NMH v PWP & ors

The Claimants seek to enforce a $1.6 billion arbitral award against shares in a BVI company registered in the name of D2, which they say he holds as nominee for the D1, the judgment debtor. D2 objects to a charging order being made against those shares on the basis that (amongst other things) any trust of the shares would be governed by Iraqi law, and Iraqi law does not recognise the concept of a trust, such that D1 cannot have a beneficial interest in the shares.

Under common law conflict of laws principles, the law governing a trust is that expressly or impliedly chosen by the settlor, or the law with which the trust is most closely connected. That is reflected in Articles 6 and 7 of The Hague Trusts Convention, the Recognition of Trusts Act 1987, and (in the BVI) the definition of the ‘proper law’ of the trust in s.80 of the Trustee Act 1961.

However, many offshore jurisdictions have enacted ‘firewall’ legislation to protect certain trusts from potential challenges to their validity or effect. In the BVI, those provisions are in s.83A of the Trustee Act 1961, which was enacted in 2003 and amended in 2021. In particular:

• Section 83A(7)-(8) and the First Schedule set out the laws governing the “formal and essential validity” of certain “dispositions” (which includes any transaction by which any interest in property is created or extinguished). Those applicable laws are linked to the nature of the trust property, rather than the proper law of the trust. In the case of shares in a BVI company, that law is BVI law.
• Section 83A(12) provides that, subject to those provisions, the ‘proper law’ of the trust applies to certain listed matters.
• Section 83A(13)(a) provides that no Virgin Islands trust and no disposition to such a trust is void or defective by reason that a foreign law does not recognise the concept of a trust.

D2 contended that (i) the trust property-linked law determined by s.83A(8) and the First Schedule only applies to transfer of property into a trust, but (ii) the validity of the trust itself remains governed by the 'proper law’ under ss.80 and 83A(12).

Justice Mithani rejected that argument, holding that s.83A ensures that the validity of a trust of BVI shares is governed by BVI law, and that its validity cannot be undermined by any foreign law which would apply as the ‘proper law’ of the trust. The BVI firewall legislation was designed “with a view to achieving international acceptance and placing the BVI ahead of other jurisdictions in the conflict of laws sphere”. It was therefore irrelevant whether Iraqi law recognises trusts. D2’s Iraqi law case was struck out.

Ben Valentin KC (of Fountain Court Chambers) and Andrew Trotter appeared for the successful claimants/applicants, with Claire Goldstein and Isobel McNaught of Harneys, Westwood & Riegels, and instructed by Jones Day and Meysan Partners.

The full judgment is available here.