Paul Matthams examines recent changes to trust legislation in both Guernsey and Jersey, showcasing their continually evolving and sophisticated regimes.
When first enacted Jersey's principal trust legislation, the Trusts (Jersey) Law 1984, was considered to be innovative and far reaching and it formed the model for similar statutes in a number of other jurisdictions, including Guernsey which introduced its own trust law in 1989. However, the trusts world has continued to evolve with new trust cases regularly before courts in jurisdictions around the world. The applicable legislation in both Jersey and Guernsey has had to adapt to keep pace with the changes.
Guernsey enacted a new statute in 2007 and October 2012 saw the coming into force of the fifth amendment to the 1984 Jersey statute.
The Jersey amendment made a number of changes to the legislation, including the introduction of a statutory right for professional trustees to ‘reasonable remuneration’ for services provided. Until this amendment a trustee of a Jersey law trust has not been entitled to remuneration, unless specifically authorised by the trust deed or instrument, or with the consent in writing of all of the beneficiaries or by order of the court. In practice, the issue of entitlement to trustee remuneration has rarely troubled the courts as modern, properly drafted trust documents normally include a right to trustee remuneration. No professional trustee would take on a trust without such a clause. Nevertheless, the need to seek the involvement of the court in those rare cases where a remuneration clause was not contained in the trust documentation was an unnecessary and expensive burden. Indeed the underlying idea that the charging of fees could be considered as an exception to the general established principle of trusteeship as an ‘honorary’ obligation, had become outmoded and contrary to established practice and it was time for a change.
The amendment to the Jersey legislation only applies "where the terms of a trust are silent as to [the trustee's] remuneration." In such a case, a professional trustee is entitled to "reasonable remuneration for services that the professional trustee provides after this paragraph comes into force". Accordingly, the amendment has no effect if a remuneration clause already exists but is inadequate. Furthermore, the new right to reasonable remuneration is only available to a "professional trustee" and by an amendment to the definition clause (Article 1) of the 1984 statute, only a Jersey regulated trust company business, with the appropriate regulatory registration, falls within this category. Accordingly, a non-Jersey regulated trustee, even a professional trustee regulated in another jurisdiction, would not be able to rely on this amendment.
Another matter covered by the new amendment to the Jersey legislation concerns non-charitable purpose trusts. These trusts were introduced in Jersey in 1996 and have frequently been used in recent years as vehicles to hold the shares of private trust companies which themselves act as trustees for a number of trusts established for the members of wealthy families. Over the years, some have questioned whether or not the holding of particular assets alone, such as shares in a particular company, could be a genuine ‘purpose’ under the legislation. The matter is put beyond doubt by the amendment which introduces a definition of ‘purpose’. This definition is not exhaustive and confirms that a purpose may involve the conferral of any benefit on any person, may be a valid purpose whether or not it consumes or is capable of consuming the income or capital of the trust and includes "without limitation, the acquisition, holding, ownership, management or disposal of property and the exercise of functions…"
This amendment in Jersey reflects a similar provision contained in the Trusts (Guernsey) Law 2007 when Guernsey introduced non-charitable purpose trusts.
Other statutory amendments came into force in Jersey in October 2012. Firstly, there was clarification of the provisions of Article 9 of the Jersey statute, which is concerned with the application of Jersey law to matters to do with a Jersey law trust. Secondly there was an addition to Article 31 of the 1984 Jersey Law making it clear that a person in the capacity as a trustee of one trust may "enter into a contract or other arrangement with himself or herself in the person's capacity as a trustee of one or more other trusts". Finally an amendment was made to Article 34 of the 1984 Jersey Law, enabling former trustees, who have been given indemnities from their successors on retirement, to enforce indemnities in their favour from further successor trustees (in addition to those given by their immediate successors). In Guernsey the law remains that a trustee of one trust cannot contract with itself as trustee of another trust - something which is being considered for review.
However, the amendments to the Jersey legislation did not extend to the introduction of the 'non possessory lien', which became part of Guernsey's trusts law in 2007.
There are no immediate plans to revise the trust legislation in Guernsey as the 2007 law introduced a number of significant changes to the statutory framework. The focus in Guernsey has been on the introduction of the Foundations (Guernsey) Law 2012, which came into force on 9 January 2013. The island’s attention is now focused on the proposed consolidation of legislation dealing with the regulatory regime.
The courts in both Bailiwicks have been busy interpreting the new legislation and applying it to active cases.
The Royal Court of Jersey has continued to hear trust cases dealing with significant issues and, in appropriate cases, has not been afraid to hold that the trusts law in Jersey differs from that in other jurisdictions.
In Re B Life Interest Settlement the Royal Court of Jersey considered whether the doctrine of mistake can apply to voluntary dispositions made by a trustee and has considered, for the first time, the continued applicability of the so called ‘Rule in Hastings-Bass’ in Jersey law in light of the decision of the English Court of Appeal decisions in Pitt v Holt and Futter v Futter.
The Jersey court held that the test for relief for mistake required it to ask itself the following questions:
Was there a mistake on the part of the trustee?
Would the trustee not have made the appointment but for the mistake?
Was the mistake of so serious a character as to render it unjust on the part of the recipient to retain the property or interest appointed?
In relation to Hastings-Bass the court held that if Pitt v Holt remained good law, after the appeal to the English Supreme Court, a departure from the line of reasoning in the judgments of the Royal Court based on previous authorities was inevitable. The court either has to follow the changed approach of the English courts to the Hastings-Bass doctrine or it has to adopt some other reasoning based on principle for continuing to follow the pre-Pitt v Holt approach. On the facts of Re B the court held that relief would not have been granted under the pre-Pitt v Holt principles anyway.
Another interesting Jersey case in 2012 was that of Re Shinorvic, which concerned the defective exercise of a power to add a beneficiary. The court was prepared to assist to prevent formal defects in the execution of powers from defeating the intentions of the person executing the power. In this instance it was discovered that a deed by which a particular person was added as a beneficiary of the trust, had not been witnessed. The trust instrument required the settlor's power to add a beneficiary to be exercised by ‘instrument’, defined in the trust instrument as: "Any instrument in writing signed by the parties thereto and witnessed …" (emphasis added). The deed was therefore a defective exercise by the settlor of his power.
The court held that, in certain circumstances, equity will aid the defective execution of a power. The necessary conditions for this principle to apply are that:
There is an intention by the power-holder to exercise the power;
There must have been an attempted execution of the power;
The defect must be formal rather than going to the substance of the power;
The purported exercise must have been a proper exercise of the power; and
The doctrine will only operate in favour of certain categories of persons.
As to the final requirement, the court declared that, as a matter of Jersey law, the principle could operate in favour of any person for whom a power-holder is under a natural or moral obligation to provide and, the existence of such an obligation would be a matter of fact to be decided in each case.
In Guernsey the Royal Court, and then the Court Appeal, had to grapple with the question of whether a trustee was entitled to disclose trust information in order to defend itself in a foreign criminal investigation in circumstances where disclosure was opposed by the beneficiaries. In Re B the Court of Appeal confirmed that a trustee was subject to a duty of confidentiality (not secrecy) similar to the duty of confidentiality owed by a banker to its customers as formulated by the English courts in Tournier v National Provincial Bank of England in 1924.
However, both courts concluded that, on balance, given the serious nature of the allegations made against the trustee, the trustee would be permitted to make disclosure of certain trust information. This would only be the case provided that it was necessary in order to protect the assets of the trust (some of which were in the jurisdiction where the criminal investigation was underway) or to protect the interests of the beneficiaries or, importantly, the trustee personally. The trustee was authorised to this limited extent to override the duty of confidentiality, which the court accepted the trustee was otherwise bound by, and was able to disclose the relevant information to the authorities.
Changes in the trust legislation in both Guernsey and Jersey have served to make trusts established in the islands more sophisticated and more able to adapt and react to the demands of an increasingly international, fluid and regulated financial world.
Head of Fiduciary Group
Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Jersey, Cape Town, Hong Kong, London and Singapore.