C v C & Ors

JUDGE HODGE QC: This is my extemporary judgment on the substantive hearing of an application under the Variation of Trusts Act 1958 to vary the trusts of four family settlements and for the compromise of an issue as to the validity of the two most recent of those four family settlements. The judgment is delivered in the case of C v C, claim number HC-2015-001381. For the reasons that I gave in a preliminary extemporary ruling this morning, I have already made orders restricting access to the court file and anonymising these proceedings. Any reporting of this substantive judgment (which is permitted) should respect that earlier anonymisation order.

This application under the Variation of Trust Act 1958 relates to four family settlements. The first two of those settlements, dated 20 June 1932 and 1 September 1950, were made by the first defendant's late father. The third and fourth settlements are discretionary settlements made in 1996 by the first defendant himself.

The first and sixth defendants are trustees of each of the four settlements. The claimant is a trustee of the 1932 settlement alone, in addition to defendants 1 and 6. The claimant is the first defendant's son and the grandson of the settlor of the 1932 and 1950 settlements. He is a beneficiary of each of them. The second defendant is the wife of the first defendant and, with her husband, is a beneficiary of each of the settlements. Together with the claimant, they and the third and fourth defendants, who are minors, are the only living beneficiaries of the 1932 settlement. The fifth defendant is the first defendant's nephew and the only other living beneficiary of the 1950 and 1996 settlements. The sixth defendant is not a beneficiary of any settlement and is only interested in the matter as a trustee.

All six defendants have filed acknowledgments of service indicating their intention not to contest the proceedings. The third and fourth defendants, who are minors, are sons of the first defendant and are respectively 16 and 14 years of age. Their litigation friend is their mother on whose instructions the acknowledgments of service were filed.

The evidence in support of the application is contained within a witness statement from Mr Michael David Stanford-Tuck, dated 1 April 2015, together with exhibit MST1. He is a solicitor and consultant with the solicitors' firm Hallett and Co, of Ashford in Kent.

The litigation friend and mother of the third and fourth defendants has made a witness statement dated 11 May 2015 in which she indicates her support for the compromise of the settlement and her support of the proposed variations. She exhibits, as exhibit SAC1, a lengthy opinion from Miss Susannah Meadway (of counsel), dated 11 May 2015, setting out her reasons why, in her opinion, the proposed variation and compromise are for the benefit of the third and fourth defendants.

The sixth defendant, the independent trustee, has made a witness statement dated 14 May 2015. He exhibits as JSPC1 an opinion from Miss Georgia Bedworth (of counsel), dated 11 May 2015, in which she explains why, in her opinion, the compromise and proposed variation are in the interests of the unborn and any unascertained beneficiaries on whose behalf the court is being required to approve the variation.

There is also a short witness statement from Miss Gillian Knowles, the solicitor for the fifth defendant, at a firm in Chester, Cullimore Dutton, conveying his consent to the proposed compromise and variation. That witness statement is dated 11 May 2015.

The claimant is a represented by Mr Francis Barlow QC, who has produced a detailed written skeleton argument dated 15 May 2015. In addition, he addressed me for about an hour and three-quarters this morning, and for a further 45 minutes after the luncheon adjournment. I was then addressed by Miss Meadway (of counsel) for the third and fourth defendants, who addressed me for about 15 minutes by reference to her written skeleton argument dated 13 May 2015. Finally, I was addressed by Miss Bedworth (of counsel), appearing for the first, second, fifth and sixth defendants, who addressed me for about 20 minutes by reference to her written skeleton argument of 13 May 2015.

For the reasons set out in the two exhibited written opinions, for the reasons set out in the written skeleton arguments, and for the reasons advanced orally before me in argument by counsel today, I am indeed satisfied that the terms of the compromise are for the benefit of the minor defendants and the parties whom they have been appointed to represent, namely all unborn and unascertained persons who may become interested under the trusts of the settlements created in 1932 and 1996, save for any future wife and future born child of the first defendant, in relation to whom no representation order is being made. I approve the terms of compromise on behalf of the minor defendants and the represented parties. I direct that they shall be binding on them and that the claimant and the first and sixth defendants, in their capacity as trustees, should carry those terms of compromise into effect.

I am also satisfied that the proposed arrangement is for the benefit of the minor defendants and all unborn and unascertained persons who may become hereafter beneficially interested in the property subject to the trusts of any of the four family settlements. I am also satisfied that the arrangement does not give rise to a resettlement of the trust property subject to any of those settlements.

Therefore, insofar as I have the jurisdiction to do so, by section 1 of the Variation of Trusts Act 1958, I approve the proposed variation and arrangement on behalf of the minor defendants and all such unborn and unascertained persons.

The reason why I am delivering a substantive extemporary judgment is because what appears to be a novel point of law has been raised in relation to my jurisdiction to approve a variation of the 1950 settlement. That novel point of jurisdiction arises from the fact that the 1950 settlement is governed not by the law of England and Wales but by the law of Kenya. Although there is no express choice of law clause in the 1950 settlement, the settlor was domiciled in Kenya when it was made and a reference within it to the Trustee Ordinance 1929 clearly indicates an intention for it to be governed by Kenyan law. There are other substantial elements which connect the settlement with Kenya.

The trust assets are located in that country and the trustees and the beneficiaries, or most of them, are and were resident and domiciled in Kenya. That is not to ignore the fact that the 1950 settlement does have a very close connection with the earlier English settlement made in 1932 which owns substantial assets in Kenya, the majority of which are managed by a company owned and controlled by the trustees of the 1950 settlement. That 1932 settlement is also the subject of the present application, as are the other two 1996 associated settlements, all three of which are governed by English law.

There is before the court, at section 2.19 of the exhibit to Mr Stanford-Tuck's witness statement, an opinion letter from a lawyer and advocate based in Kenya, Mr R W M Watson, dated 27 March 2015. He gives evidence as to the terms of section 62 of the Kenyan Trustee Act, which was originally enacted in 1929 but which has been much amended since. Section 62 is said to give the court power to approve variations of trusts in terms which are said to be virtually identical to the 1958 Act in England. The wording of that section has been placed before the court.

Mr Watson states that although occasionally applications are made to the Kenyan courts in trust matters, he has found no reported case law on applications relating to their jurisdiction to vary trusts under section 62, which, he says, are brought in chambers. However, he says that since Kenyan law, and in particular the Kenyan law of trusts, is largely based on English law, the courts of Kenya would in his view follow English decisions on the virtually identical provisions of the English Variation of Trusts Act. For similar reasons, he also takes the view that if the English courts were to assume jurisdiction to vary the trusts of the Kenyan settlement, the Kenyan courts would recognise and enforce the order of the English courts. He concludes by mentioning that with a trust being such an essentially English concept, it would be almost inevitable for the courts of Kenya to look to the English common law - by which I think he includes the English law of equity - for assistance. He says that the idea of separating legal and beneficial ownership of assets is very alien to the non-statutory and indigenous laws in Kenya.

Mr Barlow submits that in those circumstances it would be appropriate for the court to exercise jurisdiction in this case. He has referred me to two English authorities which support the proposition that the court has jurisdiction under the 1958 Act to vary the trusts of a foreign settlement.

The first of those authorities is a decision of Ungoed-Thomas J in the case of Re Ker's Settlement Trusts [1963] Ch 553. That concerned the provisions of a settlement of which the governing law was assumed to be that of Northern Ireland. Ungoed-Thomas J held that the powers conferred by the section 1 of the 1958 Act were not limited to documents to which the English law of trusts applied and that accordingly the English court had jurisdiction to entertain the application.

That decision was followed by Cross J in the later case of Re Paget's Settlement [1965] 1 WLR 1046. At page 1050 letters E to F Cross J expressly concurred with Ungoed-Thomas J's decision that the jurisdiction was unlimited; but he went on to add that, obviously, where there were substantial foreign elements in the case, the court must consider carefully whether it was proper for the court to exercise the jurisdiction. He gave the example of a court being asked to vary a settlement which was plainly a Scottish settlement. He said that such a court might well hesitate to exercise its jurisdiction to vary the trusts simply because some, or even all, of the trustees and beneficiaries were in England or Wales. It might well be, he said, that the judge would say that the Court of Session was the appropriate tribunal to deal with the case.

In considering whether to exercise the jurisdiction in the particular case before him, Cross J had regard to, first, the fact that the settlor and the life tenant under the settlement were both domiciled here, and that the life tenant had three children who, or whose families, were the probable capital beneficiaries, and two of those children were also domiciled in this country. Secondly, Cross J had regard to the fact that a New York court had already held that it was an English settlement, and had indicated that it would act on the arrangement if Cross J were to approve it. The result would be that any order which Cross J made would be effective. He concluded that although the case was an unusual one, balancing one consideration against another, he had come to the conclusion that he could properly exercise the jurisdiction which he had held that he had. He accordingly made an order approving the proposed variation.

What neither Ungoed-Thomas J nor Cross J had to consider was the effect, if any, of the Hague Convention on Trusts which is scheduled to the Recognition of Trusts Act 1987. That Act was passed to enable the United Kingdom to ratify the Convention on the law applicable to trusts and on their recognition which had been signed on behalf of the United Kingdom on 10 January 1986. Section 1(1) gives the force of law in the United Kingdom to the provisions of the Convention set out in the Schedule to the Act. Article 1 of the Schedule states that the Convention specifies the law applicable to trusts and governs their recognition. In the absence of an express choice of applicable law, article 7 provides that a trust is to be governed by the law with which it is most closely connected.

I am satisfied here - and it is common ground - that the applicable law so far as the 1950 settlement is concerned is the law of Kenya rather than the law of England and Wales. Article 8 provides that that applicable law is to govern the validity of the trust, its construction, its effects and the administration of the trust. In particular that law is to govern, by paragraph (h) of article 8, the variation or termination of the trust.

There is a specific derogation contained within article 15 which extends to certain specified matters, including the personal and proprietary effects of marriage. Article 16 provides that the Convention “does not prevent the application of those provisions of the law of the forum which must be applied even to international situations, irrespective of rules of conflict of laws”.

Mr Barlow has referred me to the decision of the Court of Appeal in the case of Charalambous v Charalambous [2005] Fam 250. He has referred in particular to passages in the leading judgment of Thorpe LJ at paragraphs 31 and 34. I do not derive any particular assistance from that Court of Appeal authority because it was concerned with the variation of a trust consisting of a settlement made on a husband and wife in the context of an application for the variation of the trust on divorce pursuant to powers conferred by the Matrimonial Causes Act 1973 (as amended). The Court of Appeal's decision was in part founded upon article 15 of the Schedule to the Recognition of Trusts Act 1987, which has no application in the present case.

Mr Barlow submits that it is a moot point whether the 1987 Act applies to variations approved by the court under the Variation of Trusts Act 1958. He says that there is no decided authority on the issue and academic opinion is said to be divided. He refers to conflicting views expressed in a number of practitioner and academic texts.

Dicey, Morris & Collins on the Conflict of Laws (15th edition) addresses the matter at paragraph 29-061. It makes the point that in cases decided before the Recognition of Trusts Act 1987 it had been held that the jurisdiction under the Variation of Trusts Act 1958 was unlimited, applying even to trusts governed by a foreign law, but that an English court should hesitate before exercising its jurisdiction in such cases. In cases within the Recognition of Trusts Act 1987, the variation of trusts is said to be one of the matters governed by the law identified by Article 6 or 7 as the law governing the trust. This is said to suggest that the substantive grounds for variation should be determined by the applicable law of the trust, and not by English domestic law. However, an English court may conclude that it should continue to apply English law to the question of variation, on the basis that the Variation of Trusts Act 1958 is a provision “of the law of the forum which must be applied even to international situations, irrespective of rules of conflict of laws” under article 16 of the Convention, which preserves the application of such rules.

The editors state that although the Hague Convention lays down choice of law rules, and does not directly affect the jurisdiction of the English courts, the fact that the trust is governed by a foreign law may make it more likely that an English court would disclaim the exercise of jurisdiction, treating the courts of the relevant foreign country as a more appropriate forum. Such an approach is said to have been expressly contemplated in Re Paget's Settlement.

The matter is dealt with in Chester, North and Fawcett: Private International Law (14th edition) at pages 1323 to 4. There it is said that the courts have held that the power of the English courts to exercise their jurisdiction under the Variation of Trusts Act 1958 is not limited to trusts governed by English law, because to take such a restrictive view would mean “that the court would be unable to vary a settlement made (say) in 1920 and governed by (say) Australian law, even though the beneficiaries, the trustees and the trust property had been for many years in this country. It would be unfortunate if the court had no jurisdiction in such a case.” The editors state that the power under the 1958 Act has to be set against the provision in article 8 of the Trusts Convention which makes clear that “the variation or termination of the trust” is a matter to be governed by the law applicable to the trust and not, for example, by the law of the forum.

The authors pose the question: how does article 8 inter-relate with the 1958 Act? They state that the 1958 Act is concerned with the jurisdiction of the courts to vary trusts, whereas article 8 of the Trusts Convention is concerned with choice of law matters. On that basis the court is said still to retain the power under the 1958 Act to vary a trust governed by foreign law.

There would seem to be two limitations on the exercise of that power. The first is said to be that where there are substantial foreign elements in the case, the court should proceed with caution in deciding whether to assume jurisdiction in such a case, following the advice of Cross J in Re Paget's Settlement. The second limitation is said to be that in exercising the jurisdiction under the 1958 Act, the court, in making a variation, should apply the substantive law of the country governing the trust, identified by reference to Articles 6 or 7 of the Convention. If the law governing the trust does not permit variation, then the jurisdiction under the 1958 Act should not be exercised.

As will appear, I agree with both of those limitations on the exercise of the court's power under the 1958 Act.

Underhill & Hayton: The Law Relating to Trusts and Trustees (18th edition) addresses the matter at paragraph 100.181. Reference is there made to the approach in Re Paget's Settlement which is said to have decided that, where there are substantial foreign elements in the case, the court must consider carefully whether it is proper to exercise the jurisdiction under the 1958 Act. The editors state that there was no suggestion in Re Paget's Settlement that the power to vary should be exercised in accordance with the applicable law of the trust. Instead, an English statute was applied to a foreign settlement. But the editors continue that such an approach would now appear incompatible with article 8(2)(h), so that the English court can only apply the relevant foreign law concerning variation of trusts of the foreign settlement. This could well lead the court in its discretion to refuse to exercise its jurisdiction on the basis that the foreign court would be a much more appropriate forum, especially if the trustees had not submitted to the jurisdiction of the English court, so that the foreign court would have a complete discretion as to the course it should take in the light of the unenforceable English order.

Lewin on Trusts (19th edition) addresses the matter at paragraph 11-222. It states that a more difficult question is how the article affects the jurisdiction of the court to vary trusts under the 1958 Act. Having noted that the Act has been held to empower the English court to vary trusts governed by foreign law, the editors state that in doing so, the English court was applying its own law, which is said to be something now forbidden by the article if it applies to variations by the court. Its words are appropriate to include such variations and the editors of Lewin consider that it does apply. If it does, the English court can no longer vary trusts governed by a foreign law, at least unless the foreign law contains a comparable provision and that provision is treated as giving the English court the power to do so. If the foreign law is expressed to confer a power to vary on "the court" (as the 1958 Act does) it may be read as referring only to the foreign court. But if the English court were to decide on that ground that it could not exercise the foreign power, it would be applying only a truncated form of the foreign law, not the whole of it, as the Convention prescribes. The editors therefore consider that a foreign power to vary trusts ought in principle to be available to the English court. The same considerations are said to apply to the conferral of additional powers on the trustees under section 57 of the Trustee Act 1958 and like powers elsewhere.

As will appear, I agree with the views expressed by the editors of Lewin on Trusts.

In terms of academic and practitioner texts, I was finally referred to the second edition of The Law of Trusts by Geraint Thomas and Alastair Hudson. The matter is dealt with there at paragraphs 44.91 through to 44.98. Reference is there made to the statements in a number of the other academic and practitioner texts, including all of those to which I have already made reference.

In addition, at paragraph 44.94 reference is made to Harris: Hague Trusts Convention at pages 263-4. Harris is said to suggest that the 1958 Act is not, properly speaking, jurisdictional in nature, but is concerned with the substantive question of whether the court may alter the rights of parties. Such a question ought to be (1) considered even in respect of trusts unconnected with the England, and (2) determined exclusively by the applicable law of the trust, in accordance with the Hague Trusts Convention requirements. He acknowledges the difficulty, pointed out in Lewin on Trusts, that could arise if the power under the foreign applicable law is exercisable only by the courts of the foreign state, but says:

Again, as will appear, I agree with that statement.

In addition to those academic and practitioner texts, I was also taken to observations of Mummery LJ in the case of Goulding v James [1997] 2 All ER 239 at 241 at letters E to F. There it is said that it is “rare for a proposed arrangement negotiated and drafted on skilled, professional legal and actuarial advice, not to receive the approval of the court when … it is for the benefit of the class of persons on whose behalf the court is empowered to approve the arrangement”. Mr Barlow in particular relied upon that - as did Miss Meadway - in support of the submission that where the court has jurisdiction under the 1958 Act to approve a variation of a trust as being for the benefit of the class of persons on whose behalf the court is empowered to approve the arrangement, then it should do so, even if the trust is governed by foreign law.

Mr Barlow accepted that in determining whether or not to exercise the jurisdiction, the court should pay close regard to the provisions of the law applicable to the trust; but where the applicable law confers jurisdiction on the court to approve a variation, then the English court should approve the variation itself.

Over the luncheon adjournment, Mr Barlow confirmed - as I had rather suspected - that within the relevant Kenyan Trustee Act, reference is made to the “court” having power to effect a variation. The definition section (section 2) provides that the “court” means “the High Court” - presumably of Kenya - “or a judge thereof”. This then raises the issue (identified at paragraph 11.222 of Lewin) whether, if the foreign law is expressed to confer a power to vary on the “court”, it may be read as referring only to the foreign court.

As I have already foreshadowed, I agree with the observation of the editors of Lewin that if the English court were to decide on that ground that it could not exercise the foreign power, it would be applying only a truncated form of foreign law, and not the whole of it, as the Convention prescribes. I therefore accept Mr Barlow's submission that a foreign power to vary trusts is in principle available to the English court.

It seems to me that it may be helpful to consider the analogy of the power to relieve a trustee against a breach of trust. The reason why that analogy seems to me to be helpful is that article 8 of the Convention (by paragraph (g)) applies also to the relationships between the trustees and the beneficiaries, including the personal liability of the trustees to the beneficiaries.

As is well-known, section 61 of the Trustee Act 1925 confers jurisdiction on the court to grant relief to a trustee in the event of a breach of trust in appropriate circumstances. Section 67 of the Trustee Act defines the “court” by reference to the English court. I have no doubt that where there is a similar power under a foreign law governing a trust, any corresponding foreign provision conferring jurisdiction to grant relief to a trustee will be similarly phrased by reference to the court of the foreign jurisdiction. Nevertheless, it would seem to me to be wholly wrong in those circumstances to say that the English court cannot grant relief under section 61 of the Trustee Act to a trustee in appropriate circumstances, even though the foreign court could do so if the claim for breach of trust were brought in that foreign court. Likewise, it seems to me that it must be open to the English court to exercise its jurisdiction to vary a trust under the 1958 Act provided that the law of the country that applies to the trust has a similar power vested in its own courts. That approach, as it seems to me, is supported by the citations from both Lewin and also from Thomas & Hudson, who conclude (at paragraph 44.98) with the statement that:

So, for those reasons, I conclude that since a Kenyan court would have power to vary the trusts of the 1950 settlement under its legislation, the English court similarly has jurisdiction under the 1958 Act.

For all the reasons, to which I have made reference earlier in this judgment, I am entirely satisfied that it is appropriate for the court to exercise that jurisdiction in the present case. The variation of the trusts created by the 1950 settlement is intimately associated with the variation application in relation to the other three settlements, which are all governed by English law. It would be wholly unreasonable, and disproportionate, to require a separate application to be made to the Kenyan courts, particularly in the light of the factors identified by the Kenyan lawyer in his advisory letter which I have already cited.

I should add that, in this regard, I do not derive any real assistance from the terms of article 16 of the Convention. It does not seem to me that the 1958 Act is a part of the “law of the forum” which must be “applied even to international situations, irrespective of rules of conflict of laws”. It does not seem to me that the present case falls within the exemption contained within article 16; but, for the reasons that I have given, it matters not. I am satisfied that the court does have jurisdiction under the 1958 Act because there is such a jurisdiction under the law of Kenya, which governs the 1950 settlement. For all of those reasons, I consider that I do have jurisdiction under the 1958 Act, even in relation to the 1950 settlement; and, as with the other three settlements, I consider it appropriate to approve the variation under the 1958 Act, which I do. I will therefore make an order in the terms of Mr Barlow's draft, subject to the various amendments that he has indicated to me during the course of this hearing.

This judgment can be transcribed in anonymised form.