The sins of the father Yearwood v Yearwood

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1 The sins of the father Yearwood v Yearwood June 2011 It is becoming increasingly common for parties to matrimonial litigation to seek cross border recognition and/or enforcement of financial orders. An indication of the inclination of the Isle of Man courts to seek to give effect to English ancillary relief orders is given by Yearwood v Yearwood (judgment of Deemster Corlett delivered 10 March 2011). Mr and Mrs Yearwood were divorced by the Family Division of the English High Court, and Deemster Corlett at the start of his judgment referred to the English Court s criticism of Mr Yearwood s wholesale disregard for the English proceedings. Mr Yearwood had invested in a policy (the policy ) issued by an Isle of Man insurance company which had a value of approximately 1 million. The policy was held in trust, the trustees being Mr and Mrs Yearwood, on terms that during the lifetime of the Settlor (Mr Yearwood) the trustees were to apply the trust fund for the benefit of Mr Yearwood as he may direct (the power of direction ) and after his death for the benefit of his son. Although the judgment does not say, it appears that the trust was governed by Isle of Man law. The English High court ordered (the English Order ) ancillary relief of a lump sum of approximately 4 million in favour of Mrs Yearwood, to be paid by not later than 21 st December 2009; paragraph 2 of the English Order provided that in default of compliance (as was the case) the trust be varied to remove Mr Yearwood as trustee and to substitute Mrs Yearwood in respect of all Mr Yearwood s rights and powers under the trust. Mrs Yearwood applied in the Isle of Man for judgment and execution in respect of the lump sum, and sought a final Charging Order and Disposal Order in respect of Mr Yearwood s alleged beneficial interest in the policy for the purpose of satisfying the judgment debt. The son objected. The validity of the trust was not in issue before the Isle of Man High Court. The relevant legislation gave the High Court power to make a charging order on any interest held beneficially in certain assets (a policy of assurance being one) and on any interest held beneficially under a trust. Deemster Corlett made a charging and disposal order in respect of the policy. The rationale appears to be contained in the following sentences: It seems to me therefore to be beyond argument that there is indeed property for the Charging Order to attach to because Schedule 2A specifically recognises that beneficial interests in policies of assurance and beneficial interests under trusts can be made the subject of Charging Orders. I do not accept that this Court has any duty to have the Trust Fund kept intact and not diminished for the benefit of [the son]. His interest is contingent and cannot override Mrs Yearwood s right as a

2 creditor of Mr Yearwood to have her Manx judgment enforced under Manx law against any property in which Mr Yearwood Snr has a relevant interest. 1 The Deemster appears to equate beneficial ownership of an interest under the trust with beneficial ownership of the policy itself. In doing so, the Deemster ignored the interest of the son under the trust. It would have been permissible for the Deemster to have granted a charging order in respect of Mr Yearwood s interest under the trust 2, but that is not the same property as the policy. Beneficial ownership of the policy vested in Mr Yearwood and his son. The son was not party to the English proceedings, and as the Deemster says later in the judgment it seems to me that the English Order is likely to be properly characterised as an in personam judgment, binding only the parties to the proceedings. It therefore seems harsh that the sins of the father were visited on the son, however the willingness of the court to do so indicates an apparent predisposition to assist enforcement of UK matrimonial court orders. On a separate note, but supporting such predisposition, the Deemster also said that had Mrs Yearwood sought an order giving recognition to the rewriting of the Trust Deed which was purportedly effected by the English court... it would in my view have succeeded. The Deemster cited in support paragraph 30 of Lord Mance s opinion in Pattni v Ali 2005/06 MLR 586 and judgments cited by Deemster Doyle in Wine v Wine (May 2007) 3. The citation from Pattni seems, however, tangential to the issue as it concerned in personam judgments regarding contractual rights, not an interest arising under a trust. Deemster Doyle in Wine (a case involving an Israeli divorce action, in which a freezing injunction and disclosure order was made in the Isle of Man) cited the cases referred to as authority for the proposition that: The substantive dispute between the parties in this case is pending before the courts in Israel. It is the courts in Israel who are the lead courts in relation to this dispute. The courts in the Isle of Man are ancillary and insofar as it is appropriate to do so should assist the parties and the courts in Israel in the resolution of the dispute pending determination in that jurisdiction. [emphasis added] This proposition is unobjectionable but does not provide authority for the assertion by Deemster Corlett in Yearwood that the Isle of Man High Court could give recognition to the rewriting of the Trust Deed. One of the cases cited by Deemster Doyle in Wine was Charman v Charman [2007] EWCA Civ 503. There Sir Mark Potter P, giving the judgment of the Court of Appeal, said: 1 Paragraphs 27 and 28 of the judgment. 2 However it appears that was not the relief sought by Mrs Yearwood; presumably because, since the value of that interest was contingent on Mr Yearwood exercising his power of direction, and a power does not appear to be an interest which can be charged, it may be questioned whether the interest had any realizable value. 3 For example, Charman [2007] EWCA Civ 503 and two decisions of the Royal Court of Jersey, namely Re H Trust [2006] JLR 280 and Re B Trust [2006] JLR 562.

3 Mr Boyle also draws our attention to the decision of the [Royal Court of Jersey] in In the matter of the B Trust, as yet unreported, [2006] JRC 185. There, at [32], an important suggestion was made, namely that, when a party applied to it for variation of an off-shore settlement, the English court should give serious consideration to declining to exercise its jurisdiction on the basis that, after conducting the substantive enquiry, it should instead invite the off-shore court, provided of course that the latter is invested with the appropriate jurisdiction, to act as an auxiliary to it in regard to any proposed variation. [emphasis added] This therefore raises the issue of the extent to which the Isle of Man High Court has jurisdiction to rewrite the Trust Deed. The court has several jurisdictions to vary trusts 4, none of which would apply in the circumstances of this case. The court also has jurisdiction to give directions to a trustee on any question respecting the management or administration of the trust property, however this does not give the court jurisdiction to authorise a departure from such trusts 5. As regards private international law, paragraph 2 of the English Order is not one capable of registration and enforcement under any relevant statute 6 in the Isle of Man, nor is it enforceable in the Isle of Man at common law despite Mr and Mrs Yearwood being the trustees 7. Had the son been party to the English proceedings paragraph 2 of the English Order might be recognised by the Isle of Man courts as against him; otherwise such recognition seems contrary to the principles of natural justice. Deemster Corlett might reply to this that:.. the Privy Council made it clear in Pattni that an estoppel might arise against those parties who submitted to the jurisdiction of the foreign court or who could have been present but did not choose to be. This latter point might well apply in respect of Mr. Yearwood Jnr who presumably could have applied to intervene in the English proceedings if he felt that his interests required protection in those proceedings. Alternatively, Mr. Yearwood Snr could have made representations on his son's behalf, and indeed appears to have done so through his solicitors (see, e.g., paragraph [6] above) 8. [emphasis added] However, the opinion of the Privy Council in Pattni 9 does not appear to provide authority for an estoppel against parties who could have been present before the foreign court but did not choose to be (even if, which is unknown, such was the factual position of the son). 4 Variation of Trusts Act 1961, the Matrimonial Proceedings Act 2003 in relation to domestic and foreign divorces (Part 4 relating to divorces outside the British Islands applies only if there is a specified connection with the Isle of Man, and Part 6 relating to divorces granted within the British Islands has not yet been given effect), section 55 of the Trustee Act 1961 and the Court s inherent jurisdiction in certain circumstances. In addition, the effect of section 4 of the Trust Act 1995, which provides that all questions arising in respect of a trust which is governed by the law of the Isle of Man are to be determined according to the law of the Isle of Man, should be considered. 5 The analysis in this respect in Mubarak v Mubarak 2008 JLR 250 would apply equally in the Isle of Man. 6 The Judgments (Reciprocal Enforcement) (Isle of Man) Act, 1968 or the Maintenance Orders (Reciprocal Enforcement) Act Not being for a debt or definite sum of money (Dicey, Morris & Collins, The Conflict of laws, 14 th edition, rule 35). 8 Paragraph 36 of the judgment. 9 The Privy Council decision was based on the submission by the respondents to the jurisdiction of the Kenyan Court; see paragraphs 30 and 41.

4 Deemster Corlett regretted that Part 6 of the Matrimonial Proceedings Act 2003, dealing with the reciprocal enforcement of financial provision orders within the British Isles, had not been given effect. The effect of Part 6 is that Financial Provision Orders, Property Adjustment Orders, Sale of Property Orders and Pension Sharing Orders made, for example, in the English High Court, should be recognised and given effect in the Isle of Man as if they had been made by the Isle of Man High Court. Deemster Corlett said that persons in the position of Mrs Yearwood are therefore obliged to take far more expensive and circuitous routes to achieve enforcement in the Isle of Man. Yearwood is of note because the apparent enthusiasm of the Deemster to come to the aid of Mrs Yearwood indicates a judicial predisposition to assist foreign courts in the resolution of divorce proceedings, even if the juridicial basis for such assistance is unclear. This is understandable where, as here, one party was considered to have been behaving badly in the context of the divorce proceedings. The position in Isle of Man law of an order of the English High Court varying a trust governed by Isle of Man law, at least until Part 6 of the Matrimonial Proceedings Act 2003 is given effect, is likely to be as follows: (i) in the case of a discretionary trust 10, the trustees not having submitted to the jurisdiction of the English court, the order is not capable of recognition or enforcement in the Isle of Man; (ii) such trustees might decide to exercise their powers to give effect (or not, as the case may be) to the purported variation; or on application to the Isle of Man High Court under its jurisdiction to supervise trusts, the Court might approve or direct the trustees to do so; (iii) if such trustees do not have power to give effect to the purported variation, the Isle of Man High Court has (outside a an application under the Variation of Trusts Act 1961 to which all adult beneficiaries consent) no power to itself vary the trust or confer power on such trustees to do so; (iv) in the case of a fixed interest 11 under a trust, the trustees not having submitted to the jurisdiction of the English court, and although there is scant authority, the position appears to be that the order is not capable of recognition or enforcement in the Isle of Man unless the owner of that interest consents, or was party to and (if necessary) submitted to the jurisdiction of the English court; (v) the position is complicated if the trustees submit to the jurisdiction of the English court. Doing so is risky, as it exposes the trustees to the risk of being bound by a judgment which is not compatible with their duties as trustees and/or of being a breach of trust. Submission may be necessary in certain circumstances, for example where significant trust assets are in England, however the trustees should apply to the Isle of Man High Court for approval/directions before submitting. These problems can sometimes be overcome by the court in England (or other jurisdiction where the original order was made) making specific orders against beneficiaries or other 10 That is, one in which all appropriate parties are or can be added as beneficiaries and the trustees powers of appointment etc can be used to achieve the same result as the purported variation. 11 That is, an interest which is not liable to be defeated by the exercise of the trustee s discretionary powers.

5 persons within its jurisdiction having influence over the trustees or the trust and compelling such persons (perhaps under threat of contempt of proceedings) to exercise their influence to secure compliance by the trustees here with the English/foreign order. Kevin O Loughlin Contact Us: For further information please contact Kevin O Loughlin at Simcocks Advocates by telephone or by at koloughlin@simcocks.com In the Isle of Man: Ridgeway House Ridgeway Street Douglas Isle of Man IM99 1PY Tel: +44(0) Fax: +44(0) Web: The above material is of a general nature only. It does not constitute legal advice nor does the distribution or receipt of this material create a client-advocate relationship. Readers should seek specific advice in relation to any decision or course of action.