¶ 2501
Overview
The subject of the chapter. The earlier chapters of this Part examined what a creditor must do in Nevis: prove a fraudulent disposition beyond reasonable doubt within the limitation periods (see supra ch. 21), post the bond and swear the affidavit that section 50(3) of the trust Ordinance requires (see supra ch. 22), and overcome the refusal to recognize foreign judgments (see supra ch. 23). Most creditors of a person who has settled a Nevis trust or holds a Nevis company never attempt any of that. They act where the debtor is. This chapter examines what a court outside Nevis can do to the people and property connected with a Nevis structure: the orders it can make against a settlor, protector, member or manager within its reach; the enforcement of those orders by civil contempt; the defense that compliance is impossible and the rule that impossibility the contemnor created is no defense; the treatment of the statutory and contractual duress provisions; the powers of a bankruptcy court and a bankruptcy trustee; and the position in England and the Commonwealth.
Why the foreign court matters most. A Nevis trust may be beyond the reach of an American court. Its settlor usually is not. The Ninth Circuit observed, quoting a practitioner, that "often times all that remains within the jurisdiction is the physical person of the defendant." FTC v. Affordable Media, LLC, 179 F.3d 1228, 1240 (9th Cir. 1999). A court with personal jurisdiction over the settlor may order the settlor to cause the trust assets to be returned and, if the settlor does not comply, may confine the settlor until the settlor does. The strength of the trust in Nevis does not answer that order. The same is true of a member who manages a Nevis company, and of a protector who lives where the creditor sues. For a client resident in the United States, contempt is the remedy that most often decides whether a Nevis structure protects anything in practice.
The settled position. Five propositions emerge from the cases examined in this chapter. First, a court with personal jurisdiction over a person may order that person to repatriate property abroad that is under the person's control, and may enforce the order by civil contempt. Second, inability to comply is a defense to civil contempt, but the contemnor bears the burden of producing evidence of it, and in the asset-protection context that burden is "particularly high." Id. at 1241. Third, the courts that have decided the question hold that impossibility the contemnor created is no defense. Fourth, coercive confinement may continue for as long as it retains a realistic prospect of producing compliance, and the reported confinements have lasted years. Fifth, a bankruptcy court has, in addition, the power to treat the debtor's interest in a foreign trust as estate property, to avoid self-settled transfers made within ten years, and to deny the debtor a discharge, which leaves every debt in place.
What Nevis adds. Nevis law does not and cannot prevent a foreign court from acting on persons within its reach. It does three things that matter before the foreign court. It directs every person holding a power under an international trust to ignore demands made under compulsion of a foreign order, "to the extent such person would not be subject to personal liability or personal exposure." Nevis International Exempt Trust Ordinance, Cap. 7.03(N), § 16 (rev. ed. 2017) ("NIETO"). It removes a trustee or protector from office automatically when a foreign court fails to dismiss an action against it or orders it to act. Id. § 38(1)–(2). And it confines every judgment creditor of a member of a Nevis company, "including a trustee-in-bankruptcy," to a charging order, and makes foreign orders against the company unenforceable in Nevis. Nevis Limited Liability Company Ordinance, Cap. 7.04(N), § 60(1), (12) (rev. ed. 2020) ("NLLCO"). How a foreign court treats each of those provisions is the subject of ¶ 2540.
The Nevis cases. No reported American decision has been located in which the settlor of a trust governed by Nevis law was held in contempt for failing to repatriate it. Two reported decisions involve Nevis directly. In SEC v. Brennan, a trust moved to Nevis under its flight clause, and the High Court dismissed the bankruptcy trustee's action against it "for failure to state a claim under Nevis law"; the Second Circuit then vacated a repatriation order made after the debtor's bankruptcy filing. 230 F.3d 65, 67–69, 71–73 (2d Cir. 2000) (see infra ¶ 2520.06). In Fogerty v. Petroquest Resources, Inc. (In re Condor Insurance Ltd.), the liquidators of a Nevis insurer obtained recognition in the United States and were permitted to pursue avoidance claims under Nevis law. 601 F.3d 319, 323–24 (5th Cir. 2010) (see infra ¶ 2570.07). The contempt cases discussed below concern trusts in the Cook Islands, Mauritius, the Bahamas, Bermuda and Jersey. Their reasoning does not depend on the trust's governing law and applies to a Nevis trust in the same way.
Relation to other chapters. The trustee's response when it receives a compelled demand, and the operation of sections 16 and 38 from the trustee's side, are examined in chapter 7 (see supra ¶ 780). The protector's exposure is examined in chapter 9 (see supra ¶ 970). Emergency migration and flight provisions are examined in chapter 11 (see supra ch. 11). The charging order, the member's bankruptcy and reverse veil piercing of a Nevis company are examined in chapter 15 (see supra ¶¶ 1570, 1580). The comparative American material is treated at greater length in Lighthouse on Asset Protection, chapters 8, 39 and 40.
Plan of the chapter. Paragraph 2510 asks whom a foreign court can reach. Paragraph 2520 examines the repatriation and turnover orders a court can make. Paragraph 2530 examines civil contempt and the impossibility defense, with full discussions of Affordable Media and Lawrence. Paragraph 2540 asks how foreign courts treat sections 16 and 38 and contractual duress provisions. Paragraph 2550 examines the duration of coercive confinement. Paragraphs 2560 and 2570 examine bankruptcy. Paragraph 2580 turns to England and the Commonwealth. Paragraph 2590 draws the planning lessons, sets out the trustee's response and closes with a checklist.