My next article

I am currently writing an article for publication by Taxation (Tolley) in February.

Title:        ‘Transformative Mediation And Tax-Efficient Settlement Of Probate Disputes.’

By Carl Islam, Barrister, TEP, Mediator, 1 Essex Court, Temple, London.

KEY POINTS:

  • Mediation is an opportunity to transform an acrimonious probate/trust dispute into a joint-problem solving exercise, by applying estate planning principles to discover and unlock tax-efficiency post-death, resulting in the enlargement of the estate/trust fund pie for settlement.
  • Therefore, instead of investing in litigation and incurring ongoing costs preparing for trial, family members in dispute, can invest in an estate and business succession planning process that costs each of them nothing, i.e., if the Mediator’s and their own professional advisors’ costs are paid out of the estate/ trust fund or in the case of an ultra-wealthy international family, by the Family Office.
  • In the opinion of the author, any technical tax planning that needs to be undertaken in order to obtain tax-efficiency through estate/trust asset re-structuring, necessarily requires the involvement of a CTA before terms of settlement are agreed, otherwise the Mediation process is likely to stall and could fail.
  • Transformative Mediation can also be used as a life-time estate and business succession planning process, in order to avoid a dispute following a monumental event, i.e., the loss of capacity or death of the Testator (‘T’).
  • In the opinion of the author, since planning involves a technical analysis that requires the application of specialist knowledge about the UK capital taxes regime, and of complex estate planning principles, participants may and should prior to the Mediation day, agree to the joint appointment of a single CTA, to provide an ‘Estate Planning Report’ (‘EPR’). This would be provided by the CTA to each of them and should also be copied to the Mediator. The EPR will scope and explain the potential to expand the estate pie/trust fund through innovative and retrospective IHT planning.
  • In the case of an international family, their lawyers and tax advisors (i.e., appointed by the family office), can engage with family members through a process of facilitated/mediated discussion, in order to jointly agree a holistic strategy and roadmap for practical implementation, that is approved by each family member. This may for example result in the re-drafting of: (i) the Family Company Articles and Memorandum of Association; (ii) a Shareholders’ Agreement; or (iii) an International Trust Deed that is no longer fit for purpose.
  • The use of Mediation as a life-time estate and business succession planning process is linked to: (i) IHT planning using a Family Investment Company (‘FIC’); and (ii) IHT planning for foreign domiciliaries (‘non-doms’) using a tax-efficient Excluded Property Trust (‘EPT’).

Introduction

Mediation is an opportunity to transform an acrimonious probate dispute into a joint-problem solving exercise, by applying estate and business succession planning principles, to discover and unlock tax-efficiency post-death, resulting in the consequential enlargement of the estate/trust fund pie for settlement.

In a probate/trust dispute, the convergence of interests around the ‘win/win’ principle of expanding the estate/trust fund pie by agreeing terms of settlement that result in enhanced tax-efficiency for the benefit of the estate/trust fund, opens the door to retrospective estate planning where e.g.:

(a)     The drafting of a will/trust is deficient from an Inheritance Tax (‘IHT’) planning perspective, e.g., if property is left into a discretionary trust, i.e., because the IHT Residential Nil-Rate Band (‘RNRB’) is not available even if all beneficiaries are lineal descendants, as the beneficiaries are not treated as the beneficial owners of the property.

(b)     T’s adult son (‘G.2’)/grandson (‘G.3’), is in an unstable marriage, or is improvident, by e.g., skipping a generation for capital preservation and asset protection (i.e., to shield capital assets in the event of divorce/ other catastrophic instability in G2/G3).

Mediation, is an opportunity for both the executors/trustees and beneficiaries (i.e., the primary ‘participants’ in the Mediation) to:

(a)     look forward rather than backwards, by focussing upon how to put the family house in order (i.e., the structure and fiduciary administration/management of the estate/trust fund); and

(b)     expand the estate/trust fund pie by maximising tax-efficiency, e.g.:

(i)      through the re-direction of testamentary gifts; and

(ii)     by conferring overriding powers on the trustees, which when exercised, enables them to re-structure the: legal and beneficial ownership; management; governance; control; and use of assets.

‘Peace at mediation is achieved not through overwhelming the other side but by finding enough common ground on which a settlement can be constructed that meets the reasonable expectations and needs of all sides.’ [‘Advising And Representing Clients At Mediation’, Second Edition (2019), by Stephen Walker and David Smith, Wildy, Simmonds & Hill Publishing, paragraph 1.2.4].  While IHT planning which benefits the entire estate/trust fund appears to create common ground, in the real world, whether a participant in a Mediation perceives it to be in their interest to explore this terrain (i.e. to explore hidden value by entering into a facilitated dialogue about the scope for tax-efficient post-death planning), is a commercial decision that each participant must make for themselves following a discussion with their own professional advisors and representatives at the Mediation. However, when participants enter into a dialogue about the testamentary scheme of gifting and re-structuring post-death, a motivating factor is that this is also a collateral opportunity to undertake and implement e.g.: asset-protection planning (to preserve and protect capital wealth for future generations); and family business succession planning. Together, these hidden agendas when they interconnect, may reveal the existence of fertile common ground for discussion, which results in a mutually satisfactory tax-efficient settlement of the dispute.

There is also the question of timing. In Mediation, a participant has the opportunity to seize the initiative and to make a proposal when setting the agenda for the Mediation and agreeing the ground-rules. One of the aims of the author in writing this article is to inform and educate professional advisors about the opportunity that Mediation presents, to initiate and progress a rational and informed discussion between participants about tax-efficient settlement using post-death estate/business succession planning tools, in a safe and confidential environment, without losing face. The author calls this form of facilitated dialogue – ‘Transformative Mediation.’

The unifying factor in all probate and trust disputes is the composition of the estate/ trust asset pool, and its value. It is not uncommon for litigation costs to exceed the value of an estate. Therefore, the earlier participants enter into Mediation, the more likely it is, that each will receive a slice of a larger pie (i.e., of the estate/trust fund), if the dispute settles at or shortly after Mediation. The proportion of cases that settle on the Mediation day is around 74%. The success rate rises to 89% if disputes which settle shortly afterwards are taken in to account, see: Reviewing the 2018 Eighth CEDR Mediation Audit – by Joseph Mulrooney (mediatelegal.co.uk).

In the first part of this article, the author explains what ‘Transformative  Mediation’ is, and how and why the process works. In the second part, the author discusses how to expand the pie in a probate dispute by enhancing tax-efficiency, which involves a three-stage process:

(a)     Stage 1 – ‘Preparation’, i.e., identification of the IHT exemptions and reliefs that are potentially available, which under the terms of the will/trust have either been: (i) squandered; or (ii) not fully utilised and maximised.

(b)     Stage 2 – ‘Planning’, i.e., the formulation, discussion, and agreement of planning principles and proposals for re-writing the terms of the Testator (T’s) will/trust, in order to enhance tax-efficiency, e.g., by re-directing legacies that were not tax-efficient.

(c)     Stage 3 – ‘Implementation’, i.e., by drafting a Settlement Agreement under the terms of which e.g., the beneficiaries undertake to execute a Deed of Variation (‘DOV’) on agreed terms set out in an appendix to the Agreement, in order to obtain tax-efficiency for the benefit of the entire estate/trust fund.

In the third part, the author explains how Transformative Mediation can also be used as a life-time wealth, estate, and business succession planning process, in order to avoid a dispute by putting the family house, i.e., wealth, estate and business succession planning, in order. In the fourth and final part, the author briefly discusses the relationship between Transformative Mediation and:

(i)      IHT planning using a Family Investment Company (‘FIC’); and;

(ii)     IHT planning for foreign domiciliaries (‘non-doms’), using a tax-efficient Excluded Property Trust (‘EPT’).

Unless otherwise stated, all statutory references are to the Inheritance Tax Act 1984 (‘IHTA’). Because estate, business succession, and tax planning is a bespoke and fact-sensitive exercise, and this area of the law is in a constant state of flux, the reader must obtain their own professional advice. What follows is not advice.

Estate Planning for art assets

I recommend the excellent article written by Arthur Byng Nelson, ‘The art of succession’ published in Taxation today. One of the strategies mentioned in the article is lending during the lifetime of a collector. However, this is fraught with legal risk. As the late Professor Norman Palmer wrote in ‘Itinerant Art and the Architecture of Immunity from Legal Process: Questions of Policy and Drafting’ (2001) XVI Art Antiquity and Law 1,
‘Museum documents commonly refer to the transfer of possession of an artwork for the purposes of exhibition as a ”loan”. In fact, many such transfers are not strictly loans but some other form of bailment. [Where] the borrower supplies no consideration for the agreement, the simple loan of a chattel involves no contract at common law.’
In the event of a dispute involving the loan of a work of art, its transportation or conservation, it may be possible to bring an action in tort, contract or bailment. The advantage for the lender of bringing an action styled as breach of the bailment rather than breach of a duty of care, concerns the burden of proof. If construed as a tort, the lender must prove that a duty of care has arisen, and that the borrower had breached it. If construed as a bailment, the burden is reversed: once harm to the object is shown, the borrower must prove that he or she took reasonable care in safeguarding the object. (Extract from ‘Bailment of Art Loans’ written by Professor Norman Palmer for the Institute of Art & Law Diploma in Art Law course in 2000). Careful consideration also needs to be given to the application and scope of the Government Indemnity Scheme, i.e. qualification; the exclusions; and loan pre-conditions. The exclusions include a third party claiming to be entitled to the object. Furthermore, paragraph 4.14 of the Government Indemnity Scheme Guidelines for National Institutions states that while, ‘The Secretary of State may issue section 16 indemnity in respect of items which have been accepted in part or whole satisfaction of estate duty, capital transfer tax or inheritance tax by the Commissioners of HM Revenue and Customs under the acceptance in lieu (AIL) procedure. [That] … in no case will indemnity cover total loss of an object accepted in lieu of capital taxes. … Borrowing national institutions must exercise great care to avoid applying to the Secretary of State for standard indemnity cover in respect of items acquired under the AIL procedure – they should request the modified certificate giving cover only for repairable damage. The Secretary of State will not issue indemnity to national institutions in respect of AIL items held in their own permanent collections.’ In contrast to the simple loan, many bailments both to and from museums, therefore involve highly sophisticated negotiations about the allocation of risks, resulting in legally robust contracts that clearly confer benefits and impose obligations on both sides.

My new article has been published worldwide today in Trusts & Trustees by Oxford University Press

To view my new article please click on this link:

https://academic.oup.com/tandt/advance-article/doi/10.1093/tandt/ttab101/6464191?guestAccessKey=247ea00c-f63d-4359-aa69-60b7e4bf3b5a

Title: Electing between equitable remedies’.

Date of publication worldwide: 16.12.2021.

Abstract

‘Carl Islam explains the operation of the principle of election, and concludes that in a breach of fiduciary duty claim, before an election between equitable remedies must be made by the claimant beneficiary, the judge should first consider the duties and powers of the defendant fiduciary. Because that exercise is inseparable from determination of breach, the author further submits that the exercise should be undertaken by the judge at the same time, i.e. at trial, before making a finding about breach.’

At the end, I also discuss Executors’ and Trustees’ duties in relation to land, and conclude that under English law,

‘the duties of executors, trustees, and trustees of land are the same in relation to land, see Byrnes v Kendle [2011] HCA 26, (2011) 243 CLR 253, at paragraphs 67 and 119, which was cited in Brudenell-Bruce v. Moore [2014] EWHC 3679 (Ch), by Mr Justice Newey at 88.’

I also explain that because of s.2 of the Trusts Of Land And Appointment of Trustees Act 1996 (‘Abolition of doctrine of conversion’), an executor is not under a duty (i.e. any legal compulsion), to sell land.

Trusts & Trustees‘ is a rigorously peer reviewed journal published by Oxford University.

‘Trusts & Trustees is the leading international journal on trust law and practice, and the official journal of the International Academy of Estate and Trust Law. The most significant source of information in its field, the journal is essential for all trusts practitioners and lawyers.’ About | Trusts & Trustees | Oxford Academic (oup.com)

Jurisdiction & Applicable Law in an International Trust Dispute

1.     Introduction

(a)    The choice of law rules for England and Wales, Northern Ireland and Scotland are set out comprehensively in the Hague Convention on the Law Applicable to Trusts and on their Recognition (the ‘Convention’), as implemented and extended by the Recognition of Trusts Act 1987 (‘RTA 1987’).

(b)    Preliminary issues relating to the validity of wills or transfers of assets to trustees fall outside the scope of the Convention.

(c)    In practice, three questions typically arise:

(i)     technically, does the English Court have jurisdiction to entertain the claim;

(ii)     which legal system will the Court apply to resolve the dispute on the merits; and

(iii)    will the English Court recognise and enforce a judgement.

(d)    The convention:

(i)     harmonises the choice of law rules applicable in contracting states (and other states subsequently acceding to or implementing the Convention); and

(ii)     expressly provides for the recognition of trusts falling within its scope.

(e)    Section 1(1) of the RTA 1987 states that ‘The provisions of the Convention set out in the Schedule … shall have the force of law in the United Kingdom’.

(f)     Under English law, questions involving the administration of a trust and the personal liability of the trustees to the beneficiaries for breach of trust are governed by the law applicable to the trust (Article 8 of the Convention as implemented by section 1(1) of the RTA 1987). The applicable law is either the law chosen by the settlor (Article 6) or, if there is no choice, the law of the country with which the trust is most closely connected (Article 7).

2.     Preliminary issues

‘In the case of a voluntary testamentary or inter vivos trust, there is an important preliminary issue to be faced, namely whether the instrument which creates the trust, i.e. the will or settlement, is valid according to the relevant governing law. Article 4 of the Convention makes it quite clear that this preliminary issue as to validity falls outside the scope of the Convention. The relevant choice of law rules will be those governing, for example, the formal or essential validity of wills or, in the fairly rare cases where there is a settlement, those governing the validity of contracts or deeds. In the case of a testamentary trust it will also be for the law governing the validity of the will to determine, for example whether the testator is required to leave a fixed portion of his estate to his or her spouse or children rather than on trust for other beneficiaries … Not only does a voluntary trust depend on there being a valid instrument of creation, it is also necessary that the transfer of the trust assets is valid. This further preliminary issue is also excluded from the Convention by reason of Article 4, as being an act “by virtue of which assets are transferred to the trustee”. The choice of law issue as to whether a trustee has effective legal title to the assets to hold them for the beneficiaries will normally be governed by the general rules applicable to the transfer of property, e.g. the law of the situs in the case of tangible movables and of immovables. If the instrument of creation of the trust is valid under its governing law, the trust will, nevertheless, fail if the law of the situs does not permit the transferee to alienate the property at all, but once the property can be alienated in some way it is for the law applicable to the trust to govern the validity and effect of the declaration of trust.’ (Cheshire, North & Fawcett – Private International Law, edited by Paul Torremans, 15th edition (2017), Oxford University Press, at p.1385).

3.     Capacity

Capacity to make an inter vivos gift is governed by the law of domicile of the donor at the time of the gift. In the case of real property, the lex situs will determine what level of capacity applies. Under English law, in order to put property into trust the settlor must not be:

(a)    a person who lacks capacity in accordance with the MCA 2005;

(b)    a minor; or

(c)    someone who is legally disbarred from owning or disposing of legal or equitable title to property.

4.      Validity and enforceability

(a)    In Akers & Ors v. Samba Financial Group (Rev 1) [2017] UKSC 6, at [17],[18],[20],[24] to [28],[32] to [34], and [36] to [40], Lord Mance stated the following principles:

(i)     At common law, the nature of the interest intended to be created by a trust depends on the law governing the trust.

(ii)     The governing law determines whether the intention is to give a beneficiary either an equitable proprietary interest in an asset held on trust, or a mere right against the trustee to perform whatever functions the trust imposes upon him with regard to the use and disposal of the foreign asset and income derived from it.

(iii)    Where the intention is to create an equitable proprietary interest, then the common law position is as stated in Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] AC 669, per Lord Browne-Wilkinson:

‘Once a trust is established, as from the date of its establishment the beneficiary has, in equity, a proprietary interest in the trust property, which proprietary interest will be enforceable in equity against any subsequent holder of the property (whether the original property or substituted property into which it can be traced) other than a purchaser for value of the legal interest without notice.’

(iv)   The initial inquiry is whether an equity subsists, which it will prima facie do at common law, so long as the relevant property (original or substitute) does not pass into the hands of a transferee for value of the legal interest without notice of the equity.

(v)    In addition, where under the lex situs of the relevant trust property, the effect of a transfer of the property by the trustee to a third party, is to override any equitable interest which would otherwise subsist, that effect should be recognised as giving the transferee a defence to any claim by the beneficiary, whether proprietary or simply restitutionary.

(vi)   The English Courts have regularly stated their willingness to enforce in personam trusts in respect of property abroad. As the Earl of Selborne LC said in Ewing v. Orr Ewing [1883] LR 9 App Cas 34, ‘The Courts of Equity in England are, and have always been, Courts of conscience, operating in personam and not in rem; and in the exercise of this personal jurisdiction they have always been accustomed to compel the performance of contracts and trusts as to subjects which were not either locally or ratione domicilii within their jurisdiction.’

(vii)   The English Court has exercised such jurisdiction, applying the principles of English law to enforce trusts relating to foreign property, even though the lex situs did not recognise such principles.

(viii)   Peter Gibson LJ, giving the lead judgment, applied the Earl of Selborne’s words in Ewing and endorsed the statement by Parker J in Deschamps v. Miller [1908] 1 Ch 856, that the Court would act where there was ‘some personal obligation arising out of contract or implied contract, fiduciary relationship or fraud, or other conduct which, in a view of a Court of Equity in this country, would be unconscionable’ and that whether it would do so did not depend ‘on the law of the locus of the immovable property’.

(ix)   Peter Gibson LJ also recognised that the lex situs can, under the principle recognised in Macmillan v. Bishopsgate, have a significance in the case of a third-party transfer. He said, at (p 38), that the English Court had,

‘not unnaturally regarded English law as applicable to the relationship between the parties before it in the absence of any event governed by the lex situs destructive of the equitable interest being asserted.’

(x)    The English Court will accept jurisdiction and apply English law as the applicable law, even though the suit relates to foreign land.

(xi)   However, if the equity which is asserted does not exist between the parties to the English litigation (e.g. where there has been a transfer of the property to a third party with notice of an equity but by the lex situs governing the transfer the transfer extinguished the plaintiff’s equity), the English Court cannot give relief against the third party even though he is within the jurisdiction.

(xii)   These authorities were recently and instructively examined by Roth J in Luxe Holding Ltd v. Midland Resources Holding Ltd [2010] EWHC 1908 (Ch) who engaged in the following analysis:

‘It is trite but nonetheless important to recall that equity acts in personam … Unless precluded by authority, it seems to me that as a matter of principle where the parties have expressly chosen English law and the exclusive jurisdiction of the English Court, they have voluntarily subjected themselves to the English system of remedies.’

(xiii)  After considering British South Africa Co v. De Beers Consolidated Mines Ltd and Lightning v. Lightning Electrical Contractors Ltd, Roth J continued:

‘I do not consider that the reasoning in Lightning is confined to the particular case of a resulting trust. On the contrary, it seems to me of general application.’

(xiv) Therefore, in the eyes of English law, a trust may be created, exist and be enforceable in respect of assets located in a jurisdiction, the law of which does not recognise trusts in any form.

(xv)  To regard a trust as falling outside the Convention under article 4, simply because its assets consist of assets in a jurisdiction which does not recognise a division between legal and equitable proprietary interests, is wrong.

(xvi) There is nothing in the Convention to suggest that it was intended to be inapplicable to a trust simply because the trust was in respect of assets in a jurisdiction which does not recognise some form of separation of legal and equitable interests. Rather, the contrary – since one object of the Convention was to provide for the recognition of trusts in jurisdictions which did not themselves know the institution.

(b)    In ‘The Hague Trusts Convention after Akers v. Samba’, Trusts & Trustees, Vol 24, No.4, May 2018, Professor Jonathan Harris QC, concluded that, ‘clarification as to the applicability and application of the Hague Trusts Convention at Supreme Court level will have to wait for another day. In the meantime, their Lordships obiter remarks on the scope and application of the Convention arguably raise as many questions as they answer. [In particular]:

(i)     The scope of Article 4 on preliminary matters excluded from the ambit of the Convention remains elusive.

(ii)     It remains unclear precisely what the role of the law of the situs is.

(iii)    It is clear from the judgements that Article 15 is not the favoured route to determine the effects of the transfer of property held on trust to a third party. But the judgements otherwise provide little guidance as to the proper ambit of Article 15.

(iv)   Perhaps above all, the Supreme Court proceeded to determine the case entirely on the basis of English domestic law.’ 

5.     Transfer of trust assets

The choice of law issue as to whether a trustee has effective legal title to the assets to hold them for the beneficiaries will normally be governed by the general rules applicable to the transfer of property, e.g. the law of the situs in the case of tangible movables and immovables. (See Torremans, pp. 1267 to 1278).

6.       Exclusive jurisdiction clauses

(a)    The effectiveness of an exclusive jurisdiction clause in a trust deed was decided in Crociani v. Crociani [2014] UKPC 40.

(b)    Lord Neuberger stated at [33] to [37] that:

(i)     in the context of contractual exclusive jurisdiction clauses, the approach of the Court to a claim brought in another jurisdiction was authoritatively described by Lord Bingham of Cornhill in Donohue v. Armco Ltd [2001]

‘If contracting parties agree to give a particular Court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the agreement is made in proceedings in a forum other than that which the parties have agreed, the English Court will ordinarily exercise its discretion … [But] where parties have bound themselves by an exclusive jurisdiction clause effect should ordinarily be given to that obligation in the absence of strong reasons for departing from it. Whether a party can show strong reasons, sufficient to displace the other party’s prima facie entitlement to enforce the contractual bargain, will depend on all the facts and circumstances of the particular case.’

(ii)     The defendant to such a claim has a contractual right to have the contract enforced and his right specifically to enforce his contract can only be displaced by strong reasons being shown by the opposite party why an injunction should not be granted. Thus, where a claim has been brought in a Court in breach of a contractual exclusive jurisdiction clause, the onus is on the claimant to justify that claim continuing, and to discharge the onus, the claimant must normally establish strong reasons for doing so.

(iii)    In the case of a clause in a trust, the Court is not faced with the argument that it should hold a contracting party to her contractual bargain … The Court [has] a power to supervise the administration of trusts, primarily to protect the interests of beneficiaries, which represents a clear and … significant distinction between trusts and contracts.

(iv)   Accordingly, the Board considers that, while it is right to confirm that a trustee is prima facie entitled to insist on and enforce an exclusive jurisdiction clause in a trust deed, the weight to be given to the existence of the clause is less (or the strength of the arguments needed to outweigh the effect of the clause is less) than where one contracting party is seeking to enforce a contractual exclusive jurisdiction clause against another contracting party.’

7. Exercise by the court of its discretion to permit service of the claim form outside the jurisdiction

Once the claimant has shown a good arguable case that his claim falls within a sub rule of CPR, PD 6B, para 3.1, he must persuade the court to exercise its jurisdiction to permit service of the claim form out of the jurisdiction. The constituent factors of this discretion were reviewed by the House of Lords in Seaconsar (Far East) Ltd v. Bank Markazi Jomhouri Islami Iran [1994] 1 AC 348. See further, paragraph 1.138 of The International Trust, edited by Mr Justice David Hayton, Third edition 2011, Jordan Publishing, which states:

‘(1)   The claimant must show that England is clearly or distinctly the natural forum. This requirement, previously a matter of common law authority, is now stated in CPR, r.6.37(3), which provides that,

“The court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim.”

The factors which would be relevant to establishing this are those considered in relation to the first limb of the stay test; the only difference is the reversal of the burden of proof. However, even if England is not the natural forum, the claimant might, in very exceptional circumstances, be able to demonstrate that England is the proper place in which to litigate, on the basis that justice cannot be obtained elsewhere.

(2)    Permission will nonetheless not be granted if it would be unjust for the defendant to be sued in England. It is suggested that the burden of proof on this point should transfer to the defendant, though the matter is by no means clear. The relevant factors ought to be those which apply under the second limb of Spiliada Maritime Corp v. Consulex [1987] AC 460 in the stay context.’

[See also paragraph 5.80 of International Trust Disputes, edited by Steven Kempster, Morven McMillan and Alison Meek, Decond Eidtion, 2020, Oxford University Press].

(3)    There must be a serious issue to be tried on the merits. At common law, it was established that the claimant’s prima facie case must be strong enough that the defendant could not successfully have struck it out. CPR, r.6.37(1)(b) now also requires the claimant to assert in his application that he believes that he has a reasonable prospect of success on the merits. However, it must be recalled that English law will not necessarily govern on the merits. It might be contended that whether there is a serious issue should be determined by applying the governing law on the merits of the dispute; although this would be somewhat inconvenient at the jurisdiction stage.’

8. PD 6B para 3.1

‘The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where –

General Grounds

(1) A claim is made for a remedy against a person domiciled within the jurisdiction.

(2) A claim is made for an injunction ordering the defendant to do or refrain from doing an act within the jurisdiction.

(3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –

(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and

(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.

(4) A claim is an additional claim under Part 20 and the person to be served is a necessary or proper party to the claim or additional claim.

(4A) A claim is made against the defendant  in reliance on one or more of paragraphs (2), (6) to (16), (19) or (21) and a further claim is made against the same defendant which arises out of the same or closely connected facts. …

Claims about trusts etc.

(12) A claim is made in respect of a trust which is created by the operation of a statute, or by a written instrument, or created orally and evidenced in writing, and which is governed by the law of England and Wales.

(12A) A claim is made in respect of a trust which is created by the operation of a statute, or by a written instrument, or created orally and evidenced in writing, and which provides that jurisdiction in respect of such a claim shall be conferred upon the courts of England and Wales.

(13) A claim is made for any remedy which might be obtained in proceedings for the administration of the estate of a person who died domiciled within the jurisdiction or whose estate includes assets within the jurisdiction.

(14) A probate claim or a claim for the rectification of a will.

(15) A claim is made against the defendant as constructive trustee, or as trustee of a resulting trust, where the claim arises out of acts committed or events occurring within the jurisdiction or relates to assets within the jurisdiction.

(16) A claim is made for restitution where –

(a) the defendant’s alleged liability arises out of acts committed within the jurisdiction; or

(b) the enrichment is obtained within the jurisdiction; or

(c) the claim is governed by the law of England and Wales.’

9. Extracts from the Hague Convention

Article 1

This Convention specifies the law applicable to trusts and governs their recognition.

Article 2

For the purposes of this Convention, the term “trust” refers to the legal relationships created – inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. A trust has the following characteristics –

a) the assets constitute a separate fund and are not a part of the trustee’s own estate;

b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;

c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law. The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust.

Article 3

The Convention applies only to trusts created voluntarily and evidenced in writing.

Article 4

The Convention does not apply to preliminary issues relating to the validity of wills or of other acts by virtue of which assets are transferred to the trustee.

Article 5

The Convention does not apply to the extent that the law specified by Chapter II does not provide for trusts or the category of trusts involved.

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.

Article 7

Where no applicable law has been chosen, a trust shall be governed by the law with which it is most closely connected. In ascertaining the law with which a trust is most closely connected reference shall be made in particular to –

a) the place of administration of the trust designated by the settlor;

b) the situs of the assets of the trust;

c) the place of residence or business of the trustee;

d) the objects of the trust and the places where they are to be fulfilled.

Article 8

The law specified by Article 6 or shall govern the validity of the trust, its construction, its effects, and the administration of the trust. In particular that law shall govern –

a) the appointment, resignation and removal of trustees, the capacity to act as a trustee, and the devolution of the office of trustee;

b) the rights and duties of trustees among themselves;

c) the right of trustees to delegate in whole or in part the discharge of their duties or the exercise of their powers;

d) the power of trustees to administer or to dispose of trust assets, to create security interests in the trust assets, or to acquire new assets;

e) the powers of investment of trustees;

 f) restrictions upon the duration of the trust, and upon the power to accumulate the income of the trust;

g) the relationships between the trustees and the beneficiaries including the personal liability of the trustees to the beneficiaries;

h) the variation or termination of the trust;

i) the distribution of the trust assets;

 j) the duty of trustees to account for their administration.

See also my blog ‘Trust Litigation after Brexit’: Trust Litigation after BREXIT | Carl’s Wealth Planning Blog – Just Google ‘Carl’s Wealth Planning Blog and use the search box. There is a link to the blog on the left hand side at www.ihtbar.com

‘Transformative Mediation’ Talk in 2022

‘Transformative Mediation – How to transform a Contentious Probate, Inheritance Act and Trust Dispute, into an opportunity to expand the pie by applying estate planning principles to develop bespoke and holistic family wealth structuring solutions.’
The following is the draft introduction to a 1 hour pre-recorded talk I am developing to present globally to lawyers, trustees, and family offices during the second half of 2022. Please email any comments to carl@ihtbar.com. I will be completing the draft outline for submission to the seminar provider in mid-January. (www.ihtbar.com).
Draft Introduction – If:
(i)     participants in mediation can use the paradigm of a ‘store of value’ to perceive and re-configure the attributes and worth to each of them of an asset; and
(ii)     the wishes, needs, and priorities of each participant are asymmetrical,
then it may be possible to design a bespoke solution to the problem of reconciling their competing and potentially conflicting claims and priorities, by re-structuring: (a) the legal and beneficial ownership; (b) management and control; (c) use; enjoyment; and commercial exploitation, of the asset, to their mutual advantage.
While this will require compromise, if a practical and sustainable plan is developed and implemented as a result of the process, this may avoid a dispute following a monumental event, i.e. loss of capacity or death of the head of the family.
There may also be hidden value in the form of unutilised tax, regulatory, privacy, asset-protection, and governance efficiencies. Transformative Mediation can therefore also be used to explore how the estate/trust fund pie can be expanded.
Instead of investing in litigation and incurring escalating costs, family members in dispute over an asset, can invest in an estate and business succession planning process that costs each of them nothing, i.e. if the Mediator’s and professional advisors’ costs are paid out of a trust fund or by a Family Office. Therefore, if an international business family does not know where to go, and how to start an inter-family dialogue about how to put their house in order before a monumental event occurs, then a pre-emptive process of Transformative Mediation can also be used to create a safe space in which each key family member is empowered to:
1.     voice their individual: needs; concerns; hopes; expectations; and priorities, to a non-partisan and disinterested person, who is bound by confidentiality and has the soft skills to talk to them, i.e. a mediator; and
2.     speak through the mediator, to a multi-disciplinary team of professional advisors appointed by the Family Office,
in order to jointly develop and agree bespoke practical solutions to the problem.
In other words, Transformative Mediation can be used as an estate and business succession planning process in order to put the family’s house in order and avoid a dispute.

Society of Mediators CPD Training Day 2021

Many thanks to Jonathan Dingle, Zoey White, Steven Malcolm OBE, and Lord Strathcarron at the Society of Mediators, for running the SOM Mediation CPD Day 2021 yesterday. I thought this was an excellent opportunity for all members of the Society of Mediators to road-test new techniques in the safe environment of mock mediations with their peers, and to observe different styles of mediation. I thoroughly recommend the course to everyone who practices as a mediator. I think that the more you mediate the more you learn and grow as a mediator. So, for those who like myself are just starting out in their mediation practice, you can gain insights into the psychology of mediation, and develop mediator knowhow by attending these training days. In the case study I mediated (which was a probate dispute about a testamentary gift of a luxury asset),  I road-tested various techniques I have been developing to transform a Contentious Probate, Inheritance Act and Trust Dispute, into an opportunity to expand the pie by applying estate planning principles to develop bespoke and holistic family wealth structuring solutions. The dispute settled with three minutes left to go before the Mediation was scheduled to end. Even though there was some initial hostility and resistance to the idea that a luxury asset can be viewed as ‘a store of value’ to which different participants may attach asymmetrical values in relation to what they each want and need, that can be re-structured so that one participant gets e.g. the orange peel and the other the orange pulp, in theory these Mediator techniques can work.

Zoom Mediations (www.ihtbar.com)

Zoom Mediations (www.ihtbar.com) – The Government is poised to announce ‘Plan B’ rules including working from home as early as today.
‘It comes after experts warned Covid cases could hit 90,000 a day by Christmas, as hospital admissions begin to increase even before the more transmissible omicron variant takes hold across Britain.
The emergence of the omicron variant of the coronavirus in southern Africa last month is causing concern around the world, not least because it is thought to be highly transmissible and because the 32 mutations of its spike protein suggest it might be able to resist current vaccines.’ Source: The Independent (08.12.2021).

Reviews of my recent book

STEP published an online review of my book the ‘Contentious Trusts Handbook – Practice and Precedents’ today. For all reviews of the book, which was published by the Law Society, please visit the ‘Contentious Trusts Handbook’ page at www.ihtbar.com. For reviews of my previous book, the ‘Contentious Probate Handbook’ please visit the ‘Contentious Probate Handbook ‘ page at www.ihtbar.com.

Using transformative mediation as an estate planning process?

I am currently developing a three hour seminar to present next year by Zoom called, ‘Transformative Mediation’ – How to transform a Contentious Probate, Inheritance Act and Trust Dispute, into an opportunity to expand the pie by applying estate planning principles to develop bespoke and holistic family wealth structuring solutions.

The pie can be expanded by e.g.

(a) using estate/trust funds to pay for professional advice about estate planning and asset-re-structuring, instead of paying for escalating litigation costs;

(b) re-directing testamentary gifts to enhance tax-efficiency (and I am also currently co-writing an article with Stephanie Churchill CTA for Taxation about this); and

(c) re-structuring the holding of estate assets. It recently occurred to me that the application of estate planning principles through a process of transformative mediation can also be used to develop and implement a holistic plan for putting a family’s house in order before a dispute arises.

This might include e.g.

(i) reviewing and re-drafting a family trust deed that is not fit for purpose; and

(ii) altering the share capital structure of a family owned company, and re-drafting the articles and shareholders’ agreement/LLP Members Agreement for succession planning.

Where a business family does not know where to go, and how to start, a facilitated discussion about the joint development of a bespoke plan for:

(i)     business succession; and

(ii)    estate planning/ asset ownership structuring and fiduciary management, then as a process undertaken before a dispute has arisen, Transformative Mediation may be used to create a safe space in which each key family member can:

(a)    voice their individual: needs; concerns; hopes; expectations; and priorities, to a trusted neutral, and disinterested person, who has the soft skills to talk to them, i.e. a mediator; and

(b)    to speak through the mediator, to a multi-disciplinary team of professional advisors acting for the family, to jointly develop a bespoke and holistic plan designed to achieve defined objectives, with the flexibility to adapt to changes in circumstances. 

See also my blog: ‘We are all in this together!’ | Carl’s Wealth Planning Blog

My article new article ‘Electing between equitable remedies’

My new article ‘Electing between equitable remedies’, has been approved for publication by Oxford University Press for Publication in Trusts & Trustees, and is scheduled for publication in Issue 2 of the current volume (28).

Abstract

Carl Islam explains the operation of the principle of election, and concludes that in a breach of fiduciary duty claim, before an election between equitable remedies must be made by the claimant beneficiary, the judge should first consider the duties and powers of the defendant fiduciary. Because that exercise is inseparable from determination of breach, the author further submits that the exercise should be undertaken by the judge at the same time, i.e. at trial, before making a finding about breach. To request a copy of the article following publication, please send an email to carl@ihtbar.com

Trusts & Trustees is the leading international journal on trust law and practice, and the official journal of the International Academy of Estate and Trust Law. The most significant source of information in its field, the journal is essential for all trusts practitioners and lawyers.

Our distinguished editors Toby Graham (Partner, Head of the Contentious Trusts and Estates group, Farrer & Co., UK) and David Russell QC (barrister, and Deputy Chair of STEP Worlwide 2019 – 2020) lead a superb Editorial Board and team of Country Correspondents, including Lord Peter Millett, Richard Pease, and Nicholas Le Poidevin QC, who are well placed to provide unparalleled international coverage.

The journal is ideal for international trust lawyers working in both private practice and in-house in trust companies; trusts practitioners; and those working in trust companies. It will also be an essential source of reference for academics specializing in trusts; members of the judiciary; members of regulatory bodies; and institutional libraries.’

About | Trusts & Trustees | Oxford Academic (oup.com)

About the author

Carl Islam LLM (Exon)(International Business Law), of Lincoln’s Inn and the Middle Temple, Barrister-at-Law (practising), TEP, SCMA accredited mediation advocate, MSoM, Certified Mediator and Panel Member of the Society of Mediators in London. Dual qualified as a Solicitor of the Supreme Court. Registered Public Access Barrister and authorised by the Bar Standards Board to conduct litigation. Chambers of Ian Mayes QC, First Floor, 1 Essex Court, Temple, London (www.1ec.co.uk). Author of the ‘Contentious Probate Handbook – – Practice and Precedents’ (published by the Law Society in October 2016); the ‘Contentious Trusts Handbook – Practice and Precedents’ (published by the Law Society in July 2020); and of ‘Tax-Efficient Wills Simplified’ (Amazon Kindle book). As a practising Barrister and Mediator, Carl specialises in Contentious Probate, Inheritance Act, and Trust Disputes (including Co-Habitation and Ownership of Property). Carl is also a contributor to Taxation (Tolley), and is developing the outline of a six hour course to present by Zoom from May 2022 entitled, ‘Trust Disputes, Litigation & ADR’.. For more information please visit, www.ihtbar.com. I am currently co-writing an article with Stephanie Churchill CTA for publication by Taxation early next year entitled, ‘The use of DOV’s, s.142 appointments with reading-back under s.144, and disclaimers, in settling a contentious probate dispute.’ I am also developing the outline of a six hour course to present by Zoom from May 2022 provisionally entitled, ‘Transformative Mediation’ – How to transform a Contentious Probate, Inheritance Act and Trust Dispute, into an opportunity to expand the pie by applying estate planning principles to develop bespoke and holistic family wealth structuring solutions.