive approach to the
special head of jurisdiction in Article 5(6) to read the words "as trustee"
in the expansive way, in which they would have to be read, to produce a
result in favour of the claimants.
The claimants' position
96. On this appeal the claimants essentially repeated the arguments
made before the judge based on the case-law that the power to nominate
or choose the Appointor is itself fiduciary, as is the power of appointment
itself. They argued that there is a direct analogy with a power to appoint
trustees, which is always fiduciary: Thomas on Powers, paras 6-96,
6-97, 11-30. Consequently the holder of a fiduciary power is to be
equated with a trustee. A fiduciary is, by definition, a trustee of his
powers, and the court has power to remove the fiduciary or appoint a
substitute: Re Papadimitriou [2004] W.T.L.R. 1141 (Isle of Man); Re
Freiburg Trust [2004] JRC 056, (2003-04) 6 I.T.E.L.R. 1078 (Jersey)
(removal); Mettoy Pension Trustees Ltd v. Evans [1990] 1 W.L.R. 1587
at 1617-1618; Rawcliffe v. Steele [1993-95] M.L.R. 426 (Isle of Man)
(appointment). On occasion the decisions have expressly equated the
holder of a fiduciary power with a trustee for the purpose of the exercise
of the court's jurisdiction; Rawcliffe v. Steele, at 485, 496, 503; Re
Freiburg Trust, paras [4]-[7]. If the holder of a power to appoint a trust
fund is a fiduciary he or she is effectively a trustee; and the claim against
her for her removal from that office is a claim against her "as trustee".
Conclusions
97. I am satisfied that the judge was right on the simple ground that,
even if the powers are classified as fiduciary, the first defendant is not
being sued in the second claim "as a trustee … of a trust created … by a
written instrument …" for the purposes of Article 5(6).
98. The interpretation of "trustee" depends on an autonomous Regulation
concept, but since the origin of Article 5(6) lies exclusively in the
accommodation of the trust as known in common law countries, that
autonomous interpretation must be strongly influenced by the concept of
"trustee" in those countries.
99. In the light of the necessarily restrictive approach to the interpretation
of Article 5(6) I can see no basis for extending Article 5(6) to such
persons as appointors, or protectors, or to any other person with fiduciary
powers who does not come within the normal meaning of the expression
"trustee." To so interpret and extend Article 5(6) would be entirely
contrary to the approach which the European Court requires national
courts to take in the interpretation of Article 5.
X Disposition
100. I would therefore allow the appeal in relation to the first claim and
dismiss the appeal in relation to the second claim, and affirm the judge's
reasoning on domicile.
Mr Justice Lewison:
101. I agree.
Lord Justice Jacob:
102. I also agree.