By John Wojtowicz (Director – Law Central Legal)

Following the proliferation of trust usage over the past 70 years, it is not uncommon for trusts and trustees to deal over multiple jurisdictions. The question arises as to which law will govern a trust which has property and dealings across multiple jurisdictions. A trust deed will often nominate a jurisdiction through an exclusive or non-exclusive jurisdiction clause, although a hybrid of the two is possible. The key difference between the two clauses is that a non-exclusive clause will provide the trustee with the option of whether to proceed under that jurisdiction, whereas the exclusive clause nominates a single jurisdiction by which parties are obliged to proceed under. It is important to know which jurisdiction applies to your trust because different jurisdictions treat trusts differently. If you incorrectly identify the trust’s jurisdiction, then any trust administration and trust disputes may be incorrectly addressed.  

What is a jurisdiction clause?

A court will often have inherent jurisdiction under the common law regarding the administration of a trust if it has jurisdiction over the trustees (in personam) as per the decision in Chellaram v Chellaram [1985] Ch. 409. This general position may be varied by the inclusion of a jurisdiction clause in the trust.  

A jurisdiction clause should not be confused with a choice of law clause. The choice of law clause is a similar but different clause. The choice of law clause will elect which law will be used to regulate the obligations and rights of both parties, whereas the jurisdiction clause deals with the issue of which jurisdiction will be used to hear disputes in relation to the trust.

Whether the clause is exclusive or non-exclusive will depend on the intention of both parties as was decided by the Court in Ace Insurance Ltd v Moose Enterprise Pty Ltd [2009] NSWSC 724. Brereton J noted that ‘[n]ot every submission to jurisdiction involves a promise not to sue in a foreign jurisdiction; it will do so only if it is an “exclusive jurisdiction” clause’ at [15]. The court makes a distinction between the application of a jurisdiction clause and the application of a choice of law clause. The former is a contractual obligation whereas the latter is a mere declaration of the party’s intent.

The recent decision of Huntingdale Village Pty Ltd (ACN 085 048 531) (Receivers and Managers Appointed) v Corrs Chambers Westgarth [2018] WASCA 90reiterated that under the common law a decision to elect a foreign jurisdiction would be valid where the intention is genuine and there is no reason to avoid it for public policy reasons. The court referred to an earlier UK decision where it was settled that the proper law of a contract is the law elected by parties. This is subject to several conditions. These conditions include that the intention of the parties is bona fide; that it is legal to nominate that jurisdiction; and electing to use that jurisdiction does not conflict with any public policy grounds.

International jurisdictions and trusts

The Convention on the Law Applicable to Trusts and on Their Recognition 1985 (“Convention”) is an international convention setting out the grounds upon which the signatory countries will recognise trusts from other jurisdictions. Under the Convention, a signatory country will generally recognise trusts which are voluntarily and evidenced in writing. However, there is potentially scope for this to not be applied in cases where it would be clearly incompatible with public policy.

Article 6 of the Convention states that “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 settlor has not chosen the governing law, Article 7 of the Convention sets out the factors which are to be taken into account in determining the law which the trust is most closely connected to.

Private international law in Australia accords parties a wide discretion to choose the law that governs a contract or part of a contract. This was confirmed in the case of Akai Pty Ltd v The People’s Insurance Company Ltd (1996) 18 CLR 418.

Legislation may also govern the way in which jurisdiction is determined in Australian courts. An example of this is section 17 of the Trans-Tasman Proceedings Act 2010 (Cth). This section allows for an application to be made to stay the proceedings of an Australian court if it is determined that a New Zealand court is the appropriate court for the matter.

The Application of the Convention in Australia

One issue with trust dealings in Australia is that each of the states and territories currently has their own trusts legislation in force. The regulation and enforcement of this legislation varies from state to state and it is important to understand the differences between each Act before electing a particular governing law in your trust deed. Section 7(1) of the Trusts (Hague Convention) Act 1991 (Cth) states that the Convention will not apply where there is conflict solely between the laws of different Australian States or Territories.

One should note that there are limits as to the extent which a governing law can be chosen by a trust. For example, a trust based in Australia cannot nominate the taxation laws in another country and avoid taxation under Australian law.  

Gold and Platinum members read on for a discussion on the approach taken by Australian Courts when determining the jurisdiction of a trust which has not nominated a jurisdiction or choice of law.

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central Legal recommends you seek professional advice before taking any action based on the content of this Bulletin.