227 59 4MB
English Pages [425] Year 2020
GUERNSEY TRUST LAW This book is intended to be a comprehensive treatise of Guernsey trust law providing answers for practitioners advising on Guernsey trusts and trustees administering them. In particular, it provides a detailed analysis of the provisions of the Trusts (Guernsey) Law 2007 (as amended), a consideration of Guernsey trust cases as well as relevant cases in Jersey and in other jurisdictions, and analysis of the legal principles underpinning Guernsey trust law. Where there is no clear Guernsey authority on a particular point of law it gives a reasoned view, drawing on relevant legal principles, together with a broad assessment of the confidence of which the authors hold that view.
ii
Guernsey Trust Law Tony Pursall and
Matthew Guthrie
HART PUBLISHING Bloomsbury Publishing Plc Kemp House, Chawley Park, Cumnor Hill, Oxford, OX2 9PH, UK 1385 Broadway, New York, NY 10018, USA HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published in Great Britain 2020 Copyright © Tony Pursall and Matthew Guthrie, 2020 Appendix: The Trusts (Guernsey) Law, 2007 © States of Guernsey Tony Pursall and Matthew Guthrie have asserted their right under the Copyright, Designs and Patents Act 1988 to be identified as Authors of this work. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2020. A catalogue record for this book is available from the British Library. A catalogue record for this book is available from the Library of Congress. ISBN: HB: 978-1-50991-930-7 ePDF: 978-1-50991-932-1 ePub: 978-1-50991-931-4 Typeset by Compuscript Ltd, Shannon To find out more about our authors and books visit www.hartpublishing.co.uk. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters.
ABOUT THE AUTHORS Tony Pursall leads the Cayman Islands and British Virgin Islands International Trusts & Private Client practice at Mourant Ozannes from their London office. He is the co-author of two books, Drafting Cayman Islands Trusts and Drafting British Virgin Islands Trusts and is the International Correspondent for Private Client Business. He has 26 years’ experience advising trustees, beneficiaries, protectors, banks and high-net-worth individuals on a wide range of trust and private client matters, as well as employee benefit trusts, unit trusts and other commercial trust arrangements. Matthew Guthrie is the Guernsey office Managing Partner at Mourant Ozannes and leads the International Trusts & Private Client practice in Guernsey. He advises trust companies, international families and high-net-worth individuals on wealth structuring and asset protection through trusts and other vehicles, as well as the Guernsey law aspects of international pension schemes, employee benefit trusts and share option schemes for multinational corporations.
vi
FOREWORD The concept of a trust, in the sense of one person holding property for the benefit of another, is one that has long been recognised in Guernsey, although it has not been fully understood until comparatively recently and, as case law shows, the law is still developing. The large panels that adorn the principal staircase in the Royal Court building, from where I am writing this Foreword, record the existence of five charitable funds, four of which date from the early nineteenth century and the other from 1588. Written in French, it records the names of individuals who have given gifts or legacies for the relief of poor mariners who have lost, through shipwreck or otherwise, their ships or vessels, and for other charitable objects according to the advice and discretion of the Justices of this island. It is easy to understand how trusts came about in an island with a large maritime and seafaring community, many of whose citizens went away for long periods of time and whose affairs would have been left in the hands of others, not to mention the inheritance by minors of property that had to be administered for them until adulthood. They may not have known the word ‘trust’ but the concepts of a trust and the obligations of a trustee would have been known, including the duty to administer the property of another ‘en bon pére de famille’. The island’s economy has developed and evolved. For the last 50 years or so, we have developed a substantial financial services industry, with a well-respected global reputation for the provision of first-class services delivered with professionalism and integrity. Trust services have become an important part of the island’s offering to the world. The late Advocate St John Robilliard, to whom this work is dedicated, was both an academic and a leading trust practitioner in this his island home and elsewhere. His understanding and learning has helped to develop our jurisprudence, and it is appropriate that this work is dedicated to him. In a customary law jurisdiction where much of our law is unwritten but has the flexibility to develop, reflecting changing customs, it is important that our legal concepts and principles are reduced to writing to help the jurisprudence to be understood and to evolve. I welcome the publication of this work; I thank those who have compiled it and I look forward to the continuing evolution of this area of law. Sir Richard Collas Bailiff of Guernsey Royal Court House 1 November 2019
viii
ACKNOWLEDGEMENTS This book is dedicated to the memory of St John A Robilliard, an advocate of the Royal Court of Guernsey and a partner at Mourant Ozannes. Advocate Robilliard was known at the firm and throughout the Guernsey Bar for his encyclopaedic knowledge of Guernsey’s trust law, his kind nature and his sense of humour. In 2005, Advocate Robilliard wrote A Guide to Guernsey’s Trust Law – the first work to properly address the law of trusts in Guernsey and the case law surrounding it. The text was published in CD format and received a favourable review from Paul Matthews, writing in the Jersey and Guernsey Law Review in February 2007. Publishing the text on CD was an innovation at the time, allowing as it did for key-words to be searched and materials located with ease. This was at a time before legal texts were generally accessible through on-line portals, which have made such features commonplace today. Advocate Robilliard’s text formed the basis of this book and we are indebted to him for the foundations he laid. This is especially so given the difficulties with tracking down some of Guernsey’s older cases. That said, any errors contained in this book belong to us alone. We would like to thank the Jersey and Guernsey Law Review for permitting us to reproduce materials contained within the JGLR. We also owe special thanks to Advocate Gordon Dawes for his kind assistance on questions of Guernsey customary law and other topics. We would also like to thank the Bailiff, Sir Richard Collas, for agreeing to write the Foreword for this book.
x
CONTENTS About the Authors���������������������������������������������������������������������������������������������������������v Foreword by Sir Richard Collas��������������������������������������������������������������������������������� vii Acknowledgements������������������������������������������������������������������������������������������������������ ix Abbreviations������������������������������������������������������������������������������������������������������������xxv Useful Websites������������������������������������������������������������������������������������������������������� xxvii Table of Cases���������������������������������������������������������������������������������������������������������� xxix Table of Statutes and Other Instruments�������������������������������������������������������������������xlv 1. Foundation and Principles��������������������������������������������������������������������������������������1 I. Introduction�������������������������������������������������������������������������������������������������1 II. Saisie�������������������������������������������������������������������������������������������������������������1 III. Statutory Family Trusts������������������������������������������������������������������������������2 A. Succession Law 1840��������������������������������������������������������������������������2 B. Nineteenth-century Commentary���������������������������������������������������3 C. Succession Law 1890��������������������������������������������������������������������������3 IV. Protective Trusts of Movables�������������������������������������������������������������������4 V. Religious Trusts in Connection with the Holding of Churches����������������������������������������������������������������������������4 VI. Other Charities��������������������������������������������������������������������������������������������5 VII. Statutory Schemes for the Holding of Churches and Schools����������������������������������������������������������������������������5 VIII. Use of Trusts in Wills and Other Documents�����������������������������������������5 IX. Growing Use and Statutory Recognition of Trusts in the Twentieth Century����������������������������������������������������������6 A. Insurance���������������������������������������������������������������������������������������������6 B. Matrimonial����������������������������������������������������������������������������������������6 C. Taxation�����������������������������������������������������������������������������������������������6 D. Other Legislation��������������������������������������������������������������������������������7 X. Recognition of Trusts by the Guernsey Court����������������������������������������7 A. Stuart-Hutcheson v Spread Trustee Co��������������������������������������������8 XI. Proposals for the Trusts Law 1989������������������������������������������������������������9 A. Background to the Proposals������������������������������������������������������������9 B. Reasons for the Enactment of the Trusts (Guernsey) Law, 1989�������������������������������������������������������������������������������������������10 XII. Overview of the Trusts Law 2007�����������������������������������������������������������11 A. Importance of the Previous Law�����������������������������������������������������12 XIII. Application of Trusts Laws and Amendments��������������������������������������12
xii Contents A. Trusts Law 1989��������������������������������������������������������������������������������12 B. The Trusts (Amendment) (Guernsey) Law, 1990�������������������������13 C. Trusts Law 2007��������������������������������������������������������������������������������13 XIV. The Role of Authorities and Precedent in Guernsey����������������������������14 A. The Role of Authorities��������������������������������������������������������������������14 B. The Role of Precedent����������������������������������������������������������������������15 2. Express Trusts���������������������������������������������������������������������������������������������������������16 I. Article 29 of the Succession Law 1840���������������������������������������������������16 II. Trusts under the Succession Law 1890���������������������������������������������������16 A. History of the Fidéicommis������������������������������������������������������������17 B. Is a Fidéicommis a Trust?����������������������������������������������������������������17 C. Analysis of the 1890 Trust���������������������������������������������������������������18 D. Application of Trusts Law 2007 to an 1890 Trust�������������������������18 E. Termination of an 1890 Trust���������������������������������������������������������19 F. Variation of an 1890 Trust���������������������������������������������������������������19 III. Trusts of Land in Saisie����������������������������������������������������������������������������20 A. Duties of Trustee�������������������������������������������������������������������������������20 B. Insurance�������������������������������������������������������������������������������������������21 C. Retention of Earlier Terminology��������������������������������������������������21 D. Application of the Trusts Law 2007 to Saisie Trusts��������������������21 IV. Express Private Trusts of Land����������������������������������������������������������������22 A. Trusts of Land Created before 17 March 2008�����������������������������22 B. Application of the Trusts Law 1989 to Trusts of Land Created before 17 March 2008����������������������������������������������������������������������22 C. Trusts of Land Created on or after 17 March 2008����������������������24 D. Trusts of Land Made by will������������������������������������������������������������24 i. Restrictions under the Inheritance Law 1954����������������������24 V. Charitable Trusts���������������������������������������������������������������������������������������26 A. Historical Background���������������������������������������������������������������������26 B. Report of the Commissioners���������������������������������������������������������26 C. Orders in Council Governing Charitable Trusts of Land�����������27 D. Registration of Charities and Non-Profit Organisations�������������28 E. Meaning of ‘Charity’������������������������������������������������������������������������29 F. Recognition of Charitable Status����������������������������������������������������30 G. Application of the Trusts Law 2007 to Charities��������������������������30 H. Cy-près�����������������������������������������������������������������������������������������������31 I. Variation or Revocation of a Charitable Trust������������������������������32 i. In the Matter of the Foster Will Trust�������������������������������������32 VI. Purpose Trusts�������������������������������������������������������������������������������������������33 A. Requirements for Enforcers������������������������������������������������������������33 B. Validity of Purposes�������������������������������������������������������������������������34 C. Requirement for Certainty��������������������������������������������������������������34
Contents xiii D. Trustee’s Obligations������������������������������������������������������������������������35 E. Replacement Enforcer����������������������������������������������������������������������36 F. Resignation of Enforcer�������������������������������������������������������������������36 G. Enforcer Otherwise Ceasing to be Enforcer���������������������������������37 H. Enforcer’s Rights, Powers and Duties��������������������������������������������37 I. Enforcer’s Duty not to Profit�����������������������������������������������������������38 J. Cy-près and Power to Vary�������������������������������������������������������������38 VII. Employee Benefit Trusts���������������������������������������������������������������������������39 III. Unit Trusts�������������������������������������������������������������������������������������������������39 V 3. Trusts Arising by Operation of Law��������������������������������������������������������������������40 I. Introduction�����������������������������������������������������������������������������������������������40 II. Constructive Trusts of Personalty�����������������������������������������������������������40 III. Liability as a Constructive Trustee����������������������������������������������������������41 IV. Constructive Trusts of Land��������������������������������������������������������������������41 A. Before the Trusts Law 2007�������������������������������������������������������������41 B. Godfray��������������������������������������������������������������������������������������������42 C. Waterman v McCormack���������������������������������������������������������������43 D. Pirito v Curth����������������������������������������������������������������������������������46 E. Bougourd v Woodhead��������������������������������������������������������������������46 F. After the Trusts Law 2007���������������������������������������������������������������47 V. Conclusions�����������������������������������������������������������������������������������������������47 4. Taxation�������������������������������������������������������������������������������������������������������������������48 I. The Code of Practice���������������������������������������������������������������������������������48 II. Guernsey Tax Liabilities���������������������������������������������������������������������������48 A. Section 53(3) of the Income Tax Law, 1975����������������������������������48 B. Concessions for Trusts with no Guernsey Resident Beneficiaries����������������������������������������������������������������������49 C. Apportionment���������������������������������������������������������������������������������49 D. Sub-funds������������������������������������������������������������������������������������������50 E. Guernsey Resident Settlors�������������������������������������������������������������50 F. More than One Settlor���������������������������������������������������������������������50 III. Liability to Non-Guernsey Taxes������������������������������������������������������������50 A. Right of Recovery under UK Tax Law�������������������������������������������51 B. Enforceability of Another State’s Revenue Laws���������������������������51 C. Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd�������������52 D. Where the Liability May be Enforced by the Foreign State��������������������������������������������������������������������������������������53 E. Federal Trust Company Limited v MacDonald-Smith and Bermuda Trust (Guernsey) Limited�����������������������������������������������53 F. Kleinwort Benson v Wilson������������������������������������������������������������54 G. The 2018 Guernsey–UK Double Taxation Agreement����������������55
xiv Contents H. Where the Foreign State does not have a Means of Enforcing the Liability�����������������������������������������������������������������56 i. Is it Enforceable at Common Law?���������������������������������������56 ii. Do the Firewall Provisions have any Application?��������������57 iii. Public Policy�����������������������������������������������������������������������������57 iv. Personal Liability of Trustees?�����������������������������������������������58 v. Exercise of Power to Reimburse the Settlor�������������������������58 vi. Settlor Exclusion Clauses��������������������������������������������������������59 IV. Guernsey Charities�����������������������������������������������������������������������������������59 V. Employee Benefit Trusts���������������������������������������������������������������������������60 VI. Unit Trusts�������������������������������������������������������������������������������������������������60 5. Creation, Validity and Termination���������������������������������������������������������������������61 I. Existence of a Trust�����������������������������������������������������������������������������������61 A. Meaning of ‘Trust’����������������������������������������������������������������������������62 B. Purpose Trusts����������������������������������������������������������������������������������62 C. The Three Certainties�����������������������������������������������������������������������63 II. Principles of Construction�����������������������������������������������������������������������63 A. Admissibility of Extrinsic Evidence�����������������������������������������������65 i. General Principles�������������������������������������������������������������������65 ii. Interpretation of Trusts for Children������������������������������������66 B. Latent and Patent Ambiguities�������������������������������������������������������67 C. Human Rights Law���������������������������������������������������������������������������67 i. Application of Convention to Private Arrangements���������67 ii. Relevance of Convention to Matters of Construction��������68 III. Settlor����������������������������������������������������������������������������������������������������������70 IV. Formalities�������������������������������������������������������������������������������������������������71 V. Duration and Perpetuities������������������������������������������������������������������������71 A. Appointments between Trusts��������������������������������������������������������71 VI. Validity and Enforceability����������������������������������������������������������������������72 A. Duress, Fraud, Undue Influence or Misrepresentation���������������73 B. Mistake�����������������������������������������������������������������������������������������������73 C. Breach of Fiduciary Duty����������������������������������������������������������������73 D. Contrary to Public Policy����������������������������������������������������������������74 E. Immoral���������������������������������������������������������������������������������������������74 F. Uncertainty����������������������������������������������������������������������������������������74 G. Incapacity������������������������������������������������������������������������������������������75 H. Partial Invalidity�������������������������������������������������������������������������������75 VII. Reservation of Powers by the Settlor������������������������������������������������������76 A. The Test for the Validity of a Lifetime Trust���������������������������������76 B. Reservation of Beneficial Interests�������������������������������������������������77 C. Powers of Revocation, Amendment and Appointment��������������77 D. Power to Direct Investments�����������������������������������������������������������77
Contents xv E. Is there such a Thing as an Excess of Reserved Powers?�������������78 F. The Irreducible Core?����������������������������������������������������������������������78 G. Reservation of Powers – Statutory Provisions������������������������������79 H. Pugachev������������������������������������������������������������������������������������������80 I. Duties to Consult and Obtain Consent�����������������������������������������82 III. Termination of Trusts�������������������������������������������������������������������������������82 V 6. Conflict of Laws�����������������������������������������������������������������������������������������������������85 I. Introduction�����������������������������������������������������������������������������������������������85 II. Proper Law�������������������������������������������������������������������������������������������������85 A. Proper Law of Transfers of Beneficial Interests in Trusts������������86 B. Change of Proper Law���������������������������������������������������������������������86 C. Significance of Proper Law��������������������������������������������������������������86 D. Reservation of All Questions to Local Law�����������������������������������87 E. The Hague Convention��������������������������������������������������������������������87 F. Provisos to the General Rule: Derogations in Favour of Foreign Law����������������������������������������������������������������������������������89 i. Ownership of Property�����������������������������������������������������������89 ii. Subject to Contrary Provision in the Trust��������������������������89 iii. Capacity of a Corporation������������������������������������������������������90 iv. Formalities for the Transfer of Property�������������������������������90 v. Real Property Dispositions����������������������������������������������������91 vi. Testamentary Dispositions�����������������������������������������������������91 vii. Joint and Community Property���������������������������������������������91 III. Jurisdiction of the Guernsey Court��������������������������������������������������������92 A. Foreign Trusts�����������������������������������������������������������������������������������92 B. Exclusive Jurisdiction�����������������������������������������������������������������������93 IV. Firewall Provisions������������������������������������������������������������������������������������94 A. Recognition and Enforcement of Foreign Judgments Generally������������������������������������������������������������������������94 B. Non-recognition of Foreign Judgments in Relation to Trusts����96 C. Inconsistency with Any Aspect of Guernsey Trust Law�������������97 D. Exclusion of Foreign Law����������������������������������������������������������������98 i. Foreign Matrimonial Order as a Relevant Factor���������������99 E. Submission to a Foreign Court�����������������������������������������������������100 F. Right, Claim or Interest�����������������������������������������������������������������100 G. Personal Relationship to Settlor or Any Beneficiary�����������������100 7. Trustees�����������������������������������������������������������������������������������������������������������������101 I. Number of Trustees��������������������������������������������������������������������������������101 A. Effect of there Being Insufficient Trustees�����������������������������������101 II. Appointment of New or Additional Trustees��������������������������������������102 A. Nature of Powers of Appointment of Trustees���������������������������103
xvi Contents B. In the Matter of Jasmine Trustees Limited�����������������������������������103 C. Restrictions on the Exercise of the Power�����������������������������������105 III. Power to Remove Trustees���������������������������������������������������������������������105 IV. Vesting of Property in the New Trustees���������������������������������������������106 V. Disclaimer of Trusteeship����������������������������������������������������������������������106 VI. Resignation����������������������������������������������������������������������������������������������107 VII. Duties of Outgoing Trustee�������������������������������������������������������������������108 A. Duties in Relation to the Handover���������������������������������������������108 B. Re Caversham�������������������������������������������������������������������������������109 C. What is ‘Reasonable Security’?�����������������������������������������������������110 D. Negotiation of Indemnities�����������������������������������������������������������111 E. Enforcement of Indemnities���������������������������������������������������������112 F. Non-possessory Lien����������������������������������������������������������������������112 G. Discharge of Outgoing Trustee�����������������������������������������������������113 VIII. Appointment and Removal of Trustees by the Court������������������������114 A. Guernsey Trusts������������������������������������������������������������������������������114 B. General Power���������������������������������������������������������������������������������115 C. Hostile Removal Applications������������������������������������������������������115 D. Other Removal Cases���������������������������������������������������������������������116 E. Incapacity����������������������������������������������������������������������������������������117 F. Insolvency����������������������������������������������������������������������������������������117 IX. Trustee Remuneration����������������������������������������������������������������������������118 A. General Position�����������������������������������������������������������������������������118 B. Court’s Power to Approve Trustee Remuneration���������������������118 C. Re Kleinwort Benson Trustees (Guernsey) Limited���������������������120 D. Trustee Fees after Ceasing to be Trustees������������������������������������121 E. Termination Fees����������������������������������������������������������������������������121 X. Trustees’ Expenses����������������������������������������������������������������������������������122 A. Rights of Former Trustees to Indemnity from the Trust Fund�����������������������������������������������������������������������123 XI. Trustees de Son Tort������������������������������������������������������������������������������124 XII. Dealings with Third Parties�������������������������������������������������������������������125 A. The Meaning and Effect of Section 42�����������������������������������������126 B. Drafting Issues��������������������������������������������������������������������������������127 C. Protection of Persons Dealing with Trustees������������������������������128 D. Persons Paying or Advancing Money to Trustees����������������������129 XIII. Insolvent Trusts���������������������������������������������������������������������������������������129 A. What is an Insolvent Trust?�����������������������������������������������������������129 B. Appointment of an Insolvency Practitioner�������������������������������129 C. Priority of Creditors�����������������������������������������������������������������������130 D. Creditors’ Costs of Proving their Claims�������������������������������������132 E. Trustee’s Duties to Former Trustees and Creditors Generally������������������������������������������������������������������������132
Contents xvii 8. Powers, Duties and Liabilities of Trustees��������������������������������������������������������133 I. Duties of Trustees������������������������������������������������������������������������������������133 A. General Fiduciary Duties��������������������������������������������������������������133 B. Duty to Act en Bon Père de Famille���������������������������������������������134 C. Duty to Get in and Preserve Trust Property�������������������������������135 D. Duty Not to Profit from Trusteeship��������������������������������������������136 E. General Rule Regarding Unauthorised Profits and Conflicts of Interest����������������������������������������������������������������136 i. Express Provision in a Trust Instrument����������������������������137 ii. Statutory Authorisation��������������������������������������������������������137 iii. Authorisation by the Court��������������������������������������������������138 iv. Court Approval of Proposed Course of Action�����������������138 v. Approval of Proposed Compromise between Trustees Who are Part of the Same Group����������������������������������������138 vi. Consent of Beneficiaries�������������������������������������������������������139 F. Disclosure of Interests to Co-trustees������������������������������������������139 G. Duty to Keep Accounts and Records�������������������������������������������140 i. Meaning of ‘Accounts’�����������������������������������������������������������140 ii. Maintenance of Records�������������������������������������������������������140 iii. Period for Which Records Must be Kept���������������������������141 H. Duty to Give Information��������������������������������������������������������������141 I. Duty to Keep Trust Property Separate�����������������������������������������141 J. Duty of Co-trustees to Act Together��������������������������������������������142 K. Impartiality of Trustees������������������������������������������������������������������142 L. Duty on Termination���������������������������������������������������������������������143 II. Powers of Trustees�����������������������������������������������������������������������������������143 A. Powers of Trustees in Relation to Property���������������������������������143 B. Power to Sue and Compromise����������������������������������������������������143 C. Professional Advice������������������������������������������������������������������������144 D. Duties to Consult or Obtain Consent������������������������������������������144 E. Delegation by Trustees�������������������������������������������������������������������144 F. Employment of Professional Persons�������������������������������������������145 i. Scope of the Power to Employ Professionals���������������������146 G. General Duties Applicable to Delegation������������������������������������146 H. Powers of Attorney�������������������������������������������������������������������������146 I. Additional Formalities�������������������������������������������������������������������148 J. Remuneration and Expenses of Trustees������������������������������������148 K. Power to Appropriate���������������������������������������������������������������������149 L. Corporate Trustee May Act by Resolution����������������������������������149 M. Non-disclosure of Deliberations or Letters of Wishes���������������150 N. Power to Accumulate Income�������������������������������������������������������150 O. Powers of Maintenance and Advancement���������������������������������150 P. Power of Appointment�������������������������������������������������������������������151
xviii Contents
III. IV. V.
VI.
VII.
Q. Power of Revocation����������������������������������������������������������������������152 R. Imputed Exercise of Powers����������������������������������������������������������152 Other Duties Applicable to the Exercise of Trustee Discretions�����������������������������������������������������������������������������152 Letters of Wishes�������������������������������������������������������������������������������������153 Liability for Breach of Trust�������������������������������������������������������������������153 A. Compensation for Breach of Non-fiduciary Duties�������������������154 B. Reflective Loss���������������������������������������������������������������������������������154 C. Power to Relieve Trustees from Personal Liability���������������������155 D. Setting off Profits against Losses���������������������������������������������������156 E. Liability for Acts and Defaults of Co-trustees����������������������������156 F. Breaches by Previous Trustees������������������������������������������������������157 G. Joint and Several Liability��������������������������������������������������������������157 H. Limitation of Liability��������������������������������������������������������������������157 I. Indemnity����������������������������������������������������������������������������������������158 J. Meaning of ‘Gross Negligence’������������������������������������������������������159 K. Meaning of ‘Fraud’�������������������������������������������������������������������������159 Duties of Prospective Trustees��������������������������������������������������������������160 A. Duties of Prospective Trustees in Relation to Exoneration Provisions����������������������������������������������������������������������������������������160 B. Does a Prospective Trustee have a Duty to Explain the Terms of the Trust Instrument to the Settlor?����������������������161 Liability of Directors of Corporate Trustees����������������������������������������162
9. Beneficiaries����������������������������������������������������������������������������������������������������������163 I. Definition of ‘Beneficiary’����������������������������������������������������������������������163 II. Addition and Removal of Beneficiaries�����������������������������������������������164 III. Requirements for Beneficiaries�������������������������������������������������������������164 IV. Disclaimer������������������������������������������������������������������������������������������������165 V. Nature of Beneficiary’s Interest�������������������������������������������������������������165 VI. Assignment of a Beneficial Interest������������������������������������������������������166 VII. Protective Trusts and Spendthrift Provisions��������������������������������������166 VIII. Class Interests������������������������������������������������������������������������������������������167 IX. Consent to Breach of Trust��������������������������������������������������������������������167 X. Power to make Beneficiaries Indemnify����������������������������������������������168 XI. Disclosure of Information to Beneficiaries������������������������������������������168 A. General Principles��������������������������������������������������������������������������168 B. Documents that must Normally be Disclosed����������������������������169 C. Documents that do not Normally Need to be Disclosed��������������������������������������������������������������������������������170 D. Who is Entitled to the Information?��������������������������������������������170 E. Circumstances in which Disclosure May be Refused or Restricted������������������������������������������������������������������������������������171
Contents xix F. Modification of Information Rights������������������������������������������171 G. Statutory Duty to Provide Information������������������������������������173 i. Pre-18 April 1989 Trusts������������������������������������������������������174 H. Non-disclosure of Deliberations and Letters of Wishes���������174 i. Application to Court for Disclosure�����������������������������������175 I. Regulatory Requirements in Relation to Disclosure��������������175 XII. Data Protection Law����������������������������������������������������������������������������176 A. General Provisions����������������������������������������������������������������������176 B. Privacy Notices����������������������������������������������������������������������������176 C. Exemptions from Data Subject Rights��������������������������������������178 XIII. Disclosure to Third Parties�����������������������������������������������������������������180 A. Disclosure Pursuant to Anti-money Laundering Legislation������������������������������������������������������������������������������������180 B. Disclosure to Foreign Authorities���������������������������������������������181 XIV. Disclosure by Beneficiaries�����������������������������������������������������������������182 10. Protectors��������������������������������������������������������������������������������������������������������������184 I. Introduction������������������������������������������������������������������������������������������184 II. Powers of Protectors����������������������������������������������������������������������������184 A. Consultation and Consent���������������������������������������������������������184 III. Regulation of Protectors����������������������������������������������������������������������185 IV. Protector not a Trustee������������������������������������������������������������������������185 V. Nature of Protector’s Powers���������������������������������������������������������������185 A. Power to Appoint and Remove Trustees����������������������������������186 B. Power to Direct Investments������������������������������������������������������187 VI. Appointment and Removal of Protectors�����������������������������������������187 A. Appointment and Removal of Protectors Out of Court���������������������������������������������������������������������������������187 B. Appointment and Removal of Protectors by the Court��������������������������������������������������������������������������������������188 VII. Protector’s Indemnity��������������������������������������������������������������������������188 VIII. Remuneration���������������������������������������������������������������������������������������189 IX. Retirement���������������������������������������������������������������������������������������������189 X. Court’s Jurisdiction in Relation to Protectors����������������������������������190 XI. Exoneration�������������������������������������������������������������������������������������������190 XII. Disclosure of Information�������������������������������������������������������������������190 XIII. Delivery Up of Documents�����������������������������������������������������������������191 XIV. Exercise of Powers��������������������������������������������������������������������������������192 XV. Liability��������������������������������������������������������������������������������������������������192 XVI. Conflicts of Interest������������������������������������������������������������������������������192 XVII. Prescription Period������������������������������������������������������������������������������193 XVIII. Standing to Apply to Court�����������������������������������������������������������������193 XIX. Drafting Issues��������������������������������������������������������������������������������������193
xx Contents 11. Trust Investments�������������������������������������������������������������������������������������������������194 I. Trustee’s Investment Duties�������������������������������������������������������������������194 A. Scope of Investment Power�����������������������������������������������������������194 B. Trustee’s Investment Duties: General Principles������������������������195 C. Duty to Preserve and Enhance the Value of the Trust Property����������������������������������������������������������������������195 D. The Prudent Person of Business Rule������������������������������������������196 E. Speculative and Hazardous Investments�������������������������������������196 F. The Duty to Act Evenly between Different Classes of Beneficiaries��������������������������������������������������������������������������������197 G. The Duty to Consider the Need for Diversification�������������������197 H. Duty to Monitor and Intervene in Underlying Companies������199 I. Anti-Bartlett Clauses����������������������������������������������������������������������201 J. Errors of Judgment�������������������������������������������������������������������������206 K. Measure of Damages����������������������������������������������������������������������206 II. Regulatory Issues������������������������������������������������������������������������������������207 A. Code of Practice������������������������������������������������������������������������������207 B. Controlled Investment Business���������������������������������������������������208 III. Delegation of Investment Management�����������������������������������������������208 A. General Duties��������������������������������������������������������������������������������209 B. Appointment of Affiliated Companies as Investment Managers�����������������������������������������������������������������������������������������210 IV. Power to Direct Investments�����������������������������������������������������������������211 12. Introduction to Trust Litigation�������������������������������������������������������������������������213 I. The Jurisdiction of the Royal Court�����������������������������������������������������213 II. Applications for Directions��������������������������������������������������������������������214 A. Standing to Apply to Court for Directions under Section 68�����������������������������������������������������������������������������215 III. General Powers of the Court�����������������������������������������������������������������216 A. Standing to Apply to Court under Section 69����������������������������216 B. Types of Orders Available��������������������������������������������������������������216 C. Extent of the Court’s Jurisdiction under Sections 68 and 69��������������������������������������������������������������������������217 D. Types of Applications under Section 69��������������������������������������218 IV. Application to Distribute Trust Assets in the Context of Anti-money Laundering Issues��������������������������������������������������������219 V. Approval of Trustees’ Actions����������������������������������������������������������������220 A. Category 1: Extent of Trustees’ Powers����������������������������������������221 B. Category 2: Blessing Momentous Decisions�������������������������������221 i. Conflict of Interests���������������������������������������������������������������222 ii. Test to be Applied������������������������������������������������������������������223 iii. Evidential Burden������������������������������������������������������������������224
Contents xxi
VI. VII.
VIII.
IX. X.
iv. Test to be Applied on Appeal�����������������������������������������������225 v. Without Prejudice Privilege�������������������������������������������������225 C. Category 3: Surrender of Discretion��������������������������������������������226 D. Category 4: Approval of Past Actions������������������������������������������227 Beddoe Applications��������������������������������������������������������������������������������227 A. The Approach of the Royal Court������������������������������������������������228 B. What Costs are Covered by Beddoe Orders?������������������������������230 Payment of Costs in Relation to Court Proceedings��������������������������231 A. Trustee’s Right to Litigation Costs – Some General Principles�����������������������������������������������������������������������������������������232 B. Security for Costs���������������������������������������������������������������������������232 C. Construction Proceedings – The Buckton Categories���������������233 D. Beneficiaries’ Costs�������������������������������������������������������������������������234 E. Beneficiary’s Right to Costs When Seeking a Ruling on a Question of Construction or Law����������������������������������������235 Prescription and Limitation Periods����������������������������������������������������235 A. Actions for Which there is no Prescription or Limitation Period�����������������������������������������������������������������������236 B. Breach of Trust Claims������������������������������������������������������������������236 i. Meaning of ‘Knowledge’�������������������������������������������������������236 C. Suspension – Minors and Persons under a Legal Disability�����238 D. Long Stop�����������������������������������������������������������������������������������������238 E. Actions by Non-beneficiaries��������������������������������������������������������238 Breach of Trust Judgment against Trustee to be Binding on All Beneficiaries���������������������������������������������������������������������������������������������239 Alternative Dispute Resolution�������������������������������������������������������������239
13. Attacks on Trusts��������������������������������������������������������������������������������������������������241 I. Introduction���������������������������������������������������������������������������������������������241 II. The Sham Doctrine���������������������������������������������������������������������������������241 A. Minwalla����������������������������������������������������������������������������������������242 B. External Evidence���������������������������������������������������������������������������243 C. The Necessary Intention����������������������������������������������������������������243 D. Motive Not Relevant����������������������������������������������������������������������244 E. Reliance on the Sham���������������������������������������������������������������������244 F. Proper Law Applicable to the Question of Sham�����������������������245 G. Consequences of a Finding of Sham��������������������������������������������245 i. General������������������������������������������������������������������������������������245 ii. Consequences for the Trustees��������������������������������������������246 III. Donner et Retenir ne Vaut��������������������������������������������������������������������246 A. Application under Guernsey Law������������������������������������������������246 B. Application to Reserved Powers Trusts: The Rahman Case�����247 C. The Esteem Case�����������������������������������������������������������������������������248
xxii Contents IV. Variation of Trusts in Foreign Matrimonial Proceedings����������������������������������������������������������������������������������������������249 A. Guernsey Divorces�������������������������������������������������������������������������249 B. Non-Guernsey Divorces����������������������������������������������������������������250 i. Powers of the English Family Courts����������������������������������250 ii. Power to Vary Trusts�������������������������������������������������������������251 iii. Judicious Encouragement�����������������������������������������������������251 iv. Exerting Pressure through a Beneficiary����������������������������251 C. Should the Trustee Submit to the Jurisdiction of the Foreign Court?���������������������������������������������������������������������252 D. Exclusive Jurisdiction Clause��������������������������������������������������������253 E. Information Gathering������������������������������������������������������������������254 i. Position under Foreign Matrimonial Law��������������������������254 ii. Disclosure on Grounds of Concealment����������������������������254 iii. Letters of Request������������������������������������������������������������������255 iv. Minwalla�������������������������������������������������������������������������������256 14. Variation of Trusts�����������������������������������������������������������������������������������������������257 I. Introduction���������������������������������������������������������������������������������������������257 II. Variation under the Express Terms of the Trust���������������������������������257 III. Variation by the Beneficiaries����������������������������������������������������������������258 IV. Variation by the Court����������������������������������������������������������������������������259 A. The Court’s Inherent Jurisdiction�������������������������������������������������259 B. The Statutory Jurisdiction�������������������������������������������������������������259 C. Meaning of ‘Arrangement’�������������������������������������������������������������260 D. Resettlements����������������������������������������������������������������������������������261 E. Limits of the Jurisdiction���������������������������������������������������������������262 i. Human Rights Law����������������������������������������������������������������262 F. Minor or Person under a Legal Disability�����������������������������������263 i. Minors�������������������������������������������������������������������������������������263 ii. Adult Beneficiaries Who Lack Capacity�����������������������������263 G. Unborn Persons������������������������������������������������������������������������������263 H. Persons Who May Become Entitled to an Interest��������������������264 I. Objects of Powers under Protective Trusts���������������������������������264 J. Other Persons���������������������������������������������������������������������������������265 K. Requirement for Benefit����������������������������������������������������������������265 i. Meaning of ‘Benefit’��������������������������������������������������������������266 ii. Variations for Tax Purposes�������������������������������������������������267 iii. Power to Add Beneficiaries��������������������������������������������������267 L. Effect of Order��������������������������������������������������������������������������������268 M. Variation of Administrative Provisions���������������������������������������269 N. Exclusion of Trusts Created by Order in Council����������������������������������������������������������������������������������������269
Contents xxiii 15. Remedial Applications to Court������������������������������������������������������������������������270 I. Introduction���������������������������������������������������������������������������������������������270 II. General Principles Applicable to Rectification and Rescission�����������������������������������������������������������������������������������������270 III. Rectification on the Ground of Mistake����������������������������������������������271 A. General Principles��������������������������������������������������������������������������271 B. Tax����������������������������������������������������������������������������������������������������272 i. Negligent Advice��������������������������������������������������������������������274 C. Costs�������������������������������������������������������������������������������������������������274 D. Supplemental and Related Documents����������������������������������������275 E. Standard of Proof����������������������������������������������������������������������������275 IV. Rescission on the Ground of Mistake��������������������������������������������������276 A. General Principles��������������������������������������������������������������������������277 B. Unconscionability���������������������������������������������������������������������������277 C. Tax����������������������������������������������������������������������������������������������������278 D. The Customary Law Doctrine of Erreur�������������������������������������279 V. The Rule in Hastings-Bass��������������������������������������������������������������������279 A. Background�������������������������������������������������������������������������������������279 B. Pitt v Holt��������������������������������������������������������������������������������������280 C. The Rule does not have a Positive Counterpart��������������������������281 D. Breach of Fiduciary Duty��������������������������������������������������������������281 E. Causal Connection�������������������������������������������������������������������������282 F. Failure to Consider Tax Implications�������������������������������������������282 G. Factors Relevant to the Exercise of Court’s Discretion��������������282 16. Regulation of Fiduciaries������������������������������������������������������������������������������������284 I. Background����������������������������������������������������������������������������������������������284 II. The Guernsey Financial Services Commission�����������������������������������285 III. The Regulatory Regime for Professional Fiduciaries�������������������������285 A. Regulated Activities������������������������������������������������������������������������285 B. Exemptions��������������������������������������������������������������������������������������286 IV. Principal Offence������������������������������������������������������������������������������������287 A. Meaning of ‘By Way of Business’��������������������������������������������������287 V. Private Trust Companies������������������������������������������������������������������������287 VI. Types of Licences������������������������������������������������������������������������������������288 A. Relevant Persons�����������������������������������������������������������������������������288 B. The Minimum Criteria for Licensing������������������������������������������289 VII. Other Powers under the Fiduciaries Law 2000�����������������������������������289 VIII. Licensees’ Obligations����������������������������������������������������������������������������290 17. The Public Trustee�����������������������������������������������������������������������������������������������291 I. The Office of the Public Trustee������������������������������������������������������������291 II. Trusts in Respect of which the Public Trustee May Act��������������������292
xxiv Contents III. The Functions of the Public Trustee�����������������������������������������������������292 IV. Regulation������������������������������������������������������������������������������������������������293 V. Appointment of the Public Trustee as Trustee������������������������������������293 VI. Supplementary Powers and Provisions������������������������������������������������294 VII. Appeals against Decisions of the Public Trustee���������������������������������295 VIII. Confidentiality�����������������������������������������������������������������������������������������295 IX. Limitation of Liability�����������������������������������������������������������������������������296 X. Public Trustee to Act Alone in Most Cases�����������������������������������������296 XI. Delegation������������������������������������������������������������������������������������������������297 XII. Remuneration������������������������������������������������������������������������������������������297 Appendix: Trusts (Guernsey) Law, 2007������������������������������������������������������������������298 Index��������������������������������������������������������������������������������������������������������������������������339
ABBREVIATIONS Guernsey Legislation (References to statutes are to the relevant statute as amended, except as otherwise stated.) Data Protection Law 2017
Data Protection (Bailiwick of Guernsey) Law, 2017
Fiduciaries Law 2000
Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000
FSC Law 1987
Financial Services Commission (Bailiwick of Guernsey) Law, 1987
Human Rights Law 2000
Human Rights (Bailiwick of Guernsey) Law, 2000
Income Tax Law 1975
Income Tax (Guernsey) Law, 1975
Inheritance Law 1954
Law of Inheritance, 1954
Inheritance Law 2011
Inheritance (Guernsey) Law, 2011
Law Reform Law 2006
Law Reform (Inheritance and Miscellaneous Provisions) (Guernsey) Law, 2006
Married Women’s Property Law
Loi étendant les droits de le Femme Mariée quant à la propriété mobilière at immobilière (1928)
Protection of Investors Law 1987 Protection of Investors (Bailiwick of Guernsey) Law, 1987 Public Trustee Law 2002
Public Trustee (Bailiwick of Guernsey) Law, 2002
Succession Law 1840
Loi sur les Successions, 1840
Succession Law 1890
Loi Supplémentaire à la loi des Successions, 1890
Trusts Law 1989
Trusts (Guernsey) Law, 1989
Trusts Law 2007
Trusts (Guernsey) Law, 2007
xxvi Abbreviations
Journals and Law Reports BCLC
Butterworths Company Law Cases
CILR
Cayman Islands Law Reports
CLR
Commonwealth Law Reports
GLJ
Guernsey Law Journal
GLR
Guernsey Law Reports
JGLR
Jersey and Guernsey Law Review
JJ
Jersey Judgments
JLR
Jersey Law Reports1
ITELR
International Trusts and Estates Law Reports
OFLR
Offshore Financial Law Reports
OTR
Offshore Taxation Review
OUP
Oxford University Press
PCB
Private Client Business
PLR
Pensions Law Reports
PTPR
Personal Tax Planning Review
STC
Simon’s Tax Cases
TC
Tax Cases
Other ECHR
The Convention for the Protection of Human Rights and Fundamental Freedoms
GFSC
Guernsey Financial Services Commission
Hague Convention
Hague Convention on the Law Applicable to Trusts and on Their Recognition
Statements of Practice
States of Guernsey Income Tax Statements of Practice (Including Interpretations of Law) and Extra Statutory Concessions
1 NB Not to be confused with the Jersey Law Review, which changed its name to the Jersey and Guernsey Law Review with effect from 1 January 2007.
USEFUL WEBSITES www.gfsc.gg
The website of the Guernsey Financial Services Commission, the financial services regulator in the Bailiwick.
www.guernseylegalresources.gg
A legal resource providing free access to Guernsey, Alderney and Sark legal materials, including legislation and law reports and practice directions of the Court since 2000.
www.charity.org.gg
The Association of Guernsey Charities.
www.guernseyregistry.gg
This contains the various registries maintained pursuant to Guernsey legislation, including charities, companies, limited partnerships, limited liability partnerships and foundations.
www.guernseyroyalcourt.gg
The website of the Royal Court of Guernsey.
www.locateguernsey.gg
Information on setting up a business in or relocating a business to Guernsey, and on moving to Guernsey.
www.jerseylaw.je
The website of the Jersey Legal Information Board, providing free access to legal materials, including Jersey statutes, Jersey law reports and the Jersey and Guernsey Law Review.
www.lawguernsey.gg
An online library of Norman customary law materials.
xxviii
TABLE OF CASES A (as Trustee of the Trust) v R1, R2, R3, R4 and R5 (22 April 2016) (Judgment 25/2016), Guernsey Royal Ct. See Application by the Trustees in respect of the Trust, A v R1, R2, R3, R4 and R5, A Ltd and B Ltd v HM Procureur (CA, 15 September 2004) (Judgment 39/2004), [2003–04] GLR 593, Guernsey Royal Ct������180–181, 213 A v A [2003–4] GLR 123, Guernsey CA������������������������������������������������������������������250 A v A [2007] EWHC 99 (Fam), [2009] WTLR 1����������������������������������������������������246 A v B [2016] EWHC 340 (Ch), [2016] WTLR 745�������������������������������������������������264 A Settlement, In the matter of the [1996] JLR 226, Jersey�������������������������������� 65, 67 A Trust, In the matter of the [2012] JRC 169A, Jersey Royal Ct���������������������������188 AA, In the matter of the Representation of [2010] JRC 164, Jersey Royal Ct�������93 A, B, C and D Trusts and the W, X, Y and Z Trusts, In the matter of the (24 February 2016) (Judgment 53/2016), Guernsey Royal Ct���� 221, 224 Adam & Co International Trustees Ltd v Theodore Goddard (A Firm) [2000] WTLR 349, ChD������������������������������������������������������������������������������ 105, 106 Adbul Hameed Sitti Kadija v De Saram [1946] AC 208, PC (Ceylon)���������������3, 17 AG Securities v Vaughan [1990] 1 AC 417, HL�������������������������������������������������������245 Air India Ltd v Caribjet Inc [2002] 2 All ER (Comm) 76, QBD (Comm Ct)��������55 Albany Trustee Co Ltd v Jeandon and Cristolfini (10 September 2012) (Judgment 32/2012), Guernsey Royal Ct������������������������������������������������������ 233–4 Alhamrani v J P Morgan Trust Company (Jersey) Ltd [2007] JLR 527, Jersey���������������������������������������������������������������������������������������������� 215, 232 Allfrey v Allfrey [2015] EWHC 1717 (Ch), [2015] WTLR 1117��������������������������268 Allnutt v Wilding [2007] EWCA Civ 412, [2007] WTLR 941������������������������������270 Alsop Wilkinson v Neary [1995] 1 All ER 431, ChD������������������������������������ 228, 246 Appleby Corporate Services (BVI) Ltd v Citco Trustees (BVI) Ltd BVIHC 156/2011, 20 January 2014��������������������������201, 202, 205, 209 Application by the Trustees in respect of the Trust, A v R1, R2, R3, R4 and R5, In the matter of an (Bahamian law) (22 April 2016) (Judgment 25/2016), Guernsey Royal Ct��������������������� 153, 217, 218, 224, 225 AQ Revocable Trust, Re [2011] WTLR 373, Supreme Ct (Bermuda)��������������������78 Armenian Patriarch of Jerusalem v Sonsino; Carapiet’s Trusts, Re [2002] EWHC 1304 (Ch), [2002] WTLR 989�����������������������������������������������������85 Armitage v Nurse [1998] Ch 241, CA������������������������78–79, 158, 159, 160, 190, 204
xxx Table of Cases Artemis Trustees Ltd v Martin John Sandle and Rodney Gray Denton (29 June 2016) (Judgment 28/2016), Guernsey Royal Ct�������� 110, 118, 121, 123, 124 Artemis Trustees Ltd v Martin John Sandle and Rodney Gray Denton (2 June 2017) (Judgment 7/2018), Guernsey Royal Ct�������������������������������������124 Arun Estate Agencies Ltd v Kleinwort Benson (Guernsey) Trustees Ltd [2009–10] GLR 437, Guernsey Royal Ct������������������������������������������������������������278 Attorney-General for Hong Kong v Reid [1994] 1 AC 324, PC (NZ)������������� 15, 73 Aylesford and Achilles Trusts, Re (27 February 2018), Guernsey Royal Ct��������������������������������������������������������������������������������������������������������� 279, 281 B Trust, In Re; RBS Coutts Trustees v W [2010] (2) CILR 348, Cayman Islands Grand Ct���������������������������������������������������������������97, 99, 250, 252 B, C and D Settlements, Re; RBC Trust Co (Jersey) Ltd v E [2010] JLR 653, Jersey CA������������������������������������������������������������������������������������182 B Trust, In Re [2006] JLR 562, Jersey Royal Ct���������������������������������������������������������97 B, Re (11 July 2012) (Judgment 35/2012) Guernsey CA������������������������������� 181, 182 B, Re [2007] JLR 569, Jersey�����������������������������������������������������������������������������������������99 B, Re [2011–12] GLR 694, Guernsey������������������������������������������������������������������������191 Bagus Investments v Kastening [2010] JLR 355, Jersey��������������������������������������������41 Baird v Baird [1990] 2 AC 548, PC (Trinidad and Tobago)������������������������������������76 Ball’s Settlement Trusts, Re [1968] 2 All ER 438, ChD�������������������������������������������261 Bandone v Sol Properties Ltd [2008] CILR 301, Cayman Islands Grand Ct���������95 Bank of Nova Scotia Trust Co (Bahamas) Ltd v De Barletta Butterworths Offshore Cases and Materials, vol 1 (Butterworths, 1996) 5, Bahamas Supreme Ct�������������������������������������������������������������������������������������������������������������153 Barclays Bank Plc v Curry and Curry intervening (18 September 1996), Guernsey Royal Ct��������������������������������������������������������������������������������������������������44 Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] 1 Ch 515������ 135, 143, 156, 199–200, 201, 202, 205 Bates (Thomas) & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505, CA��������������������������������������������������������������������������������������������� 273, 275 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd [2003–04] GLR N [27], [2007] WTLR 959 (November 12th 2004�������������������������������������������������������� 163–164, 169, 170, 171, 172, 173, 174, 175, 191, 192 Bathurst v Kleinwort Benson (Channel Islands) Trustees Ltd (Royal Ct) [2003–04] GLR N [32] (September 14th 2004)�����������������������������213 BB, In the matter of the Representation of [2011] JLR 672 (also known as Re D Retirement Trust)������������������������������������������������������ 62, 125 BBB Ltd, In the matter of the Representation of [2011] JRC 240, Jersey Royal Ct���������������������������������������������������������������������������������������������������������63 Beachcomber Hotels Ltd v The Beaucette Yacht Marina (Guernsey) Ltd 7 GLJ 82 (21 April 1989)������������������������������������������������������������������ 7, 8, 40, 43 Beddoe, Re [1893] 1 Ch 547, CA�������������������� 144, 214, 215, 228, 229, 230, 231, 235
Table of Cases xxxi Berkley Applegate (Investment Consultants), Re [1989] Ch 32, ChD�����������������189 Bhander v Barclays Bank & Trust Co Ltd (1997–98) 1 OFLR 494, Jersey�����������140 Bird Charitable Trust and the Bird Purpose Trust, In the matter of the [2012 (1)] JLR 62, Jersey���������������������������������������������������������������������������������������109 Bird Trust, In the matter of the [2008] JRC 13, Jersey Royal Ct����������������������������186 Bird Trusts, In the matter of the [2012] JRC 006, Jersey Royal Ct������������������������191 Blücher von Wahlstatt (Count Lothair) (1928) XVIII Plaids de Meubles 421, Guernsey����������������������������������������������������������������������������������������134 Boardman v Mosman (1799) 1 Bro CC 68, 28 ER 989, Ct of Chancery��������������156 Bond (Maria) v Equiom Trust (Guernsey) Ltd (4 June 2018) (Judgment 24/2018), Guernsey Royal Ct������������������������������������������������������ 83, 84 Borg Warner (Australia) v Zupan [1982] VR 437���������������������������������������� 56, 57–58 Bougourd v Woodhead [2009–10] GLR 487, Guernsey�����������������������46–47, 62, 63 Bray v Ford [1896] AC 44, HL�������������������������������������������������������������������������� 136, 210 Breadner v Granville-Grossman [2001] Ch 523, ChD�������������������������������������������281 Brian Munro Ltd Settlement, In Re [1995] JLR N30b, Jersey��������������������������������266 Brice v Stokes (1805) 11 Ves Jr 319, 32 ER 1111, Ct of Chancery�������������������������156 Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] EWHC 2054 (Ch), [2008] Pens LR 345����������������������������������������������������� 185, 190 Brinkley’s Will Trusts, Re [1968] Ch 407, ChD���������������������������������������������������������66 Bristol and West Building Society v Mothew [1998] Ch 1, CA�����������������������������154 Broadhead v Spread Trustee Co Ltd (26 November 2014) (Judgment 46/2014), Guernsey Royal Ct�������������������������������������������������� 237, 238 Brockbank, Re [1948] Ch 206, ChD�������������������������������������������������������������������������103 Brown v Orion Trust Ltd (14 April 2000) (Judgment 5/2000), Guernsey Royal Ct�����������������������������������������������������������������������������������228–9, 230 Brown v Orion Trust Ltd (10 May 2004) (Judgment 14/2004), Guernsey Royal Ct��������������������������������������������������������������������������������������� 230, 231 Brown v Orion Trust Ltd [2003–04] GLR [N] 16, (10 May 2004), Guernsey Royal Ct������������������������������������������������������������������������������������������������230 Brown, In the matter of the Will of [1997] JLR 137, Jersey�����������������������������������107 Browne v Browne [1989] 1 FLR 291, CA�������������������������������������������������������� 251, 254 Brunei Investment Agency Ltd v Fidelis Nominees Ltd [2008] JLR 337, Jersey Royal Ct�����������������������������������������������������������������������������������������95 Buckton, Re [1907] 2 Ch 406, ChD����������������������������������������������������������214, 233, 234 C Trust, In the matter of the [2019] SC (Bda) 44 App (22 July 2019), Bermuda Sup Ct����������������������������������������������������������������������������������������������������125 C Trust, In the matter of the (21 March 2013) (Judgment 17/2013), Guernsey Royal Ct���������������������������������������������������������������������������63, 65, 152, 164 Carafe Trust, In the matter of the [2005] JLR 159, Jersey Royal Ct����������������������110 CK Consultants (Plastics) Ltd v Vines, Barnett Christie Finance Ltd (8–10 February 1982), Guernsey Royal Ct������������3, 7, 8, 40, 42, 43 C v C (Ancillary Relief: Nuptial Settlement) [2004] EWHC 742 (Fam), [2004] 2 WLR 1467�����������������������������������������������������������������������������������������������253
xxxii Table of Cases Capita Trustees Ltd (as trustee of the Dunlop Settlement) [2011] JRC 138, Jersey Royal Ct��������������������������������������������������������������������������������������108 Carey v Vickery (March 1928) Judgments 436������������������������������������������������������������7 Carman v Yates [2004] EWHC 3448 (Ch), [2005] BPIR 476��������������������������������244 Carpenter v Field Aviation Ltd (11 January 1982), Guernsey Royal Ct�����������������44 Caversham Trustees Ltd, In the matter of [2008] JRC 065, Jersey Royal Ct�������������������������������������������������������������108, 109–110, 111, 114, 144 Centre Trustees, Re [2009] JRC 109, Jersey Royal Ct���������������������������������������������186 Chapman v Chapman [1954] AC 429, HL���������������������������������������������������������������259 Chapman, Re [1896] 2 Ch 763, CA���������������������������������������������������������������������������206 Charalambous v Charalambous; sub nom C v C (Ancillary Relief: Nuptial Settlement) [2004] EWCA Civ 1030, [2005] Fam 250������������������ 253–4 Chase Manhattan Equities Ltd v Goodman [1991] BCLC 897, ChD�������������������244 Chief Officer of Customs & Excise, Immigration & Nationality Service v Garnet Investments Ltd [2011–12] GLR 250, Guernsey CA������������������������219 City Equitable Fire Insurance Co Ltd, Re [1905] Ch 407, CA�������������������������������156 Clark Boyce v Mouat [1994] 1 AC 428, PC (NZ)����������������������������������������������������139 Colebrook’s Conveyances, Re [1972] 1 WLR 1397, ChD���������������������������������������273 Colour Trusts, Re; Wilson v Monaghan and Le Gallez (24 May 2012) (Judgment 24/2012), Guernsey Royal Ct������������������������������������92, 219, 272, 275 Colussi v Investec Trust (Guernsey) Ltd (25 May 2007) (Judgment 16/2007), Guernsey Royal Ct�������������������������������������������������������������93 Commissioner of Stamp Duties (Queensland) v Joliffe (1920) 28 CLR 178, 26 ALR 210, HCA���������������������������������������������������������������������������244 Compass Trustees v Mc Barnett [2002] JLR 321, Jersey����������������������������������������254 Cotton v Brudenell-Bruce [2014] EWCA Civ 1312, [2015] WTLR 39����������������224 Cowan v Scargill [1985] Ch 270, ChD������������������������������������������������������������� 134, 195 Credit Suisse Trustees Ltd v Haggiag (17 October 2015) (Judgment 47/2015), Guernsey Royal Ct�������������������������������������������������������������94 Crociani v Crociani [2014] UKPC 40, [2015] WTLR 975, PC (Jersey)���������� 93–94 Cross & Cross v Benitrust International (CI) Ltd (1998) 25 GLJ 47 (24 and 29 November 1999), Guernsey Royal Ct������������������������������������ 243, 244 Cunningham v Cunningham [2009] JLR 227, Jersey Royal Ct�����������������������������124 Darby’s Settlement Trusts, Re (2 March 1989), Royal Ct�������������������������� 7, 271, 275 Davidson v Seelig [2016] EWHC 549 (Ch), [2016] WTLR 627������������������������������82 Davis v Richards & Wallington Industries Ltd [1990] 1 WLR 1511, ChD����������152 Davis (Norman Francis), Re (14 August 1962) 22 Plaids de Meubles 305, Royal Ct��������������������������������������������������������������������������������� 8, 24, 25 Dawson-Damer v Taylor Wessing LLP [2019] EWHC 1258 (Ch), [2019] 1 WLR 6443�����������������������������������������������������������������������������������������������179 DDD 1976 settlement, DDD 1979 settlement and DDD 2005 Settlement, In the matter of the [2011] JRC 243, Jersey Royal Ct������������������������������ 260, 266 Den Haag Trust, Re (1997–98) 1 OFLR 495, Jersey������������������������������������������������140
Table of Cases xxxiii Dervan v Concept (30 November 2012) (Judgment 38/2012), Guernsey Royal Ct��������������������������������������������������������������������������������������������������88 Des Pallieres v J P Morgan Chase & Co [2013] JCA 146, Jersey���������������������������232 Donohue v Armco Inc [2001] UKHL 64, [2002] 1 All ER 749�������������������������������93 Double Happiness Trust, Re (2002–03) 5 ITELR 646, [2002] JLR Note 48, Jersey Royal Ct����������������������������������������������������������������������������������75 Douglas, In the Settlement of [2000] JLR 73, Jersey����������������������������������50–51, 267 E, L, O and R Trusts, In the matter of the [2008] JLR 360, Jersey Royal Ct���������������������������������������������������������������������������������������������� 116, 137 Edge v Pensions Ombudsman [1998] Ch 512, HC; [2000] Ch 602, CA��������������142 EFG Trust Co Ltd and the R Trust, In Re [2015] JRC 267A, Jersey Royal Ct�������������������������������������������������������������������������������������������������� 96, 99 Elizabeth Gates Estate Trust, In Re [2000] JLR Notes 68a, Jersey�������������������������266 EMM Capricorn Trustees Ltd v Compass Trustees Ltd [2001] JLR 205, Jersey Royal Ct���������������������������������������������������������������������������������������������������������93 Erskine 1948 Trust, In Re [2012] EWHC 732 (Ch), [2013] Ch 135���������������� 68, 69 Esteem Settlement (Abacus (CI) Ltd as Trustee), Re [2003] JLR 188, Jersey Royal Ct���������������������������������������������������������������������������������47, 74, 167, 243, 244, 245, 247, 248–9 Esteem Settlement and the No 52 Trust, Re [2001] JLR 7, Jersey���������������������������99 Evans (deceased), Re [1986] 1 WLR 101, CA����������������������������������������������������������229 Exeter Settlement, In Re [2010] JLR 169, Jersey Royal Ct������������������������������ 47, 163 Eyre, Re (1883) 49 LT 259������������������������������������������������������������������������������������������189 F, Re (21 June 2013) (Judgment 32/2013), Guernsey CA���������������������������� 217, 218, 223, 224, 225 Federal Trust Co Ltd v MacDonald-Smith and Bermuda Trust (Guernsey) Ltd (6 April 2001), Royal Ct������������������������������������������������������� 53–54 Ferguson and Centurion Trust Co Ltd, On the Application of (10 December 1992), Guernsey Royal Ct����������������������������������������������������� 7, 271 Fitzwood Pty Ltd v Unique Goal Pty Ltd [2001] FCA 1628, 188 ALR 566, FCA������������������������������������������������������������������������������������������������186 Fletcher v Green (1864) 3 Bevan 426������������������������������������������������������������������������156 Foreman v Kingstone [2004] 1 NZLR 841, [2005] WTLR 823, NZ HC��������������171 Foster v Spencer [1996] 2 All ER 672, ChD�������������������������������������������������������������119 Foster Will Trust, In the matter of the (22 July 2003), (Judgment 35/2003), Guernsey Royal Ct������������������������������������������������������������������������������������������� 32–33 Fountain Trust, In Re [2005] JLR 368, Jersey Royal Ct��������������������������������� 245, 246 Freedman v Freedman [2015] EWHC 1457 (Ch), [2015] WTLR 1187���������������278 Freeman v Ansbacher Trustees (Jersey) Ltd [2009] JRC 03, Jersey Royal Ct������155 Galmerrow Securities Ltd v National Westminster Bank Plc (1993) [2002] WTLR 125, ChD���������������������������������������������������������������������������������������212 Gamble (Anthony Quentin), Re the estate of (6 February 2003) (Judgment 30/2003), Guernsey Royal Ct�������������������������271, 272–3, 274, 275–6
xxxiv Table of Cases Garreston v Garreston 306 A 2d 737 (Del 1973)�����������������������������������������������������167 Gauson v Harris 20 GLJ 42 (18 September 1995), Guernsey Royal Ct������������������46 GH v KL [2011] SC (Bda) 23 Civ, Bermuda������������������������������������������������������������265 Godfray v The Constables of the Island of Sark [1902] AC 534, PC (Guernsey)�������������������������������������������������������������������������������������������������� 42, 45 Greenwood v Natwest Offshore Ltd (4 February 2000), Guernsey Royal Ct������148 Gresh (Emanuel) v RBC Trust Co (Guernsey) Ltd and HMRC (26 February 2016) (Judgment 6/2016), Guernsey Royal Ct������������������� 74, 273, 276, 277, 278 Grey v IRC [1960] AC 1, HL��������������������������������������������������������������������������������������166 Guernsey States Insurance v Ernest Farley & Son Ltd [1953] 1 JJ 47���������������������56 Guthrie v Walrond (1883) 22 ChD 573, ChD���������������������������������������������������������165 H Trust, In Re The [2007–08] GLR 118, (29 August 2007) (Judgment 28/2007), Guernsey Royal Ct����������������� 260, 261, 262, 263, 266, 267 H Trust, Re [2006] JLR 280, Jersey����������������������������������������������������������������������������252 H Trust, Re [2018] JRC 171, Jersey Royal Ct������������������������������������������222, 223, 225 H, Re [2006] JLR 562, Jersey����������������������������������������������������������������������������������������99 Hand’s Will Trust, Re (15 August 2018), unreported, CA���������������������������������������70 Hand’s Will Trust, Re; Hand v George [2017] EWHC 533 (Ch), [2017] Ch 449��������������������������������������������������������������������������������������������������� 69, 70 Harari’s Settlement Trusts, Re [1949] WN 79, ChD�����������������������������������������������194 Harries v Church Commissioners for England [1992] 1 WLR 1241, [1993] 2 All ER 300, ChD��������������������������������������������������������������������������� 134, 195 Hart’s Will Trust, Re [1943] 2 All ER 557����������������������������������������������������77, 211–12 Hartigan Nominees Pty Ltd v Rydge 29 NSWLR 405 (18 December 1992), NSWCA����������������������������������������������������������������������������172 Hastings-Bass deceased, Re [1975] Ch 25������������������������������������������52, 73, 192, 270, 279–80, 281, 282 Haward v Fawcett [2006] UKHL 9, [2006] 1 WLR 682��������������������������������� 237, 238 HCS Trustees Ltd v Camperio Legal and Fiduciary Services Plc (30 June 2015), Guernsey Royal Ct������������������������������������������������������������ 279, 281 Helmsman v Bank of New York Trust Co (Cayman) Ltd [2009] CILR 490, Cayman Islands������������������������������������������������������������������������������������93 HHH Employee Trust, In the matter of the [2012] (2) JLR 64, Jersey�����������������258 HHH Employee Trust, In the matter of the [2013] JRC 023, Jersey Royal Ct�����188 Hill v Spread Trustee Co Ltd [2005] EWHC 336 (Ch), [2006] WTLR 1009�������243 Hitch v Stone [2001] EWCA Civ 63, [2001] STC 214���������������������������243, 244, 245 Hitchins, Levy & Hitchins v Hill and Lloyds TSB Offshore Trust Co Ltd (23 February 2011) (Judgment 32/2011), Guernsey Royal Ct����������� 73, 86, 166 HMRC v Gresh and RBC Trust Co (Guernsey) Ltd [2009–10] GLR 239, Guernsey CA������������������������������������������������������������������������������������������������������������52 Hobday v Peters (1860) 28 Beav 603�������������������������������������������������������������������������157 Hodge v Club Motor Insurance Agency Proprietary Ltd (1974) 2 ALR 421���������������������������������������������������������������������������������������������������������� 56, 58
Table of Cases xxxv Hole v Garnsey [1930] AC 472, HL����������������������������������������������������������������������������64 HSBC (HK) Ltd v Secretary for Justice (2001) 3 ITELR 763, HK CFI����������������������������������������������������������������������������������������������������138, 210–11 HSBC International Trustee Ltd v Poon Lok To (Otto) [2011] JRC 167, Jersey Royal Ct����������������������������������������������������������������������� 96, 250, 252 Husband v Wife (13 February 2015) (Judgment 29/2015), Guernsey Royal Ct������������������������������������������������������������������������������������������������250 IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335, CA����������������162 IMK Family Trust, In the matter of the [2008] JCA 196, [2008] JLR 250, Jersey���������������������������������������������������������������������������������������������������������99 Imperial Group Pension Trust v Imperial Tobacco Ltd [1991] 1 WLR 589, ChD���������������������������������������������������������������������������������������������������258 India (Government of) v Taylor [1955] AC 491, HL����������������������������� 52, 55, 56, 58 Information about a trust, In the matter of [2013] CA (Bda) 8 Civ, Bermuda CA����������������������������������������������������������������������������������������������������������172 Insinger Trust (Guernsey) Ltd (as trustee of the FDS Charitable Trust) (CA, 10 June 1999) 27 GLJ 147�������������������������������������������������������������������� 30, 218 Internine and the Intertraders Trusts, In the matter of the [2005] JLR 236, Jersey������������������������������������������������������������������������������������������63–64, 258 Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd (2014) 18 ITELR 1 (27 June 2014) (Judgment 28/2014), Guernsey CA������������ 127, 217 Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd (No 2) (2014) 18 ITELR 30 (29 October 2014) (Judgment 41/2014), Guernsey CA������������127 Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7, [2019] AC 271, PC (Guernsey)����������������������������������������������������� 85, 93, 123, 126, 127 Investors Compensation Scheme Ltd v West Bromwich Bldg Socy (No 1) [1998] 1 WLR 896, HL�������������������������������������������������������������������������������64 IRC v Holmden [1967] UKHL 7, [1968] AC 685����������������������������������������������������268 IRC v Schroder [1983] STC 480, ChD����������������������������������������������������������������������187 J Settlement, In the matter of the [2019] JRC 111, Jersey Royal Ct����������������������274 JP v Atlas Trust Co (Jersey) Ltd [2008] JRC 159, Jersey Royal Ct�������������������������279 JW v Morgan Trust Co of the Bahamas Ltd (2000) 4 ITELR 541, Sup Ct (Bahamas)��������������������������������������������������������������������������������������������������140 Jakob International v HSBC Private Bank (CI) Ltd (1 July 2016) (Judgment 26/2016), [2016] GLR N6, Guernsey Royal Ct������������������������������220 James Stewart & Co v National Shawmut Bank 69 F2d 694 (1st Cir 1934)���������132 Jasmine Trustees Ltd, In the matter of [2015] JRC 196, Jersey Royal Ct��������������������������������������������������������������������������� 81, 103–5, 110, 187 Jasmine Trustees Ltd v Wells & Hind [2007] EWHC 38 (Ch), [2008] Ch 194��������������������������������������������������������������������������������������������������������105 Jebb, deceased, In Re [1966] Ch 666, CA�������������������������������������������������������������������67 Jefcoate & Jefcoate v Spread Trustee Co Ltd (13 August 2012) (Judgment 31/2012), Guernsey Royal Ct�����������������������������������������������������������232
xxxvi Table of Cases Jefcoate & Jefcoate v Spread Trustee Co Ltd (11 April 2013) (Judgment 11/2013), Guernsey Royal Ct�������������������������������������������������� 236, 237 Jefcoate v Spread Trustee Co Ltd (31 October 2014) (Judgment 42/2014), Guernsey Royal Ct�������������������������������������������������� 155, 159 Jennings v Mather [1901] 1 QB 108, QBD���������������������������������������������������������������112 John Edward Lihou (1831)���������������������������������������������������������������������������������������������4 Johnson Mathhey Bankers v Shamji [1985–6] JLR N26d, Jersey��������������������������247 Johnson v Gore Wood & Co (a firm) [2000] UKHL 65, [2002] 2 AC 1���������������154 Jones v Plane [2006] JLR 438, Jersey���������������������������������������������������������������������������47 Jones’ Will Trusts, Re [1965] Ch 1124, ChD��������������������������������������������������������������67 JSC Mezhdunarodniy Promyshlenniy Bank v Sergei Viktorovich Pugachev [2017] EWHC 2426 (Ch), 20 ITELR 905������������������������������������ 80–82 K Trust, In the matter of the (14 July 2015) (Judgment 31/2015), Guernsey Royal Ct����������������������������������������������������������������� 13–14, 186, 188, 189, 190, 191, 192, 217, 218 Kan v HSBC International Trustee Ltd [2015] JCA 109, Jersey CA�����������������������������������������������������������������������������������������������221, 224, 225 Kemble v Hicks [1999] PLR 287��������������������������������������������������������������������������������123 Kennedy v Kennedy [2014] EWHC 4129 (Ch), [2015] WTLR 837, [2015] BTC 2������������������������������������������������������������������������������������������������� 276, 277 Kitchen v Royal Air Force Association [1958] 1 WLR 563, CA����������������������������159 Kleinwort Benson (Guernsey) Ltd v Aras Investment Management Ltd (17 March 2017) (Judgment 30/2017), Guernsey Royal Ct������������������� 287, 291, 292, 293, 294 Kleinwort Benson (Guernsey) Trustees Ltd, Gilligan and Robins, In the matter of (12 March 1998), Guernsey Royal Ct����������������������120–21, 218 Kleinwort Benson (Guernsey) Trustees Ltd, Robins and Gilligan v Wilson, Wilson, Risk, Judgment 3/2003 (31 December 2002), Guernsey Royal Ct���������������������������������������������������������������������� 52, 54–55, 56, 218 Koonmen v Bender [2002] JC 218, Jersey CA�����������������������������������������������������������93 Koonmen v Bender [2002] JLR 407, Jersey Royal Ct���������������������������������������� 47, 93 KSH No 4 Trust, the KSH No 5 Trust, the KSH No 6 Trust and the GK and the JK Trusts, In the matter of the [2017] JRC 214A, Jersey Royal Ct�������������������������������������������������������������������������������������������������������201 L Trust, In Re [2017] JRC 168A, Jersey Royal Ct����������������������������������������������������205 Learoyd and Carter v Whiteley (1887) 12 App Cas 727, HL���������������������������������196 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344, 74 NSWLR 550����������������������������������������������������������������132 Lemos v Coutts & Co (Cayman) Ltd [1992–3] CILR 460, Cayman Islands Grand Ct���������������������������������������������������������������������������������������������������171 Letterstedt v Broers (1884) 9 App Cas 371, [1884] UKPC 18, PC (Cape of Good Hope)���������������������������������������������������������������������������������� 116, 188 Liang v RBC Trustees (Guernsey) Ltd (10 May 2018) (Judgment 20/2018), Guernsey Royal Ct������������������������������������������218, 219, 220
Table of Cases xxxvii LKM Discretionary Trust, In the matter of an Application by the Trustee of the (20 July 2016) (Judgment 34/2016), Guernsey Royal Ct�������������������������������������������������������������������������������������������������218, 221, 224 Lloyd v Lloyd (20 October 1956), Royal Ct������������������������� 8, 41–43, 44, 45, 46, 134 Londonderry’s Settlement, Re [1965] Ch 918, [1964] 3 All ER 855, CA����������������������������������������������������������������������������������172, 175, 215 LRT Pension Fund Trustee Co Ltd v Hatt [1993] PLR 227������������������������������������105 Lucking’s Will Trusts, Re [1968] 1 WLR 866, ChD���������������������������������������� 199, 200 M v St Anne’s Trustees Ltd, Re Richmond Retirement Plan (12 January 2018) (Judgment 1/2018), Guernsey Royal Ct������������135, 281, 282 M v St Anne’s Trustees Ltd, Re Richmond Retirement Plan (20 June 2018) (Judgment 21/2018), Guernsey CA�����������������279, 281, 282, 283 MacInnes, In Re [1935] 1 DLR 401�����������������������������������������������������������������������������76 Mackinnon v Regent Trust Co Ltd [2004] JRC 211, [2004] JLR 477, Jersey Royal Ct; aff ’d [2005] JCA 066, [2005] WTLR 1367, Jersey CA����������243 Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198, PC (Jamaica)������������������������������������������������������������������������� 227, 228 Martin v City of Edinburgh District Council 1988 SLT 329, [1989] PLR 9, Ct of Sess (OH)�����������������������������������������������������������������������������195 Maryon-Wilson’s Estate, Re [1912] 1 Ch 55, CA����������������������������������������������������194 McDonald v Horn [1995] 1 All ER 961, CA������������������������������������������������������������234 Med Vineyards Ltd (in liquidation), Re 20 GLJ 7 (25 July 1995), Guernsey���������92 Mercator Trustees Ltd v Chrisalis Trustees (Guernsey) Ltd, In Re the XYZ Settlement (25 April 2014), Royal Ct��������������������25, 71, 72, 268 Merrill Lynch Bank and Trust Co (Cayman) Ltd v Demeril [2010] (2) CILR 75, Cayman Islands��������������������������������������������������������������������97 Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513, ChD��������������������������280 Midland Bank (Jersey) Ltd v Federated Pension Services Ltd [1995] JLR 352, [1996] PLR 179, Jersey CA��������������������������������������������� 159, 206 Midland Bank Trust Co (Jersey) Ltd v Federated Pension Services Ltd [1994] JLR 276, Jersey Royal Court��������������������������������������������������������������������160 Midland Bank plc v Wyatt [1995] FLR 696, ChD����������������������������������243, 244, 245 Miles v Bull (No 1) [1969] 1 QB 258, QBD�������������������������������������������������������������244 Minwalla v Minwalla [2004] EWHC 2823 (Fam), (2005) 7 ITELR 457����������������������������������������������������������������������������������242–3, 256 Mischca Trust, In Re; Butterfield Trust (Guernsey) Ltd v Thommessen (18th March 2010) (Judgment 15/2010), Guernsey Royal Ct�����������������������������������������������������������������������155, 218, 223, 224 Moore (deceased), Re 13 GLJ 79 (21 March 1972), Guernsey�������8, 23, 31, 32, 259 Morice v The Bishop of Durham (1804) 9 Ves 399, [1803–13] All ER Rep 451���������������������������������������������������������������������������������������������������������35 Moritz (deceased), Re [1960] Ch 251, ChD�������������������������������������������������������������229 Morton v Paint 21 GLJ 61 (9–10 January 1996, 9 February 1996), Guernsey CA������������������������������������������������������������������������������������������������������������15
xxxviii Table of Cases Mourant & Co Retirement Trustees Ltd v JH and HK [2008] JRC 100, Jersey Royal Ct�������������������������������������������������������������������������������������������������������258 Mubarik v Mubarak [2008] JLR 430, Jersey CA��������������������������������������������� 260, 264 Mulligan (Deceased), Re [1998] 1 NZLR 481, NZ HC������������������������������������������198 N & N, In the matter of the Representation of [1999] JLR 86, Jersey������������������������������������������������������������������������������������������������������263, 266, 267 N (Mr & Mrs)’s 1989 Settlement (1998–99) 1 ITELR 803, [2002] CLY 4663, Jersey Royal Ct�����������������������������������������������������������������������267 N Settlement, In the matter of the (22 June 2016) (Judgment 29/2016), Guernsey Royal Ct������������������������������������������������������������������������������������������������218 Neil Ashley (1990) Settlement, In the matter of The [2003] JLR N9, Jersey�������267 Nestlé v National Westminster Bank plc (1988) [2000] WTLR 795 (29 June 1988), ChD���������������������������������������������������������������������������������������������197 Nestlé v National Westminster Bank Plc [1993] 1 WLR 1260, [1994] 1 All ER 118, CA����������������������������������������������������������������������196, 197, 206 Nolan v Minerva Trust Co Ltd [2014 (2)] JLR 117, Jersey�������������������������������������237 Norfolk’s (Duke of) Settlement Trusts, Re [1982] 1 Ch 61, CA������������������� 119, 121 Northumberland (Duke of) (deceased), Re [1950] 2 All ER 1181, ChD�������������211 Northwind Yachts Ltd, Guenier v Fuller, In the matter of [2005] JLR 137, Jersey���������������������������������������������������������������������������������������������������������62 Norway’s (State of) Application (Nos 1 and 2) (Consolidated appeal), Re [1990] 1 AC 723, HL�����������������������������������������������������������������������������������������52 Nourse v Heritage Corporate Trustee Ltd and Concept Fiduciaries Ltd (15 January 2015) (Judgment 06/2016), Guernsey Royal Ct������������������ 273, 276 O’Rourke v Darbishire [1920] AC 581, HL��������������������������������������������������������������169 O’Neill Settlements and Embleton Trust Corporation Ltd (30 October 2009) (Judgment 48/2009), Guernsey Royal Ct��������������������������272 Octavo Investments Pty Ltd v Knight [1979] HCA 61, (1979) 144 CLR 360, HCA�����������������������������������������������������������������������������������������������112 Oded Moshe Leyvand v Amnon Barasch (2000) 144 SJLB 126 (15 February 2000), HC���������������������������������������������������������������������������������������110 Ogier Trustee Ltd v CI Law Trustees Ltd [2006] JRC 158, Jersey Royal Ct��������������������������������������������������������������������������������������108, 109, 114 Ogier Trustee Ltd (as trustee of the PRJ Settlement), In the matter of (25 April 2002), Royal Ct������������������������������������������������������������������������ 220, 222 Ojjeh Trust, Re [1992–93] CILR 348, Cayman Islands������������������������������������������171 Osias Settlements, Re [1987–88] JLR 389, Jersey Royal Ct�����������258, 260, 261, 262 Osiris Trustees, Re (1999–2000) 2 ITELR 404, Isle of Man�����������������������������������185 OSM Provident Fund, In the matter of the (7 August 2018) (Judgment 33/2018), Guernsey Royal Ct�����������������������������������������������������������271 OT Computers Ltd (in administration) v First National Tricity Finance Ltd [2003] EWHC 1010 (Ch), (2003) 6 ITELR 117�����������������������������63 P v P HC Christchurch CIV-2004-409-1368, 29 October 2004, NZ��������������������186 Papadimitriou, Re [2004] WTLR 1141, Isle of Man HC������������������������������� 185, 188
Table of Cases xxxix Park, Re [1932] 1 Ch 580, ChD���������������������������������������������������������������������������������188 Parujan v Atlantic Trustees [2003] JLR N[11], Jersey���������������������������������������������116 Pattni v Ali [2006] UKPC 51, [2007] 2 AC 85, PC (Isle of Man)��������������������� 87, 95 Pearson Education Ltd v Prentice Hall India Private Ltd [2005] EWHC 636 (QB), [2006] FSR 8��������������������������������������������������������������226 Peczenik’s Settlement Trusts, Re [1964] 1 WLR 720, ChD������������������������������������194 Pelican Trust, Re The [2005–6] GLR 20, Guernsey Royal Ct���������������271, 272, 275 Pepper v Hart [1993] AC 593, HL�������������������������������������������������������������������������������88 Perotti v Watson [2001] EWCA Civ 116, [2001] All ER (D) 26 (Feb)�����������������119 Philean Trust Co Ltd v Taylor [2003] JLR 61, Jersey�����������������������65, 66, 67, 68, 70 Philipson-Stow v IRC [1961] AC 727, HL���������������������������������������������������������������165 Picot v Jehan (8 March 1990), Guernsey CA�������������������������������������������������������������73 Pilkington v IRC [1964] AC 612, HL������������������������������������������������������������������������144 Pirito v Curth, Judgment 23/2003 (10 April 2003), Guernsey CA�������������������������46 Pitt v Holt [2011] EWCA Civ 197, [2012] Ch 132��������������������������������������������������280 Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108���������������������������������������271, 276, 277, 278, 279, 280, 281, 282 PQ v RS [2019] EWHC 1643 (Ch), [2019] WTLR 1015������������������������������������������70 Prenn v Simmonds [1971] 1 WLR 1381, HL������������������������������������������������������ 64, 66 Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd (1998/99) 1 ITELR 565, English High Ct������������������������������������������������������������52–53, 57, 58 Priaulx v Le Ray, official Court Registers 1925–1931, Guernsey��������������������� 42, 45 Priaulx, Le Marchant & Co v Brehaut (1839)��������������������������������������������������������������4 Pro Swing Golf Inc v Elta Golf Inc 2006 SCC 52, [2006] SCR 612, SCC���������������95 Public Trustee v Cooper [2001] WTLR 901, ChD��������������������������������138, 214, 215, 220, 221, 226, 227 Publicis Graphics Group Holdings SA, In the matter of the Representation of [2011] JLR Note 18 62, Jersey��������������������������������������������������������������������������134 Qatar (State of) v Al Thani [1999] JLR 118, Jersey Royal Court�����������������������������15 R and RA Trusts, In the matter of the (20 May 2014) (Judgment 25/2014), Guernsey CA��������������������������������������������������������������������������������������������168, 182–3, 189, 215, 217 R Trusts, In the matter of the (2 October 2017) (Judgment 43/2017), Guernsey Royal Ct������������������������������������������������������������������������������������������������226 RBS Coutts (Cayman) Ltd v W [2010] (2) CILR 348, Cayman Islands See B Trust, In Re, RBS Coutts (Cayman) Ltd v W������������������������������������99, 252 Racal Group Services v Ashmore & others [1995] STC 1151, CA������������������������273 Rahman v Chase Bank (CI) Trust Co Ltd [1991] JLR 103, Jersey Royal Ct����������������������������������������������������������������������������������245, 247–8, 249 Rawlinson & Hunter Trustees SA v ITG Ltd and Bayeax Ltd (30 January 2017) (Judgment 4/2017), Guernsey Royal Ct������������109, 217, 218 Rector and Church Wardens of the Parish of St Pierre du Bois, Re (March 1948)��������������������������������������������������������������������������������������������������������7 Remnant’ s Settlement Trusts, Re [1970] Ch 560, ChD�����������������������������������������266
xl Table of Cases Richard Colin Douglas 1990 Settlement, Re (2000) 2 ITELR 682, 687; [2000] JLR 73, Jersey���������������������������������������������������������������������������������������������267 Richmond Retirement Plan, Re; see M v St Anne’s Trustees Ltd, Re Richmond Retirement Plan���������������������������������������������������279, 281, 282, 283 Roger v Roger, Judgment 10/2003 (10 January 2003), Guernsey CA���������������������45 Rossiter (deceased), Re 22 GLJ 56 (13 November 1996), Guernsey�����������������������23 Rothmere Farms Pty v Belgravia Farms Pty Ltd [1999] FCA 745, (1999) 2 ITELR 159�����������������������������������������������������������������������������������������������113 Rothschild Trust Guernsey Ltd & Pateras & Katigo-Kalliopi (3 May 2011) (Judgment 15/2011), Guernsey Royal Ct����������������� 62, 85, 86, 92, 101, 164, 214, 217, 219, 227 Rothschild Trust Guernsey Ltd v Ojjeh and Ojjeh (In re the NAO Settlement) (29 November 2010) (Judgment 40/2010), Guernsey Royal Ct����������������������218 Rowe and Rich v Cross and Cross 26 GLJ 85 (24 July 1998), Guernsey CA���������12 Rubin v Eurofinance [2012] UKSC 46, [2013] 1 AC 236�����������������������������������������95 Rusnano Capital AG v Molard and Pullborough [2019] GRC 011, Guernsey��������������������������������������������������������������������������������������������������������� 83, 163 Russell (Elizabeth O’Dwyer) v Timothy O’Dwyer Russell and Hamilton Trustees Ltd (8 October 2001), Royal Ct������������������������������������� 254–5 Sadler v Robins (1808) 1 Camp 253����������������������������������������������������������������������������95 Saunders v Vautier (1841) 4 Beav 115�������������������������������������������������82, 83, 258, 268 Schmidt v Rosewood Trust Ltd [2003] UKPC 26, [2003] 2 AC 709, PC (Isle of Man)�����������������������������������������������������������������163, 169, 180 Schroder Cayman Bank and Trust Co Ltd v Schroder Trust AG FSD 122/2014, Cayman Grand Ct�������������������������������������������������������������������������������150 Schroder Cayman Bank Trust Co Ltd v Schroder Trust AG [2015] JRC 125, (10 June 2015), Jersey Royal Ct����������������������������������������������150 Schuler (L) AG v Wickman Machine Tool Sales Ltd [1974] AC 235, HL��������������64 Scotiabank & Trust (Cayman) Ltd v David Axelrod & others (FSD 97/13; 1 June 2015), Cayman Grand Ct���������������������������������������������� 121–2 Selwood v Madeley; McCormack v Waterman (19 December 2001), Guernsey Royal Ct������������������������������������������������������������������������������������������� 43, 46 Sergeant v National Westminster Bank (1990) 61 P & CR 518, CA���������������������137 Settlement, In Re A (28 June 2011) (Judgment 25/2011), Guernsey Royal Ct��������������������������������������������������������������������������������������������������������� 266, 267 Shah v HSBC Private Bank (UK) Ltd [2010] EWCA Civ 31, [2010] 3 All ER 477�����������������������������������������������������������������������������������������������220 Shelborne (Countess of) v Earl of Inchiquin (1784) 1 Bro CC 338����������������������275 Sherdley v Sherdley [1986] 2 All ER 202, CA����������������������������������������������������������273 Shirley, In Re (1965) 49 DLR (2d) 474������������������������������������������������������������������������76 Sieff v Fox [2005] EWHC 1312 (Ch), [2005] 1 WLR 3811��������������������������� 279, 280 Skeats Settlement, Re (1889) 42 ChD 522, ChD�������������������������������������������� 186, 187 Slocock’s Will Trusts, Re [1979] 1 All ER 358, ChD�������������������������������������� 272, 273 Smith v Harvey 14 May 1981: No 9 (Civil): Guernsey CA��������������������������������������15
Table of Cases xli Smouha Family Trust, Re [1998] JLR N19, Jersey��������������������������������������������������272 Snook v London and West Riding Investments Ltd [1967] 2 QB 786, CA����������������������������������������������������������������������������241, 243, 244 Society of Lloyd’s v Robinson [1999] 1 WLR 756, HL����������������������������������������������64 Sossen (H) 1969 Settlement, In the matter of the (28 May 2004) (Judgment 16/2004), Guernsey Royal Ct����������������������������������� 118–20, 218, 259 Speight v Gaunt (1883) 9 App Cas 1, HL�����������������������������������������������������������������198 Spread Trustee Co Ltd v Hutcheson. See Stuart-Hutcheson v Spread Trustee Co Ltd�������������������������������������12, 13, 35, 65, 154, 170, 190, 282 Stanley Sidney Dawes Will Trust, In the matter of the (7 December 2000), Royal Ct��������������������������������������������������������������� 32, 197, 218 Steed’s Will Trusts, In Re [1960] 1 All ER 487, CA�������������������������������������������������260 Steel v Wellcome Custodian Trustees Ltd [1988] 1 WLR 167, ChD���������������������210 Strahan, Re (1856) 8 De GM & G 291����������������������������������������������������������������������157 Strathmullan Trust, In Re The [2014 (1)] JLR 309, Jersey����������������������������� 270, 278 Stuart-Hutcheson (Alan) v Spread Trustee Co Ltd (10 September 2001) (Judgment 6/2001), Guernsey Royal Ct�������������������������������������������������������������235 Stuart-Hutcheson v Spread Trustee Co Ltd [2002] WTLR 1213, [2009–10] GLR 403, (2002) 5 ITELR 140, Guernsey CA������������ 5, 8, 10, 12, 13, 14, 41, 65, 88, 133, 135 Stuart-Hutcheson v Spread Trustee Co Ltd [2011] UKPC 13, [2012] 2 AC 194, PC�������������������������������������������������������������5, 8, 12, 13, 14, 35, 65, 135, 158, 159, 160, 169, 170, 173, 174, 180, 190, 196, 218, 282 Suenson-Taylor’s Settlement Trusts, Re [1974] 1 WLR 1280, ChD����������������������203 Sugden v Crossland (1865) 3 Sm & G 192���������������������������������������������������������������103 T Ltd, In the matter of the A Ltd Funded Unapproved Retirement Benefits Scheme and the B Employee Benefit Trust (24 April 2017) (Judgment 21/2017), Guernsey Royal Ct�����������������������������������������������������������252 T Settlement, In the matter of the [2002] JLR 204, Jersey���������������������� 59, 134, 266 T’s Settlement Trusts, Re [1964] Ch 158, ChD��������������������������������������������������������266 Tardif, Re 13 GLJ 78 (9 May 1953), Guernsey������������������������������������������������ 8, 25, 71 Target Holdings v Redferns [1996] AC 421, HL�����������������������������������������������������154 Tassarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17, [2012] 1 WLR 1721, PC (Cayman Islands)����������������������������������������������������������������������������������������������78 Tchenguiz Discretionary Trust (27 November 2015) (Judgment 54/2015), Guernsey Royal Ct����������������������������������122, 124, 230, 232 Thomas v Thomas [1995] EWCA Civ 51, [1995] 2 FLR 668, CA�������������������������251 Thommessen v Butterfield Trust (Guernsey) Ltd [2009–10] GLR 102������� 123, 227 Thompson v Le Patourel (January 1922) Judgments 236�������������������������������������7, 24 Tierney v King [1983] 2 Qd R 580, QFC������������������������������������������������������������������172 Tiger v Barclays Bank Ltd [1952] 1 All ER 85, CA�������������������������������������������������191 Toland Trust, Re [2005] JRC 142, Jersey Royal Ct��������������������������������������������������227
xlii Table of Cases Tompson v Browne (1835) 3 My & K 32��������������������������������������������������������������������77 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461, CA���������������������������������������������������������������������������������������������181 Townley v Sherborne (1633) J Bridg 35, Ct of Common Pleas�����������������������������156 Townson v Tickell (1819) 106 ER 575, Ct of KB�����������������������������������������������������165 Triangle Loans Trust, Re; Rysaffe Trustee Co (CI) Ltd v Hexagon Trust Co (CI) Ltd (2 November 2004) (Judgment 52/2004), Guernsey Royal Ct�����������������������������������������������������������������������������������138, 222–3 Trust Corporation of the Channel Islands & East Forest Green Ltd (22 January 2014) (Judgment 05/2014), Guernsey Royal Ct���������������������������232 Trustee ‘T’ and Five Respondents (4 July 2011) (Judgment 14/2011), Guernsey Royal Ct������������������������������������������������������������������������������������������������260 Tucker (Roy Clifford) (a bankrupt), Re 23 (Civil) 1988, Guernsey������������������������52 U Ltd v B [2011] JLR 452, Jersey�������������������������������������������������������������������������������134 Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436, CA���������������������226 United Capital Corporation Ltd v Bender [2006] JLR 242, Jersey������������������� 47, 62 Upton (Timothy Everard) v National Westminster Bank Plc [2004] EWHC 1962 (Ch), [2004] WTLR 1339���������������������������������������������������70 V Settlement, In the matter of the [2007–08] GLR 240, Guernsey������������ 218, 221 Vestey’s (Lord) Executors v IRC [1949] 1 All ER 1108, HL�������������������� 77, 186, 211 Vickery, Re [1931] 1 Ch 572, ChD����������������������������������������������������������������������������156 Virani v Guernsey International Trustees Ltd & Bennett (1 August 2003) (Judgment 36/2003), Guernsey Royal Ct�������������������� 121, 123, 189, 215, 216 Virani v Guernsey International Trustees Ltd (4 December 2002) (Judgment 11/2003), Guernsey CA�������������������������������������������103, 106, 111, 112 Wadman v Dick [1993] JLR 52, Jersey����������������������������������������������������������������������255 Walbrook Trustees (Guernsey) Ltd v Baxter (re Mrs Megan Baxter No 2 Life Interest Settlement) (20 April 2006) (Judgment 21/2006), Guernsey Royal Ct����������������������������������������������������������������������������������������� 110–11 Walker v Stones [2001] QB 902, CA���������������������������������������������������������������� 158, 159 Walmsley, Re [1983] JJ 35, Jersey��������������������������������������������������������������������������������50 Waterman v McCormack (20 May 2002) (Judgment 3/2002), Guernsey CA�����������������������������������������������������������������������������������������43, 44–45, 46 West v Berney (1819) 1 Russ & M 431, Ct of Chancery�����������������������������������������189 West v Lazard [1993] JLR 165, Jersey CA������������������������������ 154, 159, 160, 161, 168 West v Lazard Brothers & Co (Jersey) Ltd [1987–88] JLR 414, Jersey��������������������������������������������������������������������������������������115, 116, 140 Weston’ s Settlements, Re [1969] 1 Ch 223, CA��������������������������������������������� 266, 267 Whiteley, Re (1886) 33 ChD 347, CA�������������������������������������������������������������� 196, 198 Whiteside v Whiteside [1950] Ch 65, CA������������������������������������������������������� 272, 273 Whittaker v Concept and Williams (23 March 2017) (Judgment 15/2017), Guernsey Royal Ct������������������������������������������276, 277, 278
Table of Cases xliii Williams v Central Bank of Nigeria [2014] UKSC 10, [2014] 2 WLR 355������������41 Wilson v First County Trust Ltd [2003] UKHL 40, [2004] 1 AC 816��������������������69 Wilson, Re (12 March 1998), Guernsey Royal Ct���������������������������������������������������271 WKR Trust, Re (2002) 4 ITELR 487, Bezirksgericht (Zurich)������������������������������245 Wyndham v Egremont [2009] EWHC 2076 (Ch), [2009] WTLR 1473���������������268 X, an Incapable, In the matter of [2007–08] GLR 387, Guernsey���������������������������62 X Trust, the Y Trust and the Z Trust, In the matter of the (2 November 2014), Royal Ct������������������������������������������������������������������������������100 X, Y & Z Trusts, In Re (21 November 2014), Guernsey����������������260, 266, 267, 268 X’s Settlement, Re (1994) 1 BOC 600 (Jersey)���������������������������������������������������������189 Y Trust and the Z Trust, In the matter of the Representation of the [2017] (1) JLR 266, Jersey������������������������������������������������������������������������������������262 Yaddehige v Credit Suisse Trust Ltd [2007–08] GLR 282, Guernsey�������������������237 Yates, Re [1994] JLR 221, Jersey��������������������������������������������������������������������������������138 Z Trust, In the matter of the [2016] JRC 048, Jersey Royal Ct����������������������� 81, 125 Z Trusts, In the matter of the [2018] JRC 119, Jersey Royal Ct�������������������� 131, 132 Z Trusts, In the matter of the [2019] JCA 106, Jersey CA���������������������130–131, 132 Z Trust Rothschild, In Re (25 April 2005) (Judgment 23/2005), Guernsey Royal Ct������������������������������������������������������������������������������������������������230 Z II Trust, In the matter of the [2015] (2) JLR 108, Jersey��������������������129, 130, 132 Z III Trust, In the matter of the [2015] (2) JLR 175, Jersey�����������������������������������130 Zaleski (Romain) v GM Trustees Ltd (1 September 2015) (Judgment 42/2015), Guernsey Royal Ct������������������������� 135, 154, 157, 167, 168 Zhang Hong Li v DBS Bank (Hong Kong) Ltd [2019] HKCFA 45���������������������������������������������������������������� 201, 202, 203, 204, 205
xliv
TABLE OF STATUTES AND OTHER INSTRUMENTS Adoption (Guernsey) Law, 1960 s 15(2)�����������������������������������������������������������������������������������������������������������������������66 Adoption (Guernsey) Law, 1970 s 5(1)�������������������������������������������������������������������������������������������������������������������������66 Affidavits (Execution before Advocates) Rules, 1999 (ORC 3/1999) s 1�����������������������������������������������������������������������������������������������������������������������������148 Central Hall (Variation of Trusts) (Guernsey) Law, 1968����������������������������������������28 Charities and Non Profit Organisations (Registration) (Guernsey) Law, 2008����������������������������������������������������������������������������������������������������������� 29, 59 s 12(1)���������������������������������������������������������������������������������������������������������������� 28, 29 Sch 1, para 2(1)��������������������������������������������������������������������������������������������������������28 Companies (Guernsey) Law 2008 s 395������������������������������������������������������������������������������������������������������������������������118 s 397������������������������������������������������������������������������������������������������������������������������118 Conveyancing (Guernsey) Law 1996������������������������������������������������������������������� 40, 46 s 1(5)������������������������������������������������������������������������������������������������������������������ 40, 46 Country Hospital Charitable Fund Law, 1958�����������������������������������������������������������28 Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991��������180 Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 s 39��������������������������������������������������������������������������������������������������������������������������220 s 39(4)(a)����������������������������������������������������������������������������������������������������������������220 Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 Sch 3, para 14���������������������������������������������������������������������������������������������������������141 Data Protection (Bailiwick of Guernsey) Law, 2017�����������������������������������������������176 s 2(3)(a)������������������������������������������������������������������������������������������������������������������176 s 3�����������������������������������������������������������������������������������������������������������������������������176 s 6�����������������������������������������������������������������������������������������������������������������������������176 s 7�����������������������������������������������������������������������������������������������������������������������������176 s 12(2)���������������������������������������������������������������������������������������������������������������������177 s 12(2)(a)����������������������������������������������������������������������������������������������������������������177 s 12(2)(b)����������������������������������������������������������������������������������������������������������������178 s 12(3)���������������������������������������������������������������������������������������������������������������������177 s 12(3A)������������������������������������������������������������������������������������������������������������������178 s 13(2)���������������������������������������������������������������������������������������������������������������������178 s 13(4)(c)–(e)���������������������������������������������������������������������������������������������������������179
xlvi Table of Statutes and Other Instruments ss 14–24������������������������������������������������������������������������������������������������������������������177 s 67��������������������������������������������������������������������������������������������������������������������������177 s 111(1)���������������������������������������������������������������������������������������������������������� 176, 179 Sch 3������������������������������������������������������������������������������������������������������������������������177 Sch 8, para 5�����������������������������������������������������������������������������������������������������������179 Sch 8, para 16B(a)�������������������������������������������������������������������������������������������������178 Sch 8, para 16B(c)�������������������������������������������������������������������������������������������������179 Data Protection (Commencement, Amendment and Transitional) (Bailiwick of Guernsey) Ordinance, 2018 s 1�����������������������������������������������������������������������������������������������������������������������������176 s 2(1), (2)����������������������������������������������������������������������������������������������������������������179 s 25(1)���������������������������������������������������������������������������������������������������������������������176 Data Protection (General Provisions) (Bailiwick of Guernsey) Regulations, 2018 (SI 21/2018) reg 13�����������������������������������������������������������������������������������������������������������������������178 Dwellings Profits Tax (Amendment) (Guernsey) Law, 1983 s 1���������������������������������������������������������������������������������������������������������������������������������6 Dwelling Profits Tax (Amendment) (Guernsey) Law, 1989 s 2���������������������������������������������������������������������������������������������������������������������������������7 Dwellings Profits Tax (Suspension of Law) Ordinance (Guernsey) 2009����������������7 Financial Services Commission (Bailiwick of Guernsey) Law, 1987��������������������285 s 2(4)�����������������������������������������������������������������������������������������������������������������������285 s 21(2)���������������������������������������������������������������������������������������������������������������������285 Foundations (Guernsey) Law, 2012���������������������������������������������������������173, 205, 286 s 10(1)���������������������������������������������������������������������������������������������������������������������199 s 19(2)���������������������������������������������������������������������������������������������������������������������199 s 31(5)���������������������������������������������������������������������������������������������������������������������199 s 33��������������������������������������������������������������������������������������������������������������������������199 Housing (Control of Occupation) (Guernsey) Law, 1994 s 71(1)�������������������������������������������������������������������������������������������������������������������������7 Human Rights (Bailiwick of Guernsey) Law, 2000�������������������������������� 66, 68, 69, 70 s 1(1)���������������������������������������������������������������������������������������������������������������� 68, 262 s 1(1)(b)��������������������������������������������������������������������������������������������������������������������69 s 3(1)������������������������������������������������������������������������������������������������������������������ 68, 69 s 3(2)(a)��������������������������������������������������������������������������������������������������������������������68 s 4�������������������������������������������������������������������������������������������������������������������������������70 s 6(3)�����������������������������������������������������������������������������������������������������������������������262 Income Tax (Guernsey) Law, 1975��������������������������������������������������������������������������6, 29 s 3�������������������������������������������������������������������������������������������������������������������������������60 s 8�������������������������������������������������������������������������������������������������������������������������������60 s 40(k)�����������������������������������������������������������������������������������������������������������������������60 s 53����������������������������������������������������������������������������������������������������������������������������60 s 53(1)�����������������������������������������������������������������������������������������������������������������������48 s 53(1A)��������������������������������������������������������������������������������������������������������������������49
Table of Statutes and Other Instruments xlvii s 53(3)���������������������������������������������������������������������������������������������������������������� 48, 49 s 65����������������������������������������������������������������������������������������������������������������������������50 s 65(3)���������������������������������������������������������������������������������������������������������������� 48, 49 s 67(1)�����������������������������������������������������������������������������������������������������������������������60 s 170��������������������������������������������������������������������������������������������������������������������������60 Inheritance (Guernsey) Law, 2011������������������������������������������������������������������������������25 s 1�����������������������������������������������������������������������������������������������������������������������������247 s 1(1)�������������������������������������������������������������������������������������������������������������������������24 s 1(2)�������������������������������������������������������������������������������������������������������������������������24 s 1(4)������������������������������������������������������������������������������������������������������������������ 16, 24 s 1(5)�������������������������������������������������������������������������������������������������������������������������16 s 2(a)����������������������������������������������������������������������������������������������������������������������4, 16 Interpretation (Guernsey) Law, 1948 s 1(b)�������������������������������������������������������������������������������������������������������������������������33 s 2(1)�������������������������������������������������������������������������������������������������������������������������70 Judgments (Reciprocal Enforcement) (Guernsey) Law, 1957�������������������� 52, 94, 96 Judgments (Reciprocal Enforcement) Ordinance 1973�������������������������������������������95 King George the Fifth Memorial Playing Field Trust (Guernsey) Law, 1985������������������������������������������������������������������������������������������������������������������28 Larceny (Guernsey) Law, 1958 s 17������������������������������������������������������������������������������������������������������������������������������7 Law of Inheritance, 1954��������������������������������������������������������������������������������������� 24, 25 ss 3, 4�������������������������������������������������������������������������������������������������������������������������25 Law of Property (Miscellaneous Provisions) Law 1979 s 2(2)�����������������������������������������������������������������������������������������������������������������������166 Law Reform (Guernsey) Law, 1979 s 5�����������������������������������������������������������������������������������������������������������������������������237 s 5(7)�����������������������������������������������������������������������������������������������������������������������237 Law Reform (Inheritance and Miscellaneous Provisions) (Guernsey) Law, 2006������������������������������������������������������������������������������������������������������������������66 s 1(3)�������������������������������������������������������������������������������������������������������������������������66 s 1(5)�������������������������������������������������������������������������������������������������������������������������66 Legitimacy (Guernsey) Law, 1966�������������������������������������������������������������������������������66 Loi é tendant les droits de le Femme Mari é e quant à la propri ét é mobilière at immobilière (1928) (Married Women’s Property Law 1928)�������������������������������������������������������������������������������������������������������������2, 16 s 12������������������������������������������������������������������������������������������������������������������������6, 23 Loi relative à l’Acquisition de Propriété Immobilière en cette ile par des Etrangers ou par des Sociétés Etrangères, Ordres en Conseil, vol IV (1905) 21�������������������������������������������������������������������������������������������������������24 Loi relative à la Réforme des Diverses Dispositions de la Loi 1936 s 1(1)�����������������������������������������������������������������������������������������������������������������������271 Loi Relative aux Prescriptions 1889 Art 1������������������������������������������������������������������������������������������������������������������������193
xlviii Table of Statutes and Other Instruments Loi Supplémentaire à la loi des Successions, 1890 (Succession Law 1890)����������������������������������������������������������������������� 3, 4, 16, 17, 18, 20, 82, 257 Loi sur les Successions, 1840 (Succession Law 1840)�������������������������������� 2, 3, 16, 23 Art 29����������������������������������������������������������������������������������������������������� 2, 3, 4, 16, 17 Matrimonial Causes (Guernsey) Law, 1939 s 15(1)���������������������������������������������������������������������������������������������������������������������250 s 45(1)���������������������������������������������������������������������������������������������������������������� 6, 250 s 45(2)���������������������������������������������������������������������������������������������������������������������250 Mental Health (Guernsey) Law 2010 Sch 3 para 3(1)(k)�����������������������������������������������������������������������������������������������������117 para 3(2)����������������������������������������������������������������������������������������������������������117 Powers of Attorney and Affidavits (Bailiwick of Guernsey) Law, 1995 s 1�����������������������������������������������������������������������������������������������������������������������������148 Protection of Investors (Bailiwick of Guernsey) Law, 1987������������������208, 287, 293 s 1(1)–(3)����������������������������������������������������������������������������������������������������������������208 Sch 1������������������������������������������������������������������������������������������������������������������������208 categories 1, 2�������������������������������������������������������������������������������������������������208 Sch 2������������������������������������������������������������������������������������������������������������������������208 para 4���������������������������������������������������������������������������������������������������������������208 paras 7, 8���������������������������������������������������������������������������������������������������������208 Public Trustee (Bailiwick of Guernsey) Law, 2002�������������������������145, 291, 295, 296 s 1(2)�����������������������������������������������������������������������������������������������������������������������291 s 2�����������������������������������������������������������������������������������������������������������������������������292 s 2(1)�����������������������������������������������������������������������������������������������������������������������291 s 2(1)(a)������������������������������������������������������������������������������������������������������������������292 s 2(2)�������������������������������������������������������������������������������������������������������������� 287, 293 s 3�������������������������������������������������������������������������������������������������������������������� 292, 293 s 3(3)�����������������������������������������������������������������������������������������������������������������������293 s 3(4)�������������������������������������������������������������������������������������������������������������� 293, 294 s 4�����������������������������������������������������������������������������������������������������������������������������292 s 5(1)(a)–(c)�����������������������������������������������������������������������������������������������������������294 s 5(2)�����������������������������������������������������������������������������������������������������������������������294 s 12����������������������������������������������������������������������������������������������������������������� 293, 295 s 12(2)���������������������������������������������������������������������������������������������������������������������295 ss 13, 14�������������������������������������������������������������������������������������������������������������������294 s 15��������������������������������������������������������������������������������������������������������������������������294 s 15(5)���������������������������������������������������������������������������������������������������������������������294 ss 16, 17�������������������������������������������������������������������������������������������������������������������294 s 19(1)���������������������������������������������������������������������������������������������������������������������294 s 20��������������������������������������������������������������������������������������������������������������������������295 s 20(4)���������������������������������������������������������������������������������������������������������������������296 ss 22, 23�������������������������������������������������������������������������������������������������������������������296 Sch, para 3(1)–(3)��������������������������������������������������������������������������������������������������297
Table of Statutes and Other Instruments xlix Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000���������������� 285, 286, 287, 289, 292, 295 s 1�����������������������������������������������������������������������������������������������������������������������������292 s 1(1)������������������������������������������������������������������������������������������������������185, 285, 287 s 1(2)�������������������������������������������������������������������������������������������������������������� 285, 287 s 1(3)�����������������������������������������������������������������������������������������������������������������������287 s 2(1)�������������������������������������������������������������������������������������������������������������� 185, 285 s 2(1)(a)������������������������������������������������������������������������������������������������������������������286 s 2(1)(a), (i), (ii)�����������������������������������������������������������������������������������������������������285 s 2(1)(b)(i)��������������������������������������������������������������������������������������������������������������286 s 2(1)(b)(ii)(A)–(D)����������������������������������������������������������������������������������������������286 s 2(1)(b)(iii)������������������������������������������������������������������������������������������������������������286 s 2(1)(c)�������������������������������������������������������������������������������������������������������������������286 s 2(1)(d)������������������������������������������������������������������������������������������������������������������286 s 2(1)(e)�������������������������������������������������������������������������������������������������������������������286 s 3�����������������������������������������������������������������������������������������������������������������������������286 s 3(1)�����������������������������������������������������������������������������������������������������������������������286 s 3(1)(a)������������������������������������������������������������������������������������������������������������������286 s 3(1)(b), (c)�����������������������������������������������������������������������������������������������������������287 s 4(1)�����������������������������������������������������������������������������������������������������������������������288 s 4(3)(b)(ii)�������������������������������������������������������������������������������������������������������������288 s 6(2), (3)����������������������������������������������������������������������������������������������������������������288 s 8(1)(a)������������������������������������������������������������������������������������������������������������������289 s 9�����������������������������������������������������������������������������������������������������������������������������289 s 12��������������������������������������������������������������������������������������������������������������������������289 s 14����������������������������������������������������������������������������������������������������������������� 289, 290 s 15��������������������������������������������������������������������������������������������������������������������������289 ss 21, 22�������������������������������������������������������������������������������������������������������������������290 ss 23–28������������������������������������������������������������������������������������������������������������������289 s 35��������������������������������������������������������������������������������������������������������������������������290 s 57��������������������������������������������������������������������������������������������������������������������������285 s 58��������������������������������������������������������������������������������������������������������������������������290 s 58(1)���������������������������������������������������������������������������������������������������������������������287 s 58(3)���������������������������������������������������������������������������������������������������������������������287 Sch 1������������������������������������������������������������������������������������������������������������������������288 Regulation of Fiduciaries, Administration Business and Company Directors etc (Bailiwick of Guernsey) (Foundations Amendment) Regulations, 2013 (SI 4/2013) reg 1�������������������������������������������������������������������������������������������������������������������������286 Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) (Pensions Amendment) Regulations, 2017 (SI 34/2017) reg 1�������������������������������������������������������������������������������������������������������������������������286
l Table of Statutes and Other Instruments Royal Court (Costs and Fees) Law 1969 s 1(1)�����������������������������������������������������������������������������������������������������������������������231 Royal Court (Charitable Funds) (Guernsey) Law, 2003�������������������������������������������26 Royal Court Civil Rules, 1989 (OR C 7/1989)������������������������������������������������ 213, 232 Royal Court Civil Rules, 2007 (OR C 4/2007)������������������������������������������������ 213, 232 r 82(1)���������������������������������������������������������������������������������������������������������������������232 Royal Court Civil Rules (Amendment) Order, 2008 (OR C 2/2008)���������� 213, 232 Saint Sampson’s Church Institute (Variation of Trusts) (Guernsey) Law, 1986������������������������������������������������������������������������������������������������������������������28 Saint Peter’s Church Hall (Trust) (Guernsey) Law, 1989�������������������������������������8, 28 Saint Stephen’s Church and School Law, 1987�����������������������������������������������������������28 Saisie Procedure (Simplification) (Bailiwick) Order, 1952 (OR C 3/1952)���������������������������������������������������������������������������������������������� 1, 20, 21 para 2(3)�������������������������������������������������������������������������������������������������������� 2, 21, 43 Security Interests (Guernsey) Law, 1993������������������������������������������������������������������147 Trusts (Amendment) (Guernsey) Law 1990����������������������������������������������� 12, 13, 158 s 1(c)��������������������������������������������������������������������������������������������������������������������������13 Trusts (Guernsey) Law, 1989���������������������������������������������������1, 7, 8, 9, 10, 11, 12, 13, 22, 23, 25, 40, 71, 88, 134, 144, 169, 247, 259, 271 Pts 1–5����������������������������������������������������������������������������������������������������������������������11 ss 1–76����������������������������������������������������������������������������������������������������������������������11 s 4(b)(i)�������������������������������������������������������������������������������������������������������������������120 s 11(2)(c)������������������������������������������������������������������������������������������������������������������62 s 11A�������������������������������������������������������������������������������������������������������������������������13 s 22��������������������������������������������������������������������������������������������������������������������������180 s 30(1)���������������������������������������������������������������������������������������������������������������������120 s 38(3)�����������������������������������������������������������������������������������������������������������������������47 s 52��������������������������������������������������������������������������������������������������������������������� 22, 23 s 52(1)���������������������������������������������������������������������������������������������������������������������120 s 53��������������������������������������������������������������������������������������������������������������������� 22, 23 s 54��������������������������������������������������������������������������������������������������������������� 22, 23, 38 s 55��������������������������������������������������������������������������������������������������������� 22, 23, 32, 33 s 56��������������������������������������������������������������������������������������������������������������������� 22, 23 s 62������������������������������������������������������������������������������������������������������������������� 11, 215 s 63������������������������������������������������������������������������������������������������������������������� 11, 218 s 63(1)�����������������������������������������������������������������������������������������������������������������������30 s 66����������������������������������������������������������������������������������������������������������������������������11 s 70����������������������������������������������������������������������������������������������������������������������������12 s 70(1)���������������������������������������������������������������������������������������������������������������������162 s 72(1)�����������������������������������������������������������������������������������������������������������������������12 s 72(2)���������������������������������������������������������������������������������������������������������������� 22, 43 s 73(1)�����������������������������������������������������������������������������������������������������������������������22 s 74��������������������������������������������������������������������������������������������������������������� 11, 22, 23
Table of Statutes and Other Instruments li s 74(1)(b)������������������������������������������������������������������������������������������������������������������23 s 74(1)(c)����������������������������������������������������������������������������������������������������������� 12, 23 s 74(1)(d)��������������������������������������������������������������������������������������������������������� 12, 247 s 74(2)(b)������������������������������������������������������������������������������������������������������������������23 s 74(3), (4)����������������������������������������������������������������������������������������������������������������23 Trusts (Guernsey) Law, 2007�����������������������������������������������1, 4, 6, 7, 9, 11, 12, 13, 18, 21, 22, 24, 29, 30, 33, 34, 37, 39, 40, 41, 47, 61, 62, 63, 70, 71, 72, 79, 86, 88, 97, 111, 117, 137, 153, 162, 163, 184, 213, 257, 302–338 Pt I Preliminary (ss 1–4)���������������������������������������������������������������������������������302–3 s 1���������������������������������������������������������������������������������������������������������������� 47, 61, 101 s 1(b)�������������������������������������������������������������������������������������������������������������������������30 s 1(2)�������������������������������������������������������������������������������������������������������������������������96 s 1(2)(c)���������������������������������������������������������������������������������������������������������������������62 s 3(1)(a), (b)�������������������������������������������������������������������������������������������������������������85 s 3(2)�������������������������������������������������������������������������������������������������������������������������92 s 4(1)�������������������������������������������������������������������������������������������������������������������������92 s 4(1)(b)(i)��������������������������������������������������������������������������������������������������������������120 Pt II Provisions Applicable Only To Guernsey Trusts (ss 5–63)����������������������������������������������������������������������������������� 93, 262, 303–328 s 6(1)�������������������������������������������������������������������������������������������������������������������������71 s 6(2)������������������������������������������������������������������������������������������������������������������ 39, 71 s 6(3)�������������������������������������������������������������������������������������������������������������������������71 s 6(4)������������������������������������������������������������������������������������������������������������ 40, 47, 71 s 6(5)�������������������������������������������������������������������������������������������������������������������������63 s 7�������������������������������������������������������������������������������������������������������������������������������63 s 8(1)���������������������������������������������������������������������������������������������������������������� 72, 164 s 8(2)�����������������������������������������������������������������������������������������������������������������������164 s 8(3)�����������������������������������������������������������������������������������������������������������������������164 s 8(4)�������������������������������������������������������������������������������������������������������������������������70 s 9(1)�����������������������������������������������������������������������������������������������������������������������165 s 10��������������������������������������������������������������������������������������������������������������������������165 s 11(1)�����������������������������������������������������������������������������������������������������������������������72 s 11(1)(d)(iii)�����������������������������������������������������������������������������������������������������������34 s 11(2)���������������������������������������������������������������������������������������������������������������� 34, 72 s 11(2)(a), (b)�����������������������������������������������������������������������������������������������������������72 s 11(2)(c)����������������������������������������������������������������������������������������������������������� 30, 72 s 11(2)(d)(i)����������������������������������������������������������������������������������������������������� 73, 276 s 11(2)(d)(ii)�������������������������������������������������������������������������������������������������������������74 s 11(2)(d)(iii)���������������������������������������������������������������������������������������������������� 74, 75 s 11(2)(d)(iv)������������������������������������������������������������������������������������������������������������75 s 11(3)�����������������������������������������������������������������������������������������������������������������������72 s 11(3)(a), (b)�����������������������������������������������������������������������������������������������������������75
lii Table of Statutes and Other Instruments s 11(4)�����������������������������������������������������������������������������������������������������������������������75 s 11(5)���������������������������������������������������������������������������������������������������������������� 40, 75 ss 12–13��������������������������������������������������������������������������������������������������������������������62 s 12(1)���������������������������������������������������������������������������������������������������������������� 33, 72 s 12(2)�����������������������������������������������������������������������������������������������������������������������37 s 12(3)�����������������������������������������������������������������������������������������������������������������������33 s 12(4)–(6)����������������������������������������������������������������������������������������������������������������36 s 12(7)�����������������������������������������������������������������������������������������������������������������������37 s 12(7)(c)������������������������������������������������������������������������������������������������������������������37 s 12(8)�����������������������������������������������������������������������������������������������������������������������35 s 12(9)���������������������������������������������������������������������������������������������������������������� 33, 36 s 12(10)���������������������������������������������������������������������������������������������������������������������33 s 13(1)(a)–(c)�����������������������������������������������������������������������������������������������������������38 s 13(2)�����������������������������������������������������������������������������������������������������������������������37 s 14(1)���������������������������������������������������������������������������������������������������� 57, 75, 86, 88 s14(2)������������������������������������������������������������������������������������������������������������������������88 s 14(2)(a)–(c)�����������������������������������������������������������������������������������������������������������89 s14(2)(d), (e)������������������������������������������������������������������������������������������������������������90 s 14(2)(f), (g)������������������������������������������������������������������������������������������������������������91 s 14(3)������������������������������������������������������������������������������������������91, 98, 99, 100, 184 s14(3)(b)(i)(B)���������������������������������������������������������������������������������������������������������98 s 14(4)���������������������������������������������������������������������������������������������������������������� 57, 96 s 14(4)(b)������������������������������������������������������������������������������������������������������������������96 s 15(1)������������������������������������������������������������������������������������������������������ 79, 184, 185 s 15(1)(a)������������������������������������������������������������������������������������������������������������������77 s 15(1)(b)������������������������������������������������������������������������������������������������������������������77 s 15(1)(d)������������������������������������������������������������������������������������������������� 77, 186, 187 s 15(1)(e)������������������������������������������������������������������������������������������������������� 184, 187 s 15(1)(i)������������������������������������������������������������������������������������������������������������ 70, 77 s 15(2)���������������������������������������������������������������������������������������������������������������������103 s 15(2)(a)��������������������������������������������������������������������������������������������������������� 80, 185 s 15(2)(b)������������������������������������������������������������������������������������������������� 80, 185, 187 s 15(2)(c)������������������������������������������������������������������������������������������������������������������80 s 15(3)�����������������������������������������������������������������������������������������������������������������������80 s 16(1)�����������������������������������������������������������������������������������������������������������������������71 s 16(2)�������������������������������������������������������������������������������������������������������������� 71, 167 s 16(3)�����������������������������������������������������������������������������������������������������������������������72 s 17(1)������������������������������������������������������������������������������������������������������������ 101, 292 s 17(2)���������������������������������������������������������������������������������������������������������������������101 s 18��������������������������������������������������������������������������������������������������������������������������102 s 18(1)���������������������������������������������������������������������������������������������������������������������102 s 18(1)(i), (ii)����������������������������������������������������������������������������������������������������������102 s 18(1)(iii)������������������������������������������������������������������������������������������������������ 102, 117 s 18(1)(iv)���������������������������������������������������������������������������������������������������������������102
Table of Statutes and Other Instruments liii s 18(2)���������������������������������������������������������������������������������������������������������������������102 s 18(3)���������������������������������������������������������������������������������������������������������������������103 s 18(4)���������������������������������������������������������������������������������������������������������������������106 s 19(1)���������������������������������������������������������������������������������������������������������������������106 s 19(2)���������������������������������������������������������������������������������������������������������������������107 s 20��������������������������������������������������������������������������������������������������������������������������108 s 20(1)–(3)��������������������������������������������������������������������������������������������������������������107 s 20(4)���������������������������������������������������������������������������������������������������������������������107 s 20(4)(c)����������������������������������������������������������������������������������������������������������������108 s 20(5), (6)��������������������������������������������������������������������������������������������������������������107 s 21(a), (b)��������������������������������������������������������������������������������������������������������������101 ss 22–29������������������������������������������������������������������������������������������������������������������133 s 22���������������������������������������������������������������������������������������������������������134, 135, 136 s 22(1)����������������������������������������������������������������������������������������������20, 133, 146, 209 s 22(2)����������������������������������������������������������������������������������������������������133, 146, 209 s 22(2)(a)����������������������������������������������������������������������������������������������������������������133 s 22(2)(b)����������������������������������������������������������������������������������������������������������������133 s 22(2)(b)(i), (ii)����������������������������������������������������������������������������������������������������133 s 23��������������������������������������������������������������������������������������������������������������������������135 s 23(a)����������������������������������������������������������������������������������������������������������������������135 s 23(b)������������������������������������������������������������������������������������������������������������ 135, 195 s 24(a), (b)��������������������������������������������������������������������������������������������������������������136 s 24(c)����������������������������������������������������������������������������������������������������������������������136 s 24(c)(i)–(iii)���������������������������������������������������������������������������������������������������������136 s 25��������������������������������������������������������������������������������������������������������������������������140 s 26���������������������������������������������������������������������������������������������������������175, 180, 191 s 26(1)������������������������������������������������������������������������������������������������������ 37, 164, 173 s 26(1)(b)����������������������������������������������������������������������������������������������������������������184 s 26(1)(b)(i)����������������������������������������������������������������������������������������������������� 30, 254 s 26(1)(b)(ii)�����������������������������������������������������������������������������������������������������������254 s 26(2)������������������������������������������������������������������������������������������������������������ 174, 191 s 26(3), (4)��������������������������������������������������������������������������������������������������������������174 s 27��������������������������������������������������������������������������������������������������������������������������141 s 28(1)–(4)��������������������������������������������������������������������������������������������������������������142 s 28(5), (6)��������������������������������������������������������������������������������������������������������������296 s 29(1)�������������������������������������������������������������������������������������������������������������� 30, 142 s 29(2)���������������������������������������������������������������������������������������������������������������������142 ss 30–38������������������������������������������������������������������������������������������������������������������143 s 30����������������������������������������������������������������������������������������������������������������� 143, 194 s 31��������������������������������������������������������������������������������������������������������������������������143 s 31(1)������������������������������������������������������������������������������������������������������������ 143, 227 s 31(2)������������������������������������������������������������������������������������������������������������ 143, 227 s 32����������������������������������������������������������������������������������������������������������������� 146, 185 s 32(1)���������������������������������������������������������������������������������������������������������������������144
liv Table of Statutes and Other Instruments s 32(2)������������������������������������������������������������������������������������� 82, 115, 144, 184, 216 s 32(3)������������������������������������������������������������������������������������������������������������ 144, 185 s 33(1)������������������������������������������������������������������������������������������������������������ 145, 297 s 33(1)(a), (b)���������������������������������������������������������������������������������������������������������145 s 33(2)����������������������������������������������������������������������������������������������������146, 148, 208 s 33(2)(b)������������������������������������������������������������������������������������������������������� 145, 146 s 33(3)������������������������������������������������������������������������������������������������������������ 146, 209 s 34��������������������������������������������������������������������������������������������������������������������������146 s 34(1)������������������������������������������������������������������������������������������������������������ 146, 148 s 34(2)���������������������������������������������������������������������������������������������������������������������146 s 34(3)–(10)������������������������������������������������������������������������������������������������������������147 s 35(1)���������������������������������������������������������������������������������������������������������������������118 s 35(1)(c)������������������������������������������������������������������������������������������������������� 120, 259 s 35(2)������������������������������������������������������������������������������������������������������������ 122, 132 s 35(3)���������������������������������������������������������������������������������������������������������������������122 s 35(4)���������������������������������������������������������������������������������������������������������������������297 s 36��������������������������������������������������������������������������������������������������������������������������149 s 37��������������������������������������������������������������������������������������������������������������������������149 s 37(a), (b)��������������������������������������������������������������������������������������������������������������149 s 38����������������������������������������������������������������������������������������������������������������� 147, 178 s 38(1)���������������������������������������������������������������������������������������������������������������������174 s 38(1)(a), (b)���������������������������������������������������������������������������������������������������������175 s 38(2)���������������������������������������������������������������������������������������������������������������������175 s 38(3)���������������������������������������������������������������������������������������������������������������������175 s 39����������������������������������������������������������������������������������������������������������������� 154, 158 s 39(1)���������������������������������������������������������������������������������������������������������������������153 s 39(2)���������������������������������������������������������������������������������������������������������������������156 s 39(3)���������������������������������������������������������������������������������������������������������������������157 s 39(4)���������������������������������������������������������������������������������������������������������������������156 s 39(5)���������������������������������������������������������������������������������������������������������������������157 s 39(6)������������������������������������������������������������������������������������������������������������ 157, 238 s 39(7)������������������������������������������������������������������������������������������������������������ 158, 190 s 39(7)(b)����������������������������������������������������������������������������������������������������������������158 s 39(8)���������������������������������������������������������������������������������������������������������������������158 s 39(8)(a), (b)���������������������������������������������������������������������������������������������������������158 s 40����������������������������������������������������������������������������������������������������������������� 139, 167 s 41(1)���������������������������������������������������������������������������������������������������������������������137 s 41(2)���������������������������������������������������������������������������������������������������������������������139 s 42���������������������������������������������������������������������������������������������������������126, 127, 128 s 42(1)������������������������������������������������������������������������������������������������������������ 126, 131 s 42(2)������������������������������������������������������������������������������������������������������������ 126, 131 s 42(3)���������������������������������������������������������������������������������������������������������������������126 s 43����������������������������������������������������������������������������������������������������������������� 108, 112 s 43(1)(a)������������������������������������������������������������������������������������������������������� 108, 113
Table of Statutes and Other Instruments lv s 43(1)(b)����������������������������������������������������������������������������������������������������������������108 s 43(2)���������������������������������������������������������������������������������������������������������������������111 s 43(3)(a), (b)���������������������������������������������������������������������������������������������������������114 s 43(4)���������������������������������������������������������������������������������������������������������������������112 s 44(1), (2)��������������������������������������������������������������������������������������������������������������112 s 44(3)(a), (b)���������������������������������������������������������������������������������������������������������113 s 44(4), (5)��������������������������������������������������������������������������������������������������������������112 s 45��������������������������������������������������������������������������������������������������������������������������166 s 45(a)����������������������������������������������������������������������������������������������������������������������265 s 45(c)����������������������������������������������������������������������������������������������������������������������265 s 46����������������������������������������������������������������������������������������������������������������� 150, 167 s 46(a)–(c)��������������������������������������������������������������������������������������������������������������167 s 47(1), (2)��������������������������������������������������������������������������������������������������������������257 s 48(1), (2)��������������������������������������������������������������������������������������������������������������150 s 48(3)���������������������������������������������������������������������������������������������������������������������151 s 48(4)���������������������������������������������������������������������������������������������������������������������151 s 48(4)(b)����������������������������������������������������������������������������������������������������������������151 s 48(5)���������������������������������������������������������������������������������������������������������������������151 s 49������������������������������������������������������������������������������������������������������������� 77, 79, 151 s 50��������������������������������������������������������������������������������������������������������������������������257 s 50(1)���������������������������������������������������������������������������������������������������������������������152 s 50(2)�������������������������������������������������������������������������������������������������������������� 77, 152 s 50(3)�������������������������������������������������������������������������������������������������������������� 77, 152 s 51����������������������������������������������������������������������������������������������������������������������������85 s 51(1)�����������������������������������������������������������������������������������������������������������������������86 s 51(3)�����������������������������������������������������������������������������������������������������������������������86 s 52����������������������������������������������������������������������������������������������������������������������������40 s 52(1)(a)����������������������������������������������������������������������������������������������������������������263 s 53����������������������������������������������������������������������������������������������������������������������������83 s 53(1), (2)������������������������������������������������������������������������������������������������������� 84, 143 s 53(3)�������������������������������������������������������������������������������������������������������� 19, 83, 258 s 54(1)������������������������������������������������������������������������������������������������������������ 114, 213 s 54(2)���������������������������������������������������������������������������������������������������������������������115 s 55����������������������������������������������������������������������������������������������������������������� 155, 190 s 56��������������������������������������������������������������������������������������������������������������������������168 ss 57–60������������������������������������������������������������������������������������������������������������������269 ss 57–61��������������������������������������������������������������������������������������������������������������������22 ss 57–66������������������������������������������������������������������������������������������������������������������257 s 57����������������������������������������������������������������8, 19, 85, 213, 262, 263, 267, 268, 269 s 57(1)������������������������������������������������������������������������������������������������������ 19, 120, 260 s 57(1)(a)������������������������������������������������������������������������������������������������������� 265, 269 s 57(1)(b)�����������������������������������������������������������������������������������������������263, 265, 269 s 57(1)(c)�����������������������������������������������������������������������������������������������264, 265, 269 s 57(1)(d)������������������������������������������������������������������������������������������������������� 264, 266
lvi Table of Statutes and Other Instruments s 57(1)(e)�����������������������������������������������������������������������������������������������100, 265, 266 s 57(2)���������������������������������������������������������������������������������������������������������������������265 s 58����������������������������������������������������������������������������������������������������������������� 213, 269 s 59������������������������������������������������������������������������������������������������������������������� 31, 213 s 59(g)�����������������������������������������������������������������������������������������������������������������������38 s 59(iii)����������������������������������������������������������������������������������������������������������������������38 s 60�����������������������������������������������������������������������������������������������32, 33, 38, 213, 269 s 60(2), (3)����������������������������������������������������������������������������������������������������������������32 s 62(1)–(3)��������������������������������������������������������������������������������������������������������������239 s 63(1)���������������������������������������������������������������������������������������������������������������������239 s 63(1)(a)–(c)���������������������������������������������������������������������������������������������������������239 s 63(2)���������������������������������������������������������������������������������������������������������������������239 s 63(2)(a), (b)������������������������������������������������������������������������������������������������ 239, 240 s 63(3)–(5)��������������������������������������������������������������������������������������������������������������240 Pt III Provisions Applicable Only To Foreign Trusts (ss 64–65)�������������������� 328 s 65����������������������������������������������������������������������������������������������������������������������������88 s 65(1)�����������������������������������������������������������������������������������������������������������������������92 s 65(2)�����������������������������������������������������������������������������������������������������������������������93 Pt IV Provisions Of General Application (ss 66–77)�������������������������������329–332 s 67��������������������������������������������������������������������������������������������������������������������������213 s 68������������������������������������������������������������������������������������ 11, 36, 213, 214, 215, 217 s 69��������������������������������������������������� 11, 36, 189, 213, 215, 216, 217, 218, 219, 228 s 69(1)������������������������������������������������������������������������������������������������������ 30, 117, 216 s 69(1)(a)����������������������������������������������������������������������������������������������������������������216 s 69(1)(a)(i)��������������������������������������������������������������������������������������������������� 190, 219 s 69(1)(a)(ii)������������������������������������������������������������������������������������������115, 118, 189 s 69(1)(a)(iii)���������������������������������������������������������������������������������182, 188, 190, 218 s 69(1)(a)(iv)����������������������������������������������������������������������������������������������������������219 s 69(1)(ii)������������������������������������������������������������������������������������������������������������������38 s 69(1)(iii)���������������������������������������������������������������������������������������������������������������189 s 69(1)(b)������������������������������������������������������������������������������������������������������� 217, 227 s 69(1)(c)����������������������������������������������������������������������������������������������������������������217 s 69(2)���������������������������������������������������������������37, 84, 115, 164, 216, 260, 263, 269 s 69(2)(a)–(d)���������������������������������������������������������������������������������������������������������260 s 69(2)(e)�����������������������������������������������������������������������������������������������193, 216, 260 s 69(2)(g)������������������������������������������������������������������������������������������������������� 191, 263 s 69(3)���������������������������������������������������������������������������������������������������������������������115 s 71����������������������������������������������������������������������������������������������������������������� 213, 231 s 72����������������������������������������������������������������������������������������������������������������������������11 s 72(1)�����������������������������������������������������������������������������������������������������������������������61 s 74��������������������������������������������������������������������������������������������������������������������������127 s 75(1)���������������������������������������������������������������������������������������������������������������������128 s 75(2)���������������������������������������������������������������������������������������������������������������������129 s 76�������������������������������������������������������������������������������� 114, 193, 235, 236, 237, 238
Table of Statutes and Other Instruments lvii s 76(1)���������������������������������������������������������������������������������������������������������������������236 s 76(2)������������������������������������������������������������������������������������������������������������ 236, 237 s 76(2)(b)����������������������������������������������������������������������������������������������������������������238 s 76(3)���������������������������������������������������������������������������������������������������������������������238 s 77(1), (2)����������������������������������������������������������������������������������������������������������������41 s 77(3)�����������������������������������������������������������������������������������������������������������������������47 Pt V Supplemental (ss 78–86)���������������������������������������������������������������������332–338 s 78������������������������������������������������������������������������������������ 13, 14, 18, 21, 22, 47, 170 s 80(1)������������������������������������������������������������������22, 34, 38, 39, 63, 70, 92, 98, 101, 102, 114, 151, 153, 163, 168, 184 s 80(2)�����������������������������������������������������������������������������������������������������������������������92 s 83����������������������������������������������������������������������������������������������������������������������������18 s 83(1)�������������������������������������������������������������������������������������������������������������������������1 s 83(1)(a)������������������������������������������������������������������������������������������������������������������12 s 83(3)�������������������������������������������������������������������������������������������������������������� 12, 162 s 84����������������������������������������������������������������������������������������������������������������������������11 s 84(1)(c)��������������������������������������������������������������������������������������������������������� 47, 170 s 84(1)(d)�������������������������������������������������������������������������������������������22, 47, 158, 247 s 84(2)�������������������������������������������������������������������������������������������������������������� 74, 173 s 84(3)(a)��������������������������������������������������������������������������������������������������������������4, 16 s 84(3)(b)��������������������������������������������������������������������������������������������������������������������4 s 84(3)(c)��������������������������������������������������������������������������������������������������������������������6 s 84(5)���������������������������������������������������������������������������������������������������������������������247 s 86����������������������������������������������������������������������������������������������������������������������������13 Theft (Bailiwick of Guernsey) Law, 1983 s 5(2)���������������������������������������������������������������������������������������������������������������������������7 Table of Other Material Billet d’Etat No VI of 1949 ������������������������������������������������������������������������������������������20 Billet d’État No IX of 1988��������������������������������������������������������������������������������������������12 244�������������������������������������������������������������������������������������������������������� 1, 9, 10, 22, 88 Billet d’Etat No XV of 1988������������������������������������������������������������������������������������������10 Billet d’Etat No XIX of 31 July 2002, 1553���������������������������������������������������������������291 Billet d’Etat No VI of 2003, 830���������������������������������������������������������������������������������291 Billet d’Etat No XXI of 2006, Art VIII����������������������������������������������������������������������302 Code for foundation service providers 2 September 2013�������������������������������������290 Guernsey Financial Services Commission Code of Practice – Trust Service Providers (1 August 2009)��������������������������������������������� 48, 141, 290 para 1 – Definitions������������������������������������������������������������������������������������� 176, 286 para 4 – Beneficiaries’ best interests����������������������������������� 48, 175, 176, 207, 246 guidance note���������������������������������������������������������������������������������������� 176, 207 para 5 – Competence and effective management������������������������������������ 140, 161
lviii Table of Statutes and Other Instruments Guernsey–UK Double Taxation Agreement 2018��������������������������������������������� 55, 56 Art 26������������������������������������������������������������������������������������������������������������������������56 Art 27����������������������������������������������������������������������������������������������������������������� 55, 56 Art 27(6)�������������������������������������������������������������������������������������������������������������������56 Orders in Council, vol 1 (1852) 215 (Statutes for the Government of Elizabeth College, Guernsey) statute 29����������������������������������������������������������28 Orders in Council, vol 1 (1862) 364 (School of Alderney); s 4�������������������������������28 Orders in Council, vol 1 (1864) 389 (La Commune des Landes et de la Rocque au Coucou)�����������������������������������������������������������������������������������28 Orders in Council, vol 1 (1865) 415 (Eglise St Etienne)������������������������������������������27 Orders in Council, vol 3 (1897) 85 (Eglise St Etienne)��������������������������������������������27 Orders in Council, vol VII (1924) 301 (Sark Methodist Church)��������������������������27 States of Guernsey Income Tax Statements of Practice (Including Interpretations of Law) and Extra Statutory Concessions Issue 2014, as updated on 23 November 2015, Para M12��������������������� 49–50, 60 section II.B���������������������������������������������������������������������������������������������������������������50 Alderney Auregny Loi Supplémentaire à la Loi de Successions (1893)�����������������������������������17 Loi sur Les Successions en I’ile d’Auregny (1841)�������������������������������������������������������3 s 26������������������������������������������������������������������������������������������������������������������������������3 Bermuda Trustee Act 1975 (Bermuda) s 47��������������������������������������������������������������������������������������������������������������������������265 British Virgin Islands Trustee Act 1961 (BVI) s 83A(13)–(19)���������������������������������������������������������������������������������������������������������97 Cayman Islands Trusts Law (2018 Revision) ss 87–94��������������������������������������������������������������������������������������������������������������������94 s 90����������������������������������������������������������������������������������������������������������������������������89 ss 91–93��������������������������������������������������������������������������������������������������������������������97
Table of Statutes and Other Instruments lix Jersey Loi (1862) Sur les Teneures en Fideicommis et L’Incorporation d’Associations���������������������������������������������������������������������������������������������������� 17, 18 Matrimonial Causes (Jersey) Law 1949����������������������������������������������������������������������97 Trusts (Amendment No 5 Law) (Jersey) Law 2012������������������������������������������������150 Trusts (Amendment No 7) (Jersey) Law 2018���������������������������������������������������������265 Trusts (Jersey) Law 1984��������������������������������������������������������������������������� 9, 10, 18, 159 Art 9��������������������������������������������������������������������������������������������������������������������������97 Art 9(4)���������������������������������������������������������������������������������������������������������������������97 Art 9(4)(b)����������������������������������������������������������������������������������������������������������������96 Art 25(2)(b)������������������������������������������������������������������������������������������������������������145 Art 26(2)������������������������������������������������������������������������������������������������122, 123, 132 Art 29����������������������������������������������������������������������������������������������������������������������140 Art 32����������������������������������������������������������������������������������������������������������������������126 Art 32(1)(a)�������������������������������������������������������������������������������������������127, 131, 132 Art 32(1)(b)������������������������������������������������������������������������������������������������������������131 Art 36(2)�����������������������������������������������������������������������������������������������������������������132 Art 47��������������������������������������������������������������������������������������������������������������� 99, 264 Art 47(1)(ba), (bb)������������������������������������������������������������������������������������������������265 Art 51����������������������������������������������������������������������������������������������������������������������130 Art 51(1)�����������������������������������������������������������������������������������������������������������������214 Art 54����������������������������������������������������������������������������������������������������������������������127 Art 55(1)�����������������������������������������������������������������������������������������������������������������128 Art 57����������������������������������������������������������������������������������������������������������������������236 Art 57(2)(a)������������������������������������������������������������������������������������������������������������238 Sark Letters Patent 1611��������������������������������������������������������������������������������������������������������27 United Kingdom Administration of Justice Act 1985 s 48��������������������������������������������������������������������������������������������������������������������������233 Charities Act 2006���������������������������������������������������������������������������������������������������������29 Civil Procedure Rules 1998, SI 1998/3132 r 25.12���������������������������������������������������������������������������������������������������������������������232 r 25.13���������������������������������������������������������������������������������������������������������������������232 r 40.20���������������������������������������������������������������������������������������������������������������������214 Consumer Credit Act 1974������������������������������������������������������������������������������������������69 Evidence (Proceedings in Other Jurisdictions) Act 1975��������������������������������������255
lx Table of Statutes and Other Instruments Finance Act 1981�����������������������������������������������������������������������������������������������������������53 Finance Act 1991���������������������������������������������������������������������������������������������������� 51, 53 Finance Act 1998���������������������������������������������������������������������������������������������������������267 Human Rights Act 1998���������������������������������������������������������������������������������� 68, 69, 70 Inheritance Tax Act 1984 s 71��������������������������������������������������������������������������������������������������������������������������272 Law of Property Act 1925 s 53(1)(c)����������������������������������������������������������������������������������������������������������������268 s 156(1)�������������������������������������������������������������������������������������������������������������������189 Law Reform (Miscellaneous Provisions) Act 1934 s 1(1)�����������������������������������������������������������������������������������������������������������������������271 Limitation Act 1939����������������������������������������������������������������������������������������������������159 Limitation Act 1980 s 21(1)������������������������������������������������������������������������������������������������������������ 114, 236 s 21(3)���������������������������������������������������������������������������������������������������������������������238 Matrimonial Causes Act 1973 s 24��������������������������������������������������������������������������������������������������������������������������253 s 24(1)(c)������������������������������������������������������������������������������������������������������� 251, 254 s 25(2)(a)����������������������������������������������������������������������������������������������������������������251 s 25(2)(a)(i)������������������������������������������������������������������������������������������������������������242 Recognition of Trusts Act 1987�����������������������������������������������������������������������������������88 s 1(1)�������������������������������������������������������������������������������������������������������������������������88 Sch�������������������������������������������������������������������������������������������������������������������������9, 88 Taxation of Chargeable Gains Act 1992 s 71��������������������������������������������������������������������������������������������������������������������������268 s 71(1)���������������������������������������������������������������������������������������������������������������������268 s 86����������������������������������������������������������������������������������������������������������������������������51 Sch 5, para 6(2)��������������������������������������������������������������������������������������������������������51 Trustee Act 1925������������������������������������������������������������������������������������������������� 102, 146 s 17��������������������������������������������������������������������������������������������������������������������������129 s 36��������������������������������������������������������������������������������������������������������������������������102 s 39(1)���������������������������������������������������������������������������������������������������������������������107 s 40��������������������������������������������������������������������������������������������������������������������������106 s 41����������������������������������������������������������������������������������������������������������������� 116, 149 s 41(1)���������������������������������������������������������������������������������������������������������������������116 s 57��������������������������������������������������������������������������������������������������������������������������269 Trustee Act 2000����������������������������������������������������������������������������������������������������������194 s 4(3)(b)������������������������������������������������������������������������������������������������������������������197 s 31(1)���������������������������������������������������������������������������������������������������������������������122 Trustee Investments Act 1961 s 6(1)(a)������������������������������������������������������������������������������������������������������������������197 Trusts of Land and Appointment of Trustees Act 1996 s 19��������������������������������������������������������������������������������������������������������������������������103
Table of Statutes and Other Instruments lxi Variation of Trusts Act 1958����������������������������������������������������������������������������� 259, 268 s 1(1)(a)������������������������������������������������������������������������������������������������������������������263 s 1(1)(b)������������������������������������������������������������������������������������������������������������������264 s 1(3)�����������������������������������������������������������������������������������������������������������������������263 Table of Other Material HMRC Statement of Practice 5 (1992) paras 8–10����������������������������������������������������������������������������������������������������������������59 Statements of Practice (Issue 2014) para E43��������������������������������������������������������������������������������������������������������������������60 United States Delaware 12 Del Code §3536������������������������������������������������������������������������������������������������166 12 Del Code §3536 para (c)���������������������������������������������������������������������������������166 Table of International Material European Convention for the Protection of Human Rights and Fundamental Freedoms (1950)���������������������������������������������������������������������������67, 68, 70, 72, 262 Art 12����������������������������������������������������������������������������������������������������������������� 67, 68 Art 14����������������������������������������������������������������������������������������������������������������� 67, 68 First Protocol, Arts1–3�������������������������������������������������������������������������������������������69 Hague Convention on the Law Applicable to Trusts and on Their Recognition (1 July 1985)������������������������������������������������������������10, 85, 86, 88, 253 Art 2����������������������������������������������������������������������������������������������������������������������9, 61 Art 8��������������������������������������������������������������������������������������������������������������������������87 Art 8(a)���������������������������������������������������������������������������������������������������������������������90 Art 9��������������������������������������������������������������������������������������������������������������������������90 Art 15����������������������������������������������������������������������������������������������������������������� 87, 88 Art 16������������������������������������������������������������������������������������������������������������������������87 Art 17������������������������������������������������������������������������������������������������������������������������90 Art 21������������������������������������������������������������������������������������������������������������������������10 Art 32������������������������������������������������������������������������������������������������������������������������10 Hague Evidence Convention�������������������������������������������������������������������������������������256
lxii
1 Foundation and Principles I. Introduction Prior to the enactment of the Trusts Law 1989,1 concerns were expressed in Guernsey and elsewhere about the legal basis of the many trusts that had been created in Guernsey, in the absence of an express statute or, indeed, a comprehensive body of local court decisions. For example, in the 1988 report to the States of Guernsey (the island’s government), which considered proposals for the enactment of an express law, it was stated: The roots of Guernsey law lie in Norman customary law which is in many respects similar to English common law. The courts of Normandy and the common law courts of England did not recognize trusts and, in England, trust law evolved by decisions of the courts of equity which have never formed part of our customary law. Whilst the Royal Court has developed a limited equitable jurisdiction and has recognised trusts there is considerable uncertainty as to what the law of Guernsey is in many areas relating to trusts.2
These words were perhaps a little less positive than they could have been. It is possible to cite numerous instances where the trust concept was utilised or recognised in Guernsey from the beginning of the nineteenth century.3 Some of these instances are set out in sections II to X of this chapter.
II. Saisie Saisie is an insolvency procedure that has evolved in Guernsey over more than two centuries. It provides a system whereby a debtor’s real property is vested in a given creditor or creditors, after a system of priorities has been followed.4
1 Repealed and replaced by the Trusts Law 2007 on 17 March 2008; see Trusts Law 2007, s 83(1). 2 States Advisory and Finance Committee’s policy letter entitled ‘Trusts Law’, dated 12 February 1988, Billet d’Etat IX 1988 item VI at 244. 3 See St JA Robilliard, ‘Foundations of Guernsey as a Trust Jurisdiction’ (1996) 2(8) Trusts and Trustees 6. 4 The current procedure is set out in the Saisie Procedure (Simplification) (Bailiwick) Order, 1952 (ORC 3/1952). For an account of the procedure, see G Dawes, Laws of Guernsey, 1st edn (Hart Publishing, 2003) 240–50.
2 Foundation and Principles An 1815 Report of the Royal Commissioners5 said of the relevant creditor who, at a particular stage of the saisie proceedings (at what is now known as the interim vesting stage) has vested in him the debtor’s real property, ‘He still continues merely as a trustee, and the Heritage [ie the land] remains as it were, in Abeyance, to abide the final adjudication at the close of the saisie.’ Also, the leading nineteenth-century textbook on insolvency and liquidation proceedings in Guernsey6 adopted the term ‘trustee’ for such a creditor. The textbook states that the position of such a creditor was governed by the general rules of one who administers the property of another. It was noted that that creditor had duties to account for,7 and to conserve, the relevant property vested in him or her at what is now the interim vesting stage of the saisie proceedings,8 and to obtain the permission of the Royal Court to carry out necessary repairs to, and to maintain, the relevant property.9 It was also noted that it would be at least prudent for the relevant creditor to insure the property vested in him or her.10 Under the current law on saisie, the creditor in whom a debtor’s property is vested at the interim vesting stage continues to be described as ‘trustee for claimants against the said real property’.11
III. Statutory Family Trusts A. Succession Law 1840 Until the enactment of the Married Women’s Property Law in 1928, property owned by a woman on her marriage, or which was given to her during her marriage, became the property of her husband. To counter this position, in part, a provision was enacted,12 whereby a parent could place into trust a daughter’s légitime share.13 As such, the part of a mother’s or father’s personal estate that must go, as of right, to a daughter on that parent’s death could be placed in trust. Article 29 of the Succession Law 1840 states as follows: Les pères et mères pourront ordonner que la proportion de leurs filles mariées soit placée en fidéi-commis, pour en être les dividendes payés auxdites filles pendant qu’elles seront couvertes de mari; bien entendu que si elles survivent leurs dits maris, le capital sera
5 Report of the Royal Commissioners in 1815, published in 1817. 6 J Gallienne, Traité de la Renonciation par Loi Outré et de la Garantie (Barbet, 1845) 104. 7 ibid 105. 8 ibid 121. 9 ibid 122. the court’s permission to maintain a property is no longer required under current saisie procedures. 10 ibid 123. 11 Saisie Procedure (Simplification) (Bailiwick) Order, 1952, para 2(3). 12 Succession Law 1840, Art 29. 13 That part of a deceased’s estate to which a forced heir is entitled as of right; such rights have been abolished in relation to wills made after 2 April 2012: as to which, see ch 2, section IV.D.1.
Statutory Family Trusts 3 transféré auxdites filles, et que si elles prédécèdent leurs maris le capital sera transféré à leurs héritiers, à moins que les filles n’aient, dans les cas permis, testamenté dudit capital.
That is: Fathers and mothers may order that the share of their married daughters may be placed in a ‘fidéi-commis’, so that the income is paid to the daughters whilst they are married; it being well understood that if they survive their husbands, the capital will then be transferred to the said daughters, and if they predecease their husbands, it will be transferred to their heirs, unless the daughters have, in a case where the law allows, left their capital by will.
B. Nineteenth-century Commentary Writing in 1841, Advocate Peter Jeremie14 stated that during marriage their parents [ie daughters’ parents] may order the capital of their [ie daughters’] proportion of inheritance to be placed in trust. They notwithstanding receive the dividends, when it is deemed expedient to place the principal beyond the control of their husbands, at whose death however such sisters recover the disposal of their capital.
It will be noted that Jeremie translated ‘fidéi-commis’ as ‘trust’. In 1841, Alderney passed a new law of inheritance,15 which replicated the provisions of the Succession Law 1840 but was written in English. The Alderney law contained a provision16 that was equivalent to Article 29 of the Succession Law 1840, and that section also used the word ‘trust’ in place of ‘fidéi-commis’ as found in Article 29. Note also that the Roman law term ‘fideicommissum’ does not, in all respects, correspond to the Anglo-Saxon term ‘trust’.17 In any event, Guernsey law was protective of married daughters, as their personal property might be placed under trust. This was underlined by certain decided cases relating to Article 29.18
C. Succession Law 1890 The Succession Law 1890 built upon Article 29 of the Succession Law 1840 by creating a general right for parents to put their children’s ‘légitime’ share of personal property into trust for one generation. It states as follows: Les pères ou mères ou autres ascendants pourront ordonner par testament que la part et portion de leur succession mobilière composant la légitime revenant à un ou plusieurs 14 P Jeremie, An Essay on the Laws of Real Property in Guernsey (1841) 34–35. 15 Loi sur Les Successions en I’ile d’Auregny (1841). 16 Section 26. 17 See also Adbul Hameed Sitti Kadija v De Saram [1946] AC 208. In CK Consultants (Plastics) Limited v Vines, Barnett Christie Finance Limited (Royal Court, 8–10 February 1982) the Deputy Bailiff stated in his summing-up that ‘Pothier, a learned author of customary law, himself, in Volume VII p 547 recognises a fidéi-commis which is, of course, translated, a trust.’ See ch 2, section II.B for a discussion on the differences between a ‘fideicommissum’ and a trust. 18 See P Jeremie, On the Law of Real Property in Guernsey (1866) 185–86.
4 Foundation and Principles de leurs descendants, sera placée en fidéicommis à la charge par les fidéi-commissaires d’en payer les nets intérêts et dividendes à tel descendant pendant sa vie, et après son décès, pour disposer du capital parmi ses héritiers ou légataires précisément de la même manière comme si le dit Bien n’avait pas été placé en fidéicommis …
That is: Fathers and mothers and other ascendants may order by will that the share and proportion of their personal estate comprising the légitime returning to one or more of their descendants, may be put into ‘fidéicommis’ on condition that the ‘fidéi-commissaires’ pay the net interest and dividends to such descendant during his or her life and, after his or her decease, to dispose of the capital among his or her heirs or legatees in precisely the same manner as if the property had not been placed in fidéicommis …
Article 29 of the Succession Law 1840 remains in force today.19 The Succession Law 1890 was unaffected by the Trusts Law 2007,20 but has now been repealed.21
IV. Protective Trusts of Movables There are mid-nineteenth-century examples of trusts being used for the purpose of protecting movable personal property.22 They were used to look after the movable property of someone who had been absent from the island of Guernsey for many years.23 Another instance involved a trustee holding the movable property of someone who was in debt for 12 months, in order to see whether the debtor could make arrangements with creditors before the commencement of insolvency proceedings.24
V. Religious Trusts in Connection with the Holding of Churches In 1860, Advocate Jeremie, who by then had many years’ experience at the Guernsey Bar, gave evidence about Guernsey law to Commissioners considering the then state of the law of Jersey.25 In answer to a series of questions,26 he stated that: (a) a large number of chapels were held in the names of individuals; 19 Trusts Law 2007, s 84(3)(a). 20 Trusts Law 2007, s 84(3)(b). 21 With effect from 2 April 2012; Inheritance Law, 2011, s 2(a). 22 See Robilliard, ‘Foundations of Guernsey as a Trust Jurisdiction’ (n 3). 23 John Edward Lihou (1831). 24 Priaulx, Le Marchant & Co v Brehaut (1839). 25 Report of the Commissioners appointed to enquire into the Civil, Municipal and Ecclesiastical Laws of the Island of Jersey (1861). 26 ibid, Minutes of Evidence, 679–80, paras 14.206–14.235.
Use of Trusts in Wills and Other Documents 5 (b) those individuals held as trustees for a church or religious society, the denomination of which would be mentioned in the deed; (c) where it so stated, the creditors of the named individuals could not seize such property to pay their personal debts; (d) the position of those individuals holding such property would be viewed as one of trust rather than contract; and (e) if such individuals wrongly tried to employ the property for their own purposes, representatives of the respective congregation or religion could bring proceedings against them.27
VI. Other Charities From as long ago as 1588, Guernsey’s Royal Court has administered a number of charitable funds for such things as the relief of the poor.28 Charitable trusts are considered in more detail in chapter 2.29
VII. Statutory Schemes for the Holding of Churches and Schools From the nineteenth century30 onwards, there have been statutory trusts in Guernsey for the holding of churches and schools.
VIII. Use of Trusts in Wills and Other Documents By the beginning of the twentieth century there were clear examples of trusts being employed in such things as conveyances31 and wills.32
27 See also ch 2, sections V.A and V.B. 28 Robilliard, ‘Foundations of Guernsey as a Trust Jurisdiction’ (n 3) 6–7. 29 See ch 2, section V. 30 Robilliard, ‘Foundations of Guernsey as a Trust Jurisdiction’ (n 3) 9–10; St JA Robilliard, ‘Trusts of Land under Guernsey Customary Law’ (2003) 7 Jersey Law Review 251. 31 See the appellants’ documents and authorities lodged in Stuart-Hutcheson v Spread Trustee Co (2002) 5 ITELR 140; [2009–10] GLR 403 in the Guernsey Court of Appeal, Folder 4 [E][15] (note: the appeal to the Privy Council is reported at [2011] UKPC 13); Extracts from the Form Book of Advocate HC Ninnim, commenced 1901. 32 See Extracts from the Form Book of Advocate HC Ninnim, commenced 1901; Robilliard, ‘Trusts of Land under Guernsey Customary Law’ (n 30) 257.
6 Foundation and Principles
IX. Growing Use and Statutory Recognition of Trusts in the Twentieth Century A. Insurance The trust concept came to be used in various other areas during the twentieth century. For example, under section 12 of the Married Women’s Property Law 1928, a policy of life assurance taken out by any person that is expressed to be for the benefit of his or her spouse and/or children shall create a trust in favour of the objects therein named, and the moneys payable under such policy shall not, so long as any object of the trust remains unperformed, form part of the estate of the insured, or be subject to his or her debts … The insured may by the policy, or by any memorandum under his or her hand, appoint a trustee or trustees of the moneys payable under the policy, and from time to time appoint a new trustee or new trustees thereof, and may make provision for the appointment of a new trustee or new trustees thereof, and for the investment of the moneys payable under any such policy…
Such trusts are unaffected by the Trusts Law 2007.33
B. Matrimonial There are a number of references to trusts in other legislation. By virtue of Article 45(1) of the Matrimonial Causes (Guernsey) Law, 1939, the Court has power to cancel, vary, modify or terminate trusts or settlements in ancillary matrimonial proceedings.
C. Taxation The most important provision with regard to taxation in relation to trusts is the revocable settlements provision, contained in the Income Tax Law 1975. This is considered in more detail in chapter 4.34 Section 1 of the Dwellings Profits Tax (Amendment) (Guernsey) Law, 1983 provided that dwellings profits tax (a tax on dwellings that was introduced in the 1970s to limit property speculation) may be applicable in respect of the transfer of the beneficial interest in a dwelling which is held in trust from one beneficiary to another beneficiary at a time when the trustees are the owners or the lessees of the dwelling if, in the opinion of the Administrator, one of the benefits which accrues
33 Trusts 34 See
Law 2007, s 84(3)(c). ch 4, section II.A.
Recognition of Trusts by the Guernsey Court 7 to the first mentioned beneficiary from the transaction is the avoidance or reduction of liability to profits tax …35
D. Other Legislation In the law relating to the occupation of residential dwellings, section 71(1) of the Housing (Control of Occupation) (Guernsey) Law, 1994, defines ‘owner’, ‘in relation to any dwelling’, to include ‘if the dwelling is held in trust, the trustees and any person entitled to a beneficial interest under the trust’. Criminal law has recognised trusts and trustees with regard to such things as theft.36
X. Recognition of Trusts by the Guernsey Court Before the enactment of the Trusts Law 1989, there were cases that recognised various matters under Guernsey law in relation to trusts. These included recognising the standing of trustees of realty to bring an application to the Guernsey Court37 and asking the Court to change the objects of a trust.38 In a case in 1948,39 general English charitable trust principles were applied. The most important of these decisions was CK Consultants (Plastics) Limited v Vines, Barnett Christie Finance Limited,40 where, in the context of a constructive trust, it was accepted by the Deputy Bailiff, in his summing-up, that basic trust law principles had been part of Guernsey law for some considerable time. This was followed in another decision, Beachcomber Hotels Limited v The Beaucette Yacht Marina (Guernsey) Limited,41 dealing with constructive trusts in 1989. The Guernsey Court had also recognised rectification before the Trusts Law 1989 came into force.42 However, not all of these pre-Trusts Law 1989 cases adopted ‘general principles’ of trust law. Thus, their application was limited when they were considered 35 See also Dwelling Profits Tax (Amendment) (Guernsey) Law, 1989, s 2, for provisions relating to the taxation of trustees; the tax is currently suspended: the Dwellings Profits Tax (Suspension of Law) Ordinance (Guernsey) 2009. 36 Theft (Bailiwick of Guernsey) Law, 1983, s 5(2); Larceny (Guernsey) Law, 1958, s 17 (the latter has been repealed). 37 Thompson v Le Patourel (January 1922) Judgments 236. 38 Carey v Vickery (March 1928) Judgments 436. 39 Re Rector and Church Wardens of the Parish of St Pierre du Bois (March 1948). 40 CK Consultants (Plastics) Limited v Vines, Barnett Christie Finance Limited (n 17). 41 Beachcomber Hotels Limited v The Beaucette Yacht Marina (Guernsey) Limited 7 GLJ 82 (21 April 1989). 42 Re Derby’s Settlement Trusts 7 GLJ 83 (2 March 1989). The doctrine of rectification is not incorporated into the Trusts Law 2007: see, eg, On the Application of Ferguson and Centurion Trust Company Limited (Royal Court, 10 December 1992); see also ch 15, section III.
8 Foundation and Principles against express principles of Guernsey inheritance law (see Re Norman Francis Davis43) or land law (see Lloyd v Lloyd44 and Re Tardif45). It was held in a 1972 case, Re Moore (deceased),46 that the Guernsey Court did not have power under the ‘cy-près’ doctrine with regard to charities.47
A. Stuart-Hutcheson v Spread Trustee Co The Guernsey Court of Appeal case of Stuart-Hutcheson v Spread Trustee Co Ltd48 underlined the history of Guernsey trust law. In that case, Clarke JA stated: 19. Trusts do not form part of Norman law from which Guernsey customary law is, in part, derived. The trust is, in origin, an English law concept, developed by English judges and, subsequently, by the Courts of those countries whose law is, or is derived from English law. But, well prior to 1989, the concept of a trust and the concomitant duties of a trustee and rights of a beneficiary had been recognised in Guernsey. As the Deputy Bailiff said in the present case: ‘Without undertaking any comprehensive review of what I believe is overwhelming evidence for such statement (that the concept of trusts was, in principle, recognised in Guernsey prior to 1989) one need only look at a variety of facts:– the large number of statutory trusts, either created or envisaged on subjects ranging from testamentary matters in the 19th century to social insurance matters in the 1970s (coincidentally the Law immediately following the Trust Law [ie the Trusts Law 1989] in volume XXXI of the Ordres en Conseil is the Saint Peter’s Church Hall (Trust) (Guernsey) Law, 1989); the number of trusts administered by the Royal Court itself; the widespread practice of many decades, at the least, of creating trusts, either testamentarily or inter vivos; and (perhaps most pertinently) the jurisprudence of the Royal Court itself in recognising the existence of trusts (for recent examples of which, see the observations of Frossard DB in CK Consultants (Plastics) Limited and Frossard B in Beachcomber Hotels Limited).’ Further information as to the history of the development of trust law may be found in an article of Advocate Robilliard: ‘Foundations of Guernsey as a Trust Jurisdiction’ Vol 2 No 8 Trust and Trustees (1996) pp 6–10. 20. That, prior to the 1989 Law, trusts had become part of Guernsey law is not in dispute; what is in issue is the extent to which the general law of trusts in England had 43 Re Norman Francis Davis (Royal Court, 14 August 1962) 22 Plaids de Meubles 305. For the current position, see ch 2, section IV.D. 44 Lloyd v Lloyd (Royal Court, 20 October 1956). For a discussion of the position in relation to constructive trusts of land, see ch 3, section IV. 45 Re Tardif 13 GLJ 78 (9 May 1953). 46 Re Moore (deceased) 13 GLJ 79 (21 March 1972). 47 It does now have that power under the Trusts Law 2007, s 57; see ch 2, section V.H. 48 Stuart-Hutcheson v Spread Trustee Co Ltd (n 31). The Privy Council (albeit by a majority decision) approved the Court of Appeal’s analysis on this point, in particular that ‘the usual incidents of an English trust were likely to apply in Guernsey’, but that English trust law ‘would have to yield to a provision of Guernsey customary or statute law’: [2011] UKPC 13 [45].
Proposals for the Trusts Law 1989 9 become part of the law of Guernsey. To that question the answer is, in my judgement, to be found by a consideration of the process by which trusts came to be part of Guernsey law. They did so because settlors established trusts, whether inter vivos or by will, the validity of which was recognised and, where necessary, enforced by the Royal Court. In addition, the Legislature in a number of Laws recognised and adopted the notion of trusteeship. In thus importing, as it were, the English concept of a trust and trustees those concerned must be regarded as having intended to introduce the trust concept with its usual incidents, unless they were inconsistent with some provision of Guernsey customary or statute law or otherwise inapposite or inapplicable. The trustee’s obligation to account for his execution of the trust is a characteristic of a trust, as is recognised by Article 2 of The Hague Convention on the Law Applicable to Trusts and on their Recognition: see the Schedule to the English Recognition of Trusts Act 1987. 21. … In other words, the recognition and acceptance of trusts in Guernsey carried with it the need to seek guidance from jurisdictions, which have a law of trusts, and recognition of the concept of constructive, as well as express trusteeship, as an integral part of the law of trusts.
XI. Proposals for the Trusts Law 1989 A. Background to the Proposals The proposals for the introduction of the Trusts Law 1989 (the precursor of the Trusts Law 2007) recognised that ‘Whilst the Royal Court has developed a limited equitable jurisdiction and has recognised trusts there is considerable uncertainty as to what the law of Guernsey is in many areas relating to trusts.’49 Guernsey was being used increasingly as a trust jurisdiction for both residents and non-residents, and the Trusts (Jersey) Law 1984 had proved to be generally acceptable. To introduce a statutory trusts law in Guernsey, the Committee noted that it ‘would remove the legal uncertainty which at present exists and would encourage the development of trust business in Guernsey on a proper statutory basis’. Other than powers to vary trusts, it was intended that the new legislation would not apply to trusts of real property in the Bailiwick of Guernsey.50 The Jersey statute was to be a model (except as regards the provision for local realty) and, according to the policy letter, the Guernsey statute would seek to set out a basic infrastructure of legal principles, on the authority of which trustees, beneficiaries and settlors could operate with certainty and confidence. It would incorporate many of the principles of English trust law, but not all such principles, and not necessarily without modification. 49 Contained in the States Advisory and Finance Committee’s policy letter of 12 February 1988; Billet d’Etat No IX of 1988, item VI at 244–46. 50 This has since been amended: the Trusts Law 2007 does apply to Guernsey land; see ch 2, section IV.
10 Foundation and Principles It was intended that the new trusts law would set out the position of trustees and the rights and remedies of beneficiaries, and that settlors would have a clear idea of their position. The policy letter proposed that ‘[t]he Law would seek in particular to confer very wide supervisory powers on the Court’.
B. Reasons for the Enactment of the Trusts (Guernsey) Law, 1989 The States Advisory and Finance Committee, which recommended the adoption of a statutory trusts law in 1988, did so for the following reasons:51 (a) (b) (c) (d)
to dispel any uncertainty as to the position of trusts in Guernsey; to encourage the development of trust business in Guernsey; to provide an administrative framework for existing trusts; to provide beneficiaries with certainty of the position into which they are placed; (e) to provide settlors with comfort as to how trust assets would be safeguarded; and (f) to enable the extension to Guernsey of the Hague Convention,52 so that other contracting states would recognise Guernsey trusts.53 Clarke JA, in the Guernsey Court of Appeal case of Stuart-Hutcheson v Spread Trustee Co,54 noted the following: 7. Prior to 1989 there was no legislation in Guernsey governing trusts generally. In 1988 the States Advisory and Finance Committee submitted a report to the States recommending that legislation governing trusts should be enacted locally (see Billet d’Etat IX 1988 item VI at pp 244–6). The report made plain that the object of the new legislation was to dispel uncertainty concerning trusts in Guernsey. The legislation was to follow the general pattern of the Trusts (Jersey) Law 1984. The ensuing Projet de Loi was contained in Billet d’Etat XV 1988 and was considered by the States at their meeting of 28th July 1988.
51 States Advisory and Finance Committee’s policy letter entitled ‘Trusts Law’, dated 12 February 1988, Billet d’Etat IX 1988 item VI at 244. 52 The Hague Convention on the Law Applicable to Trusts and on their Recognition (1 July 1985) was extended to Guernsey on 28 April 1993 by a notification in accordance with Art 32 of the Convention: The Hague, 13 May 1993, Trust no 1/1993; and came into force on 1 July 1993. The Convention, including related materials, is accessible on the website of the Hague Conference on Private International Law, at www.hcch.net, under ‘Conventions’. 53 By default, the Hague Convention applies to all trusts; it is not restricted to trusts administered in or governed by the laws of a contracting state, but a contracting state may reserve the right to apply the recognition provisions only to trusts whose validity is governed by the laws of another contracting state: Art 21; see also The Hon Mr Justice D Hayton, The International Trust, 3rd edn (Jordans, 2011) 3.16 (‘Scope of the Hague Convention’). 54 Stuart-Hutcheson v Spread Trustee Co (n 31).
Overview of the Trusts Law 2007 11 8. The Deputy Bailiff summarised the contents of the Trusts Law in his judgement in these words, which I gratefully adopt: ‘The Trusts Law is divided into 5 Parts and extends to some 76 Sections. Part I relates to preliminary matters – the existence, validity and proper law of trusts, and the jurisdiction of the Royal Court. Part 2 enacts provisions which are applicable only to a Guernsey trust and relate to:– the creation, validity and duration of Guernsey trusts; the appointment, retirement and discharge of trustees; the duties of trustees; the general powers of trustees; liability for breach of trust; protective trusts, class interests and certain powers; failure, lapse and termination of trusts; powers of the Court; variation, etc of trusts; and permitted investments. Part 3 enacts provisions applicable only to a foreign trust. Part 4 enacts provisions of general application, including, relevant for present purposes, applications for directions (s 62),55 general powers of the Court (s 63)56 and the nature of a trustee’s interest (s 66).57 Part 5 makes provision for various supplemental matters, including, again relevant for this case, extensive savings provisions (s 74).’58
XII. Overview of the Trusts Law 2007 In accordance with the proposals, the Trusts Law makes provision for: (a) (b) (c) (d) (e) (f)
the creation, validity, enforcement and duration of trusts; the rights and interests of beneficiaries; the appointment, retirement and discharge of trustees; the duties and powers of trustees; the liability of trustees for a breach of trust; the conferring of various powers on settlors (eg to make the interest of a beneficiary liable to termination); (g) the failure, lapse and termination of trusts; (h) the jurisdiction and powers of the Court; (i) the variation of trusts; (j) the making by the Committee (ie the Advisory and Finance Committee) of regulations prescribing permitted investments for trustees; (k) the law which is to govern any particular trust; (l) the limitation and prescription of legal actions against trustees; (m) the protection, recovery and vesting of trust property; and (n) incidental and supplementary matters.
55 Now
Trusts Law 2007, s 68. Trusts Law 2007, s 69. 57 Now Trusts Law 2007, s 72. 58 Now Trusts Law 2007, s 84. 56 Now
12 Foundation and Principles The Trusts Law 1989 came into force on 22 April 1989, was amended with effect from 19 February 1991 by the Trusts (Amendment) (Guernsey) Law 1990 and was replaced by the Trusts Law 2007 with effect from 17 March 2008.59
A. Importance of the Previous Law The presiding judge of the Guernsey Court of Appeal in Rowe and Rich v Cross and Cross,60 John Martin Collins, QC, stated: The Trust Law was introduced, as Billet d’Etat IX for 1988 indicates, to clarify the previously uncertain Guernsey trust law. This had been customary in origin. The law was designed amongst other things to enable those who might be victims of a breach of trust to be readily aware of their means of redress.
He went on to suggest that the Trusts Law 1989 was a code. But this must be seen in the context of the Court’s interpretation of the particular provision that was in issue, namely, section 70,61 and not necessarily generally. The decision in Stuart-Hutcheson v Spread Trustee Co62 shows that in some areas it may still be necessary to consider ‘general principles’ because of the preTrusts Law 1989 position and those matters, such as rectification, that lie outside the scope of that Law.
XIII. Application of Trusts Laws and Amendments A. Trusts Law 1989 The Trusts Law 1989 came into force on 22 April 1989. While it applied to trusts created before or after that date,63 it did not affect the validity of anything done in relation to a trust before it came into force, or a trust arising from a document or disposition executed or taking effect before then.64 Prior to that date, English principles of trust law applied, except as inconsistent with customary law or statute.65 In most cases, the 1989 Law was effectively a codification of specific English trust law principles, in that it was intended to reduce those principles to a clear and concise statement. However, in some respects, it was intended to effect a change to those principles, and in any event it is not intended to be a comprehensive statement of
59 Trusts
Law 2007, s 83(1)(a); see also section XIII.C. and Rich v Cross and Cross 26 GLJ 85 (Court of Appeal, 24 July 1998). 61 As to the current position, see Trusts Law 2007, s 83(3). 62 Stuart-Hutcheson v Spread Trustee Co (n 31). 63 Trusts Law 1989, s 72(1). 64 Trusts Law 1989, s 74(1)(c) and (d). 65 Spread Trustee Company Limited v Hutcheson [2011] UKPC 13. 60 Rowe
Application of Trusts Laws and Amendments 13 the Guernsey law of trusts: ‘The Trusts Law is not expressed to be, and in my view, is not, a statute codifying the whole law of trusts …’66 English law, unamended by the Trusts Law 1989, continues to apply to pre22 April 1989 trusts in relation to anything done before then.
B. The Trusts (Amendment) (Guernsey) Law, 1990 The Trusts (Amendment)(Guernsey) Law, 1990 came into force on 19 February 1991. The new section 11A (‘Validity of trusts and dispositions thereto’) clearly had retrospective effect: it applied to trusts, transfers and dispositions whenever they were made.67 With regard to the other changes, they were effected by way of an amendment to the 1989 Law, so applied to all trusts, whenever they were created, but not so as to affect anything done before ‘the commencement of this Law’. On the face of it, ‘this Law’ must refer to the 1989 Law, so the relevant commencement date is 22 April 1989, not 19 February 1991. However, it was held in the Spread68 case – although apparently without argument on this point – that the other changes effected by the Amendment Law only applied with respect to matters after 19 February 1991.
C. Trusts Law 2007 The Trusts Law 2007 came into force on 17 March 2008.69 It was effected by way of a new statute that repealed the whole of the Trusts Law 1989. Except where contrary provision is made, it applies to all trusts, whenever created,70 but not to anything done before the ‘commencement of this Law’. This confirms that the previous law (ie the Trusts Law 1989 – as amended – will continue to apply to anything done before 17 March 2008). It appears to have been held in Re K71 that the changes made by the Trusts Law 2007 did not apply to a trust established before that date, although it was accepted that the exercise of powers after 17 March 2008 would ‘potentially’ be subject to the provisions of the Trusts Law 2007.72 However, the point does not appear to have been argued before the court, nor does there appear to have been any discussion of 66 Stuart-Hutcheson v Spread Trustee Co (n 31) at para 32. 67 Trusts Law 1989, s 11A, inserted by The Trusts (Amendment) (Guernsey) Law 1990, s 1(c). 68 Spread Trustee Company Limited v Hutcheson (n 65). 69 By Trusts Law 2007, s 86, the law came into force on the 28th day after registration in the records of the Island of Guernsey. It was registered on 18 February 2008, so it came into force on 17 March 2008 (2008 was a leap year). 70 Trusts Law 2007, s 78. 71 In the Matter of Re K Trust (Judgment 31/2015) para 33. 72 ibid para 34.
14 Foundation and Principles section 78 or of the Spread case, so this decision should be regarded with caution, and the better view must be that the law applies to all trusts, whenever made. There are therefore four different periods to consider during which different laws apply: (a) (b) (c) (d)
before 18 April 1989; 18 April 1989 to 18 February 1991; 19 February 1991 to 16 March 2008; from 17 March 2008 (inclusive).
Unless stated otherwise, this book states the law that applies to Guernsey trusts established on or after 17 March 2008.
XIV. The Role of Authorities and Precedent in Guernsey A. The Role of Authorities In Stuart-Hutcheson v Spread Trustee Co, in respect of the pre-1989 position in Guernsey, the Court noted the following: [T]he Legislature in a number of Laws recognised and adopted the notion of trusteeship. In thus importing, as it were, the English concept of a trust and trustees those concerned must be regarded as having intended to introduce the trust concept with its usual incidents, unless they were inconsistent with some provision of Guernsey customary or statute law or otherwise inapposite or inapplicable.73
As a result, it is thought that there is a hierarchy of authorities74 in respect of a Guernsey trust law matter, which is normally as follows: Guernsey statute;75 Guernsey case law; Guernsey customary law; English case law, to the extent that it is not inconsistent with (a), (b) and (c) above; Jersey case law, to the extent that it is not inconsistent with (a), (b) and (c) above; and (f) case law of other common law jurisdictions, where relevant. (a) (b) (c) (d) (e)
However, where the Jersey case law concerns a principle in relation to which there is a relevant Jersey statutory provision, Jersey case law will normally be of more persuasive authority than the English case law, where there is an equivalent Guernsey statutory provision. 73 Stuart-Hutcheson v Spread Trustee Co (n 31) para 20. 74 For a discussion of the hierarchy of authority in the areas of tort and contract, see G Dawes, Laws of Guernsey, 1st edn (Hart Publishing, 2003) 694–705. 75 So far as it applies to the period in question: see section XIII.C.
The Role of Authorities and Precedent in Guernsey 15
B. The Role of Precedent With regard to the application of Guernsey case law, the role of precedent76 should also be considered. The leading case on the role of precedent under Guernsey law is Morton v Paint,77 which set out the following useful statement regarding the rules: In Guernsey the hierarchy of the courts and the doctrine of precedent requires the Royal Court and the Court of Appeal to follow the decisions of the Privy Council, when hearing appeals from the Courts of Guernsey. Privy Council decisions on appeals from other Commonwealth jurisdictions are not binding, but are persuasive authority on the common law where relevant circumstances in Guernsey do not differ markedly from those in the other jurisdictions. The decisions of the House of Lords78 are not binding on the Guernsey courts. But in so far as the Guernsey courts follow English decisions on the common law, the decisions of the House of Lords carry considerable weight, and it would be only in rare cases that the Guernsey courts would not follow such a decision of the House of Lords. The decisions of the Guernsey Court of Appeal (and of its precursor, the Cour des Jugements et Records) are binding on the Royal Court but not binding on the Court of Appeal itself: Smith v Harvey 14 May 1981:No 9 (Civil): Guernsey Court of Appeal. As regards the decisions of the English Court of Appeal, while the Guernsey Courts always treat them with due respect, they are not bound by them, and are free to review them and to depart from them if they are considered to be wrong or not appropriate in the particular circumstances of Guernsey: compare the decision of the Privy Council on appeal from New Zealand in Attorney General for Hong Kong v Reid & ors [1994] 1 AC 324 per Lord Templeman at pp 338D–339A.
The Jersey case of Qatar v Al Thani79 held that the doctrine of precedent is not part of the law of Jersey, although a hierarchical structure of courts naturally requires deference be accorded by lower courts to higher courts. The case went on to state that we qualify the proposition only because, in our judgment, it is open to the Royal Court, as it would be to a Scottish court, to decline to follow a decision which has been invalidated by subsequent legislation or some such compelling change of circumstance.80
To the extent it is inconsistent with Morton, it is thought that Morton is to be preferred, for the following reasons: (i) Al-Thani is first instance only; (ii) it is a Jersey decision; and (iii) it was primarily concerned with the application of English rules, rather than the applicability of Jersey precedent as such, so was strictly obiter.81
76 By ‘precedent’, we refer to the obligation of lower courts to follow the decisions of higher courts, also known by the Latin phrase, stare decisis. For a discussion of the role of precedent under Guernsey law generally, see Dawes, Laws of Guernsey (n 74) 13–16. 77 Morton v Paint 21 GLJ 61 (Court of Appeal, 9–10 January 1996, 9 February 1996). 78 For the House of Lords, we should now read the Supreme Court. 79 Qatar v Al Thani [1999] JLR 118. 80 ibid 126. 81 For a discussion of the Jersey law position, see H Brown, The Jersey Law of Trusts, 4th edn (Key Haven Publications, 2013) paras 1–11 to 1–15.
2 Express Trusts I. Article 29 of the Succession Law 1840 Article 29 of the Succession Law 1840, although still in place,1 is of historic interest only.2 The ‘order’ referred to in Article 293 is one that is made by will, as the first sentence of this provision (which sentence has since been repealed) dealt with a rule relating to wills.4 At the time of the enactment of the Succession Law 1840, a daughter would have been entitled to inherit a part of her parent’s personal property. If that property went straight to her and she was married, it would become her husband’s property. This ceased to be the position in 1928, with the enactment of the Married Women’s Property Law, thereby removing the rationale for Article 29 of the Succession Law 1840. Prior to that 1928 statute, in order to prevent a married woman’s inherited property passing to her husband on the death of her parent, a trust of inherited personalty could be created, with the capital going to the married woman if she survived her husband. If the woman predeceased her husband, that property would go to those entitled to her personal estate on her death.
II. Trusts under the Succession Law 1890 Article 29 inspired the Succession Law 1890. Although the 1890 Law has now been repealed,5 it still applies to wills executed prior to 2 April 2012,6 unless the testator disapplies it by a subsequent codicil.7 However, before considering the Succession Law 1890, it should be noted that in the official text of Article 29 of the Succession Law 1840, the personal property in question is put into ‘fidéicommis’. 1 It is expressly preserved by Trusts Law 2007, s 84(3)(a). 2 See ch1, section III.A. 3 Art 29 provides that ‘Fathers and mothers may order …’; ch 1, section III.A. 4 The repealed sentence reads ‘Mère, de même que père, ne pourra par son testament donner de ses meubles à l’un de ses enfants plus qu’à l’autre.’ That is, ‘A mother, in the same way as a father, shall not be at liberty to give, by will, to one child more than to the other.’ 5 The repeal took effect on 2 April 2012; Inheritance Law, 2011, s 2(a). 6 Inheritance Law, 2011, s 1(4). 7 Inheritance Law, 2011, s 1(5).
Trusts under the Succession Law 1890 17
A. History of the Fidéicommis Advocate Peter Jeremie, who wrote on inheritance in the nineteenth century,8 believed the word ‘fidéi-commis’ meant ‘trust’.9 Jeremie quotes a Guernsey case of 1845, where relevant personal property passing to a married woman was put in the name of two ‘fidéi-commissaires’.10 On the death of the married woman, the ‘fidéi-commissaires’ would pass the capital to her children or, if one or more predeceased her, to that woman’s grandchildren as regards their deceased parent’s share, even if the married woman predeceased her husband. Thus, the personal property of that married woman was held by individuals who have the appearance of trustees. Alderney adopted a law in exactly the same terms in 1893 in French,11 whilst Sark, in 1975, enacted (in English) the equivalent of each of Article 29 of the Succession Law 1840 and the Succession Law 1890, but used the term ‘trust’ instead of ‘fidéicommis’.
B. Is a Fidéicommis a Trust? The first question is whether a ‘fidéicommis’ is a ‘trust’ in the Anglo-Saxon sense, or a ‘fideicommissum’ as understood by Roman law. In 1946, the Privy Council,12 on appeal from Ceylon, considered the main differences between a ‘fideicommissum’ and a trust, by referring to a textbook on Roman Dutch law. Those differences are summarised as follows: (a) there is no distinction between legal and equitable estates with a ‘fideicommissum’; (b) in a ‘fideicommissum’ the property is held by a fiduciary (who is under an obligation not to deal with it), whilst the object of it, the ‘fidei- commissary’ (ie the beneficiary), takes ownership of the property when the fiduciary ceases to hold it; (c) as there are no separate ‘equitable’ rights in a ‘fideicommissum’, a ‘bona fide’ purchaser without notice cannot extinguish the rights of the ‘fidei- commissary’, once his interest has vested.13 The term ‘fidéicommis’ was also known to Jersey law in the nineteenth century. Jersey has an 1862 law under which immovable property can be put into 8 The first edition of Jeremie’s work, An Essay on the Laws of Real Property in Guernsey, appeared in 1841. 9 See P Jeremie, On the Law of Real Property in Guernsey (1866) 183; see also ch 1, section III.B. 10 Jeremie, On the Law of Real Property in Guernsey (n 9) 185. 11 Auregny Loi Supplémentaire à la Loi de Successions (1893). 12 Adbul Hameed Sitti Kadija v De Saram [1946] AC 208. 13 ibid 216–17; and the reference to Professor RW Lee’s Introduction to Roman-Dutch Law, 3rd edn (Clarendon, 1931). Note that the most recent edition of Professor Lee’s work is the 5th edn (OUP, 1953).
18 Express Trusts ‘fidéicommis’ for public purposes.14 Matthews and Sowden, in their work on Jersey trusts law,15 discuss the Roman law ‘fideicommissum’16 and argue that the use of the term ‘fidéicommis’ in Jersey’s 1862 law does not mean the same thing as a ‘fideicommissum’ under Roman law. The 1862 law gives the ‘fidéicommissaires’ (ie fiduciaries) various powers to deal with the relevant trust property and treats them as full legal owners, which is inconsistent with the Roman law idea that only the beneficiary has title in the property. Interestingly, Matthews and Sowden state that as a ‘fidéicommis’ under the 1862 law is a trust, it means that when that statute applies to create a ‘fidéicommis’, the provisions of the 1862 law override general trust law, including the provisions of the Trusts (Jersey) Law 1984. However, where the express provisions of the 1862 law do not apply, general trust law will apply, subject to certain differences between public and private trusts under case law.17 Importantly, the Jersey Court, in certain circumstances, may alter the conditions of a ‘fidéicommis’ created under the 1862 law.18
C. Analysis of the 1890 Trust Returning to the Succession Law 1890, notwithstanding the use of the term ‘fidéicommis’, all of the evidence points to a trust being created, not least because it deals with a proportionate part of a deceased’s personal estate and not specific items that could, perhaps, be more naturally held by ‘fidéicommis’. It would appear that a trust established under the Succession Law 1890 (an ‘1890 Trust’) is simplicity itself. Thus: (a) it is constituted on the testator’s death; (b) the beneficiary (‘the income beneficiary’) is entitled to the income for life; (c) on the death of the income beneficiary, the capital goes to the person or persons who inherit personalty from the income beneficiary as if that capital were not in trust, that is, the income beneficiary’s heirs or legatees at the time of his or her death (the ‘heirs’).
D. Application of Trusts Law 2007 to an 1890 Trust The Trusts Law 2007 applies to trusts created both before and after the commencement of the Law,19 so will apply to 1890 Trusts, although the application of certain 14 Loi (1862) Sur les Teneures en Fideicommis et L’Incorporation d’Associations (as amended). 15 P Matthews and T Sowden, Jersey Law of Trusts, 3rd edn (Key Haven Publications, 1993). Note that the most recent edition is H Brown, The Jersey Law of Trusts, 4th edn (Key Haven Publications, 2013). 16 Matthews and Sowden, Jersey Law of Trusts, 3rd edn (n 15) 3–7. 17 ibid 191. 18 ibid 194. 19 Subject to express contrary provision and to s 83: Trusts Law 2007, s 78.
Trusts under the Succession Law 1890 19 provisions will inevitably be affected by the nature of the trusts: until the income beneficiary’s death, one cannot say who the capital beneficiaries are.
E. Termination of an 1890 Trust While the income beneficiary is living, it will not be possible to take advantage of the termination power conferred by section 53(3) of the Trusts Law 2007, which provides that where all the beneficiaries are in existence and have been ascertained, and none is a person under legal disability or minor, they may require the trustees to terminate the trust and distribute the trust property among them.20
F. Variation of an 1890 Trust Section 57 of the Trusts Law 2007 can in principle be used in relation to an 1890 Trust. This provision permits a variation21 of the beneficial provisions of a trust, or even its revocation, subject to approval of the Court being given on behalf of certain types of beneficiary. In the context of an 1890 Trust, those beneficiaries on whose behalf the Court might act could fall into any of the first three categories specified in section 57(1), namely: (a) a minor or a person under legal disability having, directly or indirectly, an interest, vested or contingent, under a trust; (b) any person unborn; (c) any person, ascertained or not, who may become entitled, directly or indirectly, to an interest under a trust, as being (at a future date or on the happening of a future event) a person of any specified description or a member of any specified class …
If the beneficiaries fall within one of the above categories, and provided the arrangement appears to be for their benefit, section 57(1) states that [the court, on their behalf,] may … approve any arrangement which varies or revokes the terms of a trust or enlarges or modifies the powers of management or administration of any trustees, whether or not there is another person with a beneficial interest who is capable of assenting to the arrangement.
Thus, if the income beneficiary wished to surrender the whole of his or her interest in an 1890 Trust, including the right to leave the trust property by will, his or her heirs would fall under one of the categories in section 57(1) of the Trusts Law 2007. On an application to Court, they could seek approval for a variation of the trust, if the other conditions for a variation of trusts have been met.22
20 See
also ch 5, section VIII. to the variation of trusts generally, see ch 14 of this volume. 22 See ch 14, section III. 21 As
20 Express Trusts
III. Trusts of Land in Saisie Saisie is a customary law procedure, regulated in part by Ordinance, whereby a creditor or creditors take real property from a debtor, in accordance with a system of priorities.23 At a particular stage, the arresting creditor, who initiates the saisie procedure, will have the land of the debtor vested in him or her (under an interim vesting order), as a trustee for all of the debtor’s relevant creditors. Interestingly, the use of this type of trust of land has been in existence for at least 200 years. Thus, in 181724 it was said of the ‘saisi héréditale’ (that is, the arresting creditor): He still continues merely as a trustee and the Héritage [ie land] remains as it were, in Abeyance, to abide the final adjudication at the close of the saisie.
A. Duties of Trustee What, then, were the duties of a trustee of land in saisie? In 1823 it was stated that he or she must ‘dispose of it [ie the debtor’s real property of which he was trustee] according to law’, that is, in accordance with the priorities set by the law.25 But what did the trustee have to do before that stage? Some guidance is given by James Gallienne.26 Writing in 1845, Gallienne said: Et comme il a été dit, ‘il trouvera ses droits’ (donc ses devoirs) ‘dans les règles que les lois imposent aux administrateurs des biens d’autrui’.
That is: And as it has been said, ‘his or her rights’ (and duties) ‘are to be found in the legal rules covering those who administer the property of others’.
This is the standard known as acting ‘en bon père de famille’. This concept applies in relation to trusts generally.27
23 Saisie Procedure (Simplification) (Bailiwick) Order, 1952 (ORC 3/1952). See G Dawes, Laws of Guernsey (Hart Publishing, 2003) 240–50 for the current practice. 24 Report of the Royal Commissioners of 1815 (1817) 32. 25 Report entitled Changes effected in the Law of Guernsey in 1823, 13. 26 J Gallienne, Traité de la Renonciation par Loi Outrée et de la Garantie (Barbet, 1845) 104. 27 Trusts Law 2007, s 22(1). In Billet d’Etat No VI of 1949, the Committee for the Revision of the Law of Inheritance recommended that the right to create testamentary trusts of land should be created, and it stated (at 130) that ‘the beneficiary would be sufficiently protected by the common law rule that a trustee must act “en bon père de famille”’. This proposal was based on the fact that under the (now repealed) Succession Law 1890, which dealt with personal property, ‘légitime’ could be put into a limited trust. The proposal was not adopted by the legislature. As to the meaning of ‘en bon père de famille’, see ch 8, section I.B.
Trusts of Land in Saisie 21 Gallienne continued,28 the essential function is ‘de bien veiller à la conservation des propriétés qui appartiennent de la saisie’. That is, to see to the conservation of the property vested in the saisie. He added: Ses soins doivent se porter à faire toutes les réparations nécessaires, par autorité de justice et au dire du prévôt de sa majesté, – à qui il appartient, en tout cas de saisie, de surveiller à ce que les bâtiments qui en dépendent soient maintenus en état. Pour cet effet on prend permission de la cour.29
That is: His or her duties are to deal with all necessary repairs by authority of law and to inform the Sheriff, who is responsible to see that the buildings are conserved. If work is needed to be done, permission of the Court is required.
B. Insurance A particular question was whether the ‘saisi héréditale’ (ie the arresting creditor) should insure the property during his trusteeship. Gallienne noted that while there was no express legal requirement to do so, he counselled that it should be done rather than ‘s’assujettir à un procès, sinon au paiement de dommages intérêts pour les pertes qui auraient pu s’ensuivre d’un accident par le feu’. That is, the property should be insured, rather than the arresting creditor’s being sued for damages for the losses that can happen by accidental fire.30
C. Retention of Earlier Terminology The current law has retained the terminology of the earlier law. Thus, under paragraph 2(3) of the Saisie Procedure (Simplification) (Bailiwick) Order, 1952, the effect of an interim vesting order in saisie is the vesting of ‘the whole of the real property of the debtor in the creditor as trustee for claimants against the said real property’.
D. Application of the Trusts Law 2007 to Saisie Trusts The 1952 Order is generally silent as to the creditor’s duties as trustee, but the duties set out in the Trusts Law 2007 will now apply to any saisie trusts, whenever they were established.31
28 Gallienne,
Traité de la Renonciation par Loi Outrée et de la Garantie (n 26) 121. 122. 30 ibid 123. 31 Trusts Law 2007, s 78. 29 ibid
22 Express Trusts
IV. Express Private Trusts of Land A. Trusts of Land Created before 17 March 2008 The Trusts Law 2007 applies to trusts of land in Guernsey whenever they were established,32 but it does not affect the validity of anything done in relation to a trust created before 17 March 2008, when the Law came into force.33 It will therefore still sometimes be necessary to consider the old law. The Trusts Law 1989 did not apply generally to trusts of land: the definition of ‘property’ in section 73(1) of the Trusts Law 1989 states that property: (a) … does not (except in sections 52 to 5634 and 7435) include real property in the Bailiwick of Guernsey …
Section 72(2) of the Trusts Law 1989 provided that: This Law, apart from sections 52 to 56, does not apply to a trust in so far as there is vested in the trustees any interest in real property in the Bailiwick of Guernsey.
The policy behind the enactment of the Trusts Law 1989 was that it was not to apply to trusts of realty in the Bailiwick (except insofar as it conferred powers on the courts to vary trusts). The latter [ie trusts of realty] will continue to be covered by the customary law.36
Whilst it was undoubtedly possible before the Trusts Law 2007 to have a trust of land under Guernsey law,37 the precise ambit of such a trust is not entirely clear. However, when called upon to consider its scope, it is thought that the Guernsey Court would apply generally accepted principles of trust law, subject to the restrictions in relation to trusts established by wills executed before 2 April 2012.38
B. Application of the Trusts Law 1989 to Trusts of Land Created before 17 March 2008 Principally because of the long-standing use in Guernsey of charitable trusts that own land, some sections of the Trusts Law 1989 did apply to trusts of land. These sections are: • section 52, which provides that the Guernsey Court may ‘approve any arrangement which varies or revokes the terms of a trust or enlarges or modifies the powers of management or administration of any trustees’; 32 See the Trusts Law 2007, ss 78 (‘Application of Law’) and 80(1) (‘Definition of “property”’). 33 Trusts Law 2007, s 84(1)(d). 34 The equivalent provisions in the Trusts Law 2007 are ss 57–61. 35 This was the general saving provision – see section IV.B of this chapter. 36 States Advisory and Finance Committee’s policy letter entitled ‘Trusts Law’, dated 12 February 1988, Billet d’Etat IX 1988 item VI at 244. 37 St JA Robilliard, ‘Trusts of Land under Guernsey Customary Law’ (2003) 7 Jersey Law Review 251. 38 See section IV.D of this chapter.
Express Private Trusts of Land 23 • section 53, which enables the Guernsey Court to approve a transaction that is ‘in the opinion of the court, expedient’, but where the trustees do not have the necessary power to do it, either by the terms of the trust in question or by law; • section 54, which sets out the ‘cy-près’ doctrine. See Re Rossiter (deceased)39 for an example of the application of section 54. Prior to the enactment of the Trusts Law 1989, the Guernsey Court had held that the ‘cy-près’ doctrine was not part of Guernsey customary law;40 • section 55, which provides that where trust property is held for a charitable or public purpose, the purposes or terms of that trust may be varied or revoked, or powers of management or administration of the trustees may be enlarged or modified, if the Guernsey Court is satisfied: that the arrangement – (a) is now suitable or expedient; and (b) is consistent with the original intention of the settlor and the spirit of the gift …
• section 56, which states that sections 52 to 55 of the Trusts Law do not apply to trusts created by an Order in Council. To the extent that section 74 of the Trusts Law 1989 is relevant to trusts of land, it sets out various saving provisions. For example, it provides that nothing in the Law: • affects the validity of: ‘anything done in relation to a trust before the commencement of [the Law]’,41 or ‘a trust arising from a document or disposition executed or taking effect before the commencement of [the Law]’;42
• derogates from the powers of the court that existed independently of the law in respect of trusts, trustees or trust property;43 • derogates from the provisions of the Succession Law 1840,44 the Succession Law 189045 or section 1246 of the Married Women’s Property Law;47 or • affects a personal representative acting as such.48
39 Re
Rossiter (deceased) 22 GLJ 56 (13 November 1996). Moore (deceased) 13 GLJ 79 (21 March 1972); see section V.H as to the current position. 41 Trusts Law 1989, s 74(1)(b). 42 Trusts Law 1989, s 74(1)(c). 43 Trusts Law 1989, s 74(2)(b). 44 See ch 1, section III.A and section I of this chapter. 45 See ch 1, section III.C and section II of this chapter. 46 See ch 1, section IX.A. 47 Trusts Law 1989, s 74(3). 48 Trusts Law 1989, s 74(4). 40 Re
24 Express Trusts
C. Trusts of Land Created on or after 17 March 2008 Since 17 March 2008, it has been clear that a settlor may establish a trust of Guernsey land.49 However, trusts have been in use in Guernsey since the nineteenth century with regard to personal property,50 and by the beginning of the twentieth century there are examples of trusts being employed for land. In a precedent book from the turn of the twentieth century written by Advocate Ninnim, there is an example of both a conveyance of land to trustees from March 190251 and a charge over land to secure borrowings by trustees.52 In 1905 a law imposed limitations on private trusts of land for certain beneficiaries.53 In 1922 a trustee of real property applied to the Guernsey Court for an order preventing the use of certain premises.54
D. Trusts of Land Made by will Of some significance in this regard is the will of realty of Jurat Julius Bishop, which was registered with the Guernsey Royal Court on 24 December 1932. Here, a member of the Royal Court considered that a trust for sale of real property could be established. The objects of the trust were both individuals and charities, so it does not fit into the purely charitable class considered in section V of this chapter. It also shows that individuals could be beneficiaries under trusts of land. The practice of constituting a trust of land by will, such as in the will of Jurat Bishop, mentioned above, became quite common. However, such will trusts were, until 2 April 2012,55 qualified by the important Royal Court decision of Re Norman Francis Davis (deceased).56 That qualification still applies to wills executed before that date and is discussed further in the following subsection.57
i. Restrictions under the Inheritance Law 1954 Under the Inheritance Law 1954 in force at the time, if a person had legitimate descendants, he or she was limited as to whom he or she might leave his or her 49 As to the application of the Trusts Law 2007 to trusts of land generally, see section IV.A. 50 St JA Robilliard, ‘Foundations of Guernsey as a Trust Jurisdiction’ (1996) 2(8) Trusts and Trustees 6, 7–8; see ch 1, sections II-VIII and sections I–II of this chapter. 51 That is, what was then known as a Prise à Rente, in which it states ‘et acceptant pour avoir tenir et garder en déput anglicé “In Trust” pour le bénéfice dudit fidéicommis à jamais’. 52 This is known in Guernsey as a bond. 53 Loi relative à l’Acquisition de Propriété Immobilière en cette ile par des Etrangers ou par des Sociétés Etrangères, Ordres en Conseil, vol IV (1905) 21. 54 Thompson v Le Patourel (January 1922) Judgments 236. 55 Inheritance Law, 2011, s 1(2). 56 Re Norman Francis Davis (deceased) (Royal Court, 14 August 1962). 57 Inheritance Law 2011, s 1(1), (4).
Express Private Trusts of Land 25 real property; and the only interests that might be left in respect of that realty were either absolute or for life. In Re Davis, the testator executed a will outside Guernsey dealing with both his real and personal property in Guernsey. On his death he left both a widow and legitimate and illegitimate descendants. The deceased left only Guernsey real property, and the will contained one pecuniary legacy and a trust, so that one individual could enjoy the income during his lifetime and two others could take equal shares absolutely thereafter. A ‘consultation de barreau’ was held, whereby all practising advocates, whether or not directly involved, were asked for their opinion.58 Having heard from the Bar, the Royal Court decided that: (a) the testamentary capacity of the testator was limited to the extent of the provisions of the Inheritance Law 1954, but not otherwise; (b) the Inheritance Law 1954 applied so as to preclude the creation of a trust of real property; (c) the will was to be construed so as to give effect to the presumed intention of the testator, so that the realty should devolve to N and J (the individuals entitled to the remainder) in equal shares absolutely, subject to the ‘jouissance’ (enjoyment) of T (the individual entitled to the life interest); and (d) the pecuniary legacy of G (an individual granted a specific pecuniary legacy that would have had to have been taken from the real property) failed. The result was that when a person had descendants – and this continues to apply to wills executed before 2 April 2012 – he or she had to follow the Inheritance Law 1954,59 which precluded trusts of real property left by will. If a person did not have descendants, a form of trust was acceptable, perhaps based on a variation of what was deemed valid in relation to Jurat Bishop’s will. In that case, a devise of the testator’s real estate was made to the executors of his or her personal estate, with instructions to employ the proceeds of the real estate along the lines of the will of personalty, which could include a trust. Note also, in Re Tardif60 it was held that a condition restraining alienation of real property was repugnant to an estate ‘en fin et perpétuité d’heritage’, that is, the normal form of absolute ownership in Guernsey law.
58 It is thought to be the last occasion on which this happened. 59 The relevant provisions (ss 3–4) were repealed, with effect from 2 April 2012, by the Inheritance Law 2011. 60 Re Tardif 13 GLJ 78 (9 May 1953); it was also stated obiter that the English rule against perpetuities did not apply in Guernsey as such; the court did not feel able to lay down a general rule as to the extent to which a restraint on alienation is or is not within public policy; it has since been clarified (in Mercator v Chrisalis (Royal Court, 25 April 2014)) that there was no restriction on the duration of a Guernsey law trust prior to the Trusts Law 1989: see ch 5, section V.
26 Express Trusts
V. Charitable Trusts A. Historical Background The Royal Court has administered various charitable funds since the Bien de la Court Fund of 1588,61 which was set up out of charity to relieve the poor and those in need, especially those connected with Guernsey. It had objects such as the relief of poor prisoners and the shipwrecked, and the education of poor young children. In 1849 the Sir William Collings Fund62 was created for the relief of natives or those who had resided in Guernsey for at least seven years and who, for whatever reason, needed financial assistance. The Victoria Fund was set up in 1897,63 again to provide general assistance. In 1627 a bequest64 was made by a benefactor, Thomas de Lisle, to enable the States of Guernsey to build and administer a prison. That same will also created a trust for the training of clergymen. In 2003 these funds, together with funds created in the twentieth century, were rationalised by statute.65
B. Report of the Commissioners The holding of land in Guernsey by charities has been long established. Thus, on 20 March 1860, Advocate Peter Jeremie, who had been in practice in Guernsey for many years, and indeed had written on the Guernsey law of inheritance,66 gave evidence to Commissioners enquiring into Jersey’s civil, municipal and ecclesiastical law.67 The relevant passages are: 14,206 Still you have a great many places of religious worship, or proprietary chapels? – Yes. 14,207 … Those chapels were bought in the name of some persons, I suppose? – Yes. 14,208 … They are protected from such debts [ie of those in whose name chapels are bought] by being held by A. B. and C. as trustees for a certain church or religious society, the denomination of which is mentioned in the deed.68 … 14,217 … I do not think that [ie a piece of land on which to build a chapel] could be seized for the private debts of the three, if the deed stated that they held it in trust for a church …
61 See Robilliard, ‘Foundations of Guernsey as a Trust Jurisdiction’ (n 41) 6. 62 ibid. 63 ibid. 64 ibid 7. 65 The Royal Court (Charitable Funds) (Guernsey) Law, 2003. 66 Jeremie, An Essay on the Laws of Real Property in Guernsey (n 8) and On the Law of Real Property in Guernsey (n 9). 67 Report of the Commissioners appointed to enquire into the Civil, Municipal and Ecclesiastical Laws of the Islands of Jersey (1861). 68 ibid, Minutes of Evidence, 679.
Charitable Trusts 27 14,224 Otherwise persons who dealt with A. B. and C. in future might suppose it were their own? – The presumption would be against A. B. and C. if something specific were not stated; you must show that they held for others; and this must be clearly put in the contract. 14,225 [On the issue of enforcement] would it be considered in the way of a covenant or of a trust … ? … I may say the nature of the contract would be looked to, and that the object to which the property was to be devoted, and would be looked upon rather as a trust than a covenant. 14,226 Would the court have jurisdiction to compel the observance of it? – Yes, because it is real property in the origin. 14,227 [On being questioned on how the court would act if the owners tried to divert the property to their own use] … that would be at the risk, the moment the contract was registered, of the purchaser, because the right is vested in the congregation. 14,228 How do you conceive the congregation could enforce this right …? They could name some parties on their behalf to action A. B. and C.69
Jeremie went on to say it was the same for a water company, where A, B and C fraudulently convey a piece of land to a purchaser (thus possibly envisaging a private trust). However, it was not fully clear if the owner could get the land back or just compensation, if the land was misappropriated.70
C. Orders in Council Governing Charitable Trusts of Land Jeremie clearly recognised that land could be held on trust for a religious congregation. However, there has been no particular statute for the governance of such trusts; instead there are particular Orders in Council, such as: (a) a law dealing with the Sark Methodist Church;71 and (b) laws for ‘new’ churches for the Church of England.72 Jeremie recognised that there could be trusts of land for purposes other than religion. However, his waterworks example, mentioned to the Commissioners in 1860 and considered in section V.B, is a somewhat obscure one. It could, perhaps, be taken in the following three ways: (a) the provision of water is for the public benefit, which is clearly charitable, except that Jeremie had a private company in mind; 69 ibid, Minutes of Evidence, 680. 70 ibid, Minutes of Evidence, para 14,231. 71 Orders in Council, vol VII (1924) 301. There is a somewhat odd history to this particular law: see PR Collas, ‘Hypothèque – a Sark Curiosity’ (1986) 3 GLJ 31. The owner of La Ville Roussel in Sark secured a Methodist chapel on his tenement by way of a hypothèque. This was successfully challenged in the Sark Court in 1839 on the grounds that under the Letters Patent of 1611 (which are still in force), one cannot encumber real property in Sark. 72 See, eg, Eglise St Etienne, Orders in Council, vol 1 (1865) 415, for a conveyance to the Rector of St Peter Port and his successors; and Orders in Council, vol 3 (1897) 85, dealing with the same chapel and permitting investment in wheat rentes, a type of real property under Guernsey law in the form of a (redeemable) charge.
28 Express Trusts (b) a private company can be a beneficiary of a private trust; or (c) one can have a purpose trust and it need not necessarily be charitable. The nineteenth-century ‘Ordres en Conseil’ provide examples of: (a) trusts of schools, such as Elizabeth College in Guernsey73 or the school of Alderney;74 or (b) lands being held on behalf of the poor inhabitants. Those in the Parish of the Vale benefited from arrangements originally made in 1789 and regulated in 1864.75 Not surprisingly, the twentieth century saw numerous examples of such trusts of land being regulated by express statute, including: • the Country Hospital Charitable Fund Law, 1958; • the Central Hall (Variation of Trusts) (Guernsey) Law, 1968 (covering gifts of realty for schools and educational purposes from the early 1800s); • the King George the Fifth Memorial Playing Field Trust (Guernsey) Law, 1985; • the Saint Sampson’s Church Institute (Variation of Trusts) (Guernsey) Law, 1986; • the Saint Stephen’s Church and School Law, 1987; and • the Saint Peter’s Church Hall (Trust) (Guernsey) Law, 1989.
D. Registration of Charities and Non-Profit Organisations Guernsey has a considerable number of local charities.76 Any non-profit organisation that is based in Guernsey, Alderney, Herm or Jethou and which has either (i) gross assets and funds of £10,000 or more, or (ii) gross annual income of £5,000 or more, except those which are administered, controlled or operated by a person licensed by the Guernsey Financial Services Commission (GFSC),77 must apply to the Registrar of Non-Profit Organisations for entry on the Register. Any non-profit organisation based in Guernsey, Alderney, Herm or Jethou (other than those that must register) may register voluntarily.78 73 Statutes for the Government of Elizabeth College, Orders in Council, vol 1 (1852) 215, see statute 29. 74 Orders in Council, vol 1 (1862) 364; s 4 stated that all property, other than the school buildings, were to be vested in the directors as trustees for the school. 75 La Commune des Landes et de la Rocque au Coucou, Orders in Council, vol 1 (1864) 389. 76 See http://www.charity.org.gg, the website for the Association of Guernsey Charities; and http:// www.guernseyregistry.com/charities, the official register maintained by the Registrar of Non Profit Organisations. 77 Provided the licensed person administers, controls or operates the non-profit organisation in the course of their regulated activities; the Charities and Non Profit Organisations (Registration) (Guernsey) Law, 2008, s 12(1), under ‘manumitted organisation’. 78 The Charities and Non Profit Organisations (Registration) (Guernsey) Law, sch 1, para 2(1).
Charitable Trusts 29 For these purposes, a ‘non-profit organisation’ is any organisation established solely or principally either for the non-financial benefit of its members or for the benefit of society or any class or part of society and, without limitation, includes any organisation established solely or principally for social, fraternal, educational, cultural or religious purposes, or for the carrying out of any other types of good works, and includes a charity.79
And ‘based in’ a place means ‘established, administered [or controlled in], or operating from or from within, that place’. As to the tax status, see chapter 4, section IV.
E. Meaning of ‘Charity’ In the Charities and Non Profit Organisations (Registration) (Guernsey) Law, 2008,80 ‘charity’ is defined as meaning: (a) … any organisation established for charitable purposes only, (b) where any property or fund the income whereof is applicable to charitable purposes only is entrusted to any person, means in relation to that property or fund and the income thereof, that person.
There is no express definition of ‘charitable’ in the Charities and Non Profit Organisations (Registration) (Guernsey) Law, 2008, the Trusts Law 2007 or the Income Tax (Guernsey) Law, 1975 – albeit all of them make use of this term. The definition of ‘non-profit organisation’ is wider than that of a ‘charity’, as all charities will qualify as non-profit organisations but not all non-profit organisations will qualify as charities. The definition of ‘non-profit organisation’81 includes an organisation: for the benefit of society or any class or part of society and without limitation, includes any organisation established solely or principally for social, fraternal, educational, cultural or religious purposes or for the carrying out of any other types of good works …
For these purposes, ‘organisation’ includes ‘a body of persons (corporate or unincorporate), a trust, any other legal entity, any equivalent or similar structure or arrangement’.82 Clearly, there is a great deal of overlap with the concept of charity under English law, and it can be expected that the courts in Guernsey would have regard to the common law position in England before the introduction of the Charities Act 2006.
79 ibid,
s 12(1).
81 ibid;
see also section V.D. and Non Profit Organisations (Registration) (Guernsey) Law, 2008, s 12(1).
80 ibid.
82 Charities
30 Express Trusts
F. Recognition of Charitable Status There have been very few cases in Guernsey on the meaning of ‘charity’. One such case, which was heard before the Register was established, is Insinger Trust (Guernsey) Limited,83 which went to the Guernsey Court of Appeal. It concerned the FDS Charitable Trust, whose object was ‘the advancement of education and research in any or all of the fields of medicine, ecology and pharmaceutics’. The charity had applied to the Royal Court for a declaration that it was a validly constituted charitable trust under Guernsey law, due to the fact that, at the time, the only other official ruling it could obtain was from the Guernsey Income Tax Authority. The charity needed something more ‘official’ to satisfy authorities in Russia. The Court of Appeal held that the Royal Court did have jurisdiction to grant a declaration as to the trust’s charitable status. It said that the Royal Court would have been able to grant such a declaration under the customary law before the Trusts Law 1989 came into force, and that it had a like power under that statute (section 63(1)).84 Whilst not giving a definition of ‘charitable’ under Guernsey law, Southwell JA declared that ‘The FDS Charitable Trust is a validly constituted charitable trust under the laws of the Island of Guernsey.’85 Southwell JA further declared: The objects of the FDS Charitable Trust are those of a non-commercial, non-profit organisation having the charitable purpose of the advancement of education and research in the fields of medicine, ecology and pharmaceutics.86
Finally, the Court of Appeal made clear that HM Procureur should be notified of applications of this kind concerning charities. It was noted that HM Procureur had written to the Court of Appeal in this case in order to indicate his support for Insinger’s application for the declaration and for its appeal.
G. Application of the Trusts Law 2007 to Charities The Trusts Law 2007 is generally applicable to charitable trusts in the same way as it is to other trusts, subject to the following specific provisions: (a) a charitable trust does not have to have an identified or ascertainable beneficiary;87 (b) the rights of beneficiaries to receive trust information are expressly applicable to a ‘charity named in the trust’;88 and (c) the duty of impartiality, subject to the terms of the trust, is equally applicable when considering charitable purposes.89
83 Insinger
Trust (Guernsey) Limited 27 GLJ 147 (10 June 1999). the Trusts Law 2007, s 69(1). 85 Insinger Trust (Guernsey) Limited (n 74) at 133A. 86 ibid. 87 Trusts Law 2007, ss 1(b) and 11(2)(c). 88 Trusts Law 2007, s 26(1)(b)(i). 89 Trusts Law 2007, s 29(1). 84 Now
Charitable Trusts 31
H. Cy-près There is also statutory enactment of the cy-près doctrine, so if a charitable purpose90 has failed, the Guernsey Court can allocate trust property to a similar purpose.91 This is contrary to the position in a private trust: in that case, if the beneficial objects fail, there cannot be such a variation of the trust’s provisions.92 The Court has cy-près jurisdiction under section 59 of the Trusts Law 2007 where: (a) the purpose has been, as far as may be, fulfilled, (b) the purpose cannot be carried out, or not according to the directions given and to the spirit of the gift, (c) the purpose provides a use for part only of the property, (d) the property, and other property applicable for a similar purpose, can be more effectively used in conjunction, and to that end can suitably, regard being had to the spirit of the gift, be applied to a common purpose, (e) the purpose was laid down by reference to – (i) an area which was then, but has since ceased to be, a unit for some other purpose, or (ii) a class of persons or to an area which has for any reason since ceased to be – (A) suitable, or (B) practicable in administering the gift,
regard being had to the spirit of the gift,
(f) the purpose has been adequately provided for by other means, (g) the purpose has ceased to be charitable (by being useless or harmful to the community or otherwise), or (h) the purpose has ceased in any other way to provide a suitable and effective method of using the property, regard being had to the spirit of the gift …
In those circumstances the relevant property is held for such other purposes as the Royal Court declares to be consistent with the original intention of the settlor. In theory, the reformed purposes may be either charitable or non-charitable, but where the original trust is charitable, it is thought that there will normally be a presumption in favour of the reformed purposes being charitable, as that is more likely to be consistent with the original intention of the settlor. The application may be made by the trustees or by HM Procureur. In Re Moore (deceased),93 there was an attempt to apply the cy-près doctrine to a gift intended for a charity that did not exist. It was held that the doctrine was not part of Guernsey law.94 Section 59 effectively reverses this decision. Thus, if 90 Similar principles also apply to non-charitable purpose trusts, as to which, see section VI.J of this chapter. 91 Trusts Law 2007, s 59. 92 Other than pursuant to the variation of trusts jurisdiction, as to which, see ch 14, section IV. 93 Re Moore (deceased) (n 40). 94 Contrast the position under Jersey law: Brown, Jersey Law of Trusts, 4th edn (n 15) paras 17-19 to 17-27.
32 Express Trusts the Re Moore case were heard today, it would be possible to dedicate the gift to a similar charitable purpose. In that case, the gift in question was to the ‘Guernsey Children’s Aid Society’. The Guernsey Court could now order that such a gift should go to another Guernsey children’s charity, or, alternatively, it could order the creation of a new one.95
I. Variation or Revocation of a Charitable Trust In addition to the statutory cy-près jurisdiction, the Royal Court has power, on the application of the trustees or HM Procureur,96 to approve any arrangement that varies or revokes the purposes of a trust with a charitable purpose, or that enlarges or modifies the powers of management or administration.97 Under section 60, the Court needs to be satisfied that the arrangement is ‘suitable or expedient’ and ‘is consistent with the original intention of the settlor and the spirit of the gift’. The Court may dispense with the requirement that the arrangement is consistent with the settlor’s original intention if satisfied that it cannot be ascertained.98 It seems it cannot dispense with the equivalent requirement under the cy-près jurisdiction, however. The Court must be satisfied that anyone with ‘a material interest in the trust’ has had an opportunity of being heard.99
i. In the Matter of the Foster Will Trust The predecessor to section 60100 was considered by the Royal Court in a 2003 case, In the matter of the Foster Will Trust.101 A residuary estate was bequeathed to the Rector and Churchwardens of the Town Church, as trustees of the Town Church, to be used by them in their absolute discretion for the repair, maintenance and improvement of the Town Church giving priority when necessary if they shall so think fit, to the bell tower and bells when and if they shall be in need of attention. Much of this work was provided for from other sources and the monies were not needed for these specified purposes. The Court held that the bequest was ‘restricted to being one in regard to repair maintenance and improvement of the church building’.102
95 For an example of a cy-près application involving a small sum, see In the Matter of the Stanley Sidney Dawes Will Trust (Royal Court, 7 December 2000). 96 Trusts Law 2007, s 60. 97 Similar principles also apply to non-charitable purposes, as to which see section VI.J of this chapter. 98 Trusts Law 2007, s 60(2). 99 Trusts Law 2007, s 60(3). 100 Trusts Law 1989, s 55. 101 In the matter of the Foster Will Trust (Royal Court, 22 July 2003). 102 ibid.
Purpose Trusts 33 With regard to the power under section 55 of the Trusts Law 1989,103 which the Court noted was a ‘wide one’, the Bailiff said as follows: It is important that the original wishes of testators and givers of funds for charitable and other purposes do not find that their original intentions are set aside capriciously or without due cause. … Giving a substantial part of one’s estate to a purpose such as this was a matter upon which professional advice was required … Preferably [the testatrix’s adviser should have advised her] … to take the then representatives of the Town Church into her confidence and discuss the appropriate wording for any bequest, which would have probably been far wider than the narrow one drafted …104
As a result of this, the Court approved the use of some of the funds for improvements to the rectory.
VI. Purpose Trusts Since 17 March 2008,105 it has been possible to establish a valid and enforceable non-charitable purpose trust (a ‘purpose trust’) under Guernsey law, if the terms of the trust provide for the appointment of an enforcer in relation to the noncharitable purposes and a new enforcer ‘at any time when there is none’.106
A. Requirements for Enforcers The settlor can be an enforcer, as can a corporation,107 but a trustee cannot.108 It is thought that more than one enforcer can be appointed: the requirement is satisfied if there is ‘an’ enforcer; the appointment of additional enforcers does not affect that; and the presumption is that the singular includes the plural, as a matter of statutory interpretation.109 However, section 12(9) of the Trusts Law 2007 refers to ‘the enforcer’, which seems to suggest the opposite, so the position is not free from doubt. On the face of it, it is only necessary to provide for the appointment of a new enforcer at any time when there is no enforcer at all, but there may be an argument that there is no enforcer for these purposes if the enforcer is incapable of acting or refusing to act. What does ‘at any time’ mean? It is not possible to guarantee that there is always an enforcer; any provision is capable of failing, however unlikely it may be. It is
103 The
precursor to Trusts Law 2007, s 60. the matter of the Foster Will Trust (n 91). 105 When the Trusts Law 2007 came into force. 106 Trusts Law 2007, s 12(1). 107 Trusts Law 2007, s 12(10). 108 The appointment of a trustee as enforcer is of no effect: Trusts Law 2007, s 12(3). 109 Interpretation (Guernsey) Law, 1948, s 1(b). 104 In
34 Express Trusts thought that it means that an enforcer is capable of being appointed in principle whenever there is no enforcer. On that basis, a general power conferred on a protector to appoint an enforcer whenever there is no enforcer (or the enforcer is incapable of acting, or refusing to act) would suffice, but a power that was only exercisable on the enforcer’s death may not qualify.110
B. Validity of Purposes A ‘purpose’ need not confer any benefit on any person, and includes ‘the holding or ownership of any property and the exercise of any function’.111 The question of whether ‘holding’ property can be a valid purpose has been the source of much debate in legal journals, which no doubt led to the enactment of this definition in the Trusts Law 2007. As one of the authors has discussed elsewhere,112 the issue is not so much whether such a purpose is valid, but that there is no indication as to how the trustees should exercise their powers as holder of the relevant property. What duties does the trustee (or other officeholders) have in relation to those powers? Care therefore needs to be taken in drafting purpose trusts in those circumstances, to ensure that those questions are adequately answered. If it is not possible to answer them, there must be a risk that the purpose would fail for uncertainty, on the ground that the court cannot execute the trust.113 Similar issues are likely to arise in relation to a trust for the purpose of exercising other ‘functions’.114
C. Requirement for Certainty There is no express requirement of certainty to be met in order for the purposes to be valid, but a Guernsey trust will be invalid and unenforceable in any of the circumstances specified in section 11(2) of the Trusts Law 2007.115 It will therefore be invalid and unenforceable to the extent the purposes are contrary to Guernsey law, immoral or contrary to public policy, or insufficiently certain.116
110 There are similar provisions under British Virgin Islands (BVI) law: see J Kessler, T Pursall and N Chand, Drafting British Virgin Islands Trusts, 1st edn (Sweet & Maxwell, 2014) at 20.1. 111 Trusts Law 2007, s 80(1). 112 T Pursall and R Grasby, ‘Traps for the Unwary – A look at STAR and VISTA trusts’ STEP Journal (March 2010); see also J Kessler and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) at 17.5. 113 Trusts Law 2007, s 11(1)(d)(iii); see ch 5, section VI.F. 114 ‘Functions’ includes ‘rights, powers, discretions, obligations, liabilities and duties’; Trusts Law 2007, s 80(1). 115 See ch 5, section VI. 116 See ch 5, section VI.F.
Purpose Trusts 35 As to certainty, the test is that the terms of the trust are not ‘so uncertain that its performance is rendered impossible’. It is not clear whether this is the same test as the common law test: As it is a maxim that the execution of the trust shall be under the control of the court, it must be of such a nature as to be under that control; so that the administration of it can be reviewed by the court or if the trustee dies, the court itself can execute the trust: a trust therefore, which, in case of maladministration could be reformed; and due administration directed; and then, unless the subject and the objects can be ascertained, upon principles familiar in other cases, it must be decided that the court can neither reform maladministration or direct a due administration.117
In other words, the court must be able to assess whether the trust has been properly executed and, if necessary, it must also be able to execute it itself. It is not clear whether that requirement has been replaced by the statutory test: the Trusts Law is not a codification but may modify principles of English trust law.118 It was held in the Spread Trustee case119 that the provisions dealing with disclosure of information were in addition to, and did not replace, the English rules. It is arguable that they have replaced the English rules, but the contrary argument is that the English rules were predicated on the principle – indeed, ‘perhaps the most fundamental principle of trust law’120 – that a trust must be controllable by the court. If the statutory test means something different and presumably more flexible, it may create difficulties if it is not subject to control by the court in that way. Of course, the courts may decide that some lesser degree of control is sufficient, and we shall have to wait for the courts to resolve this point, but it is submitted that the better view is that the English rules on certainty of objects apply to Guernsey purpose trusts.121 If that is correct, the statutory test must, it is thought, be construed so as to be consistent with the common law test, otherwise it would create a potential gap.
D. Trustee’s Obligations If there is no enforcer in relation to the non-charitable purposes, the trustee must take ‘such steps as may be necessary to secure the appointment of an enforcer’.122
117 Morice v The Bishop of Durham [1803-13] All ER 451, 458; for a useful discussion of the English case law on this point, see A Duckworth, STAR Trusts (Gostick Hall Publications, 1998) 20–41. 118 Spread Trustee Company Limited v Hutcheson [2011] UKPC 13. 119 ibid; see ch 9, section XI. 120 Duckworth, STAR Trusts (n 107) 37. 121 That view is supported by J Kessler and P Matthams, Drafting Trusts and Will Trusts in the Channel Islands, 2nd edn (Sweet & Maxwell, 2013) at 18.5. 122 Trusts Law 2007, s 12(8).
36 Express Trusts If the trustee has reason to believe that the enforcer: (a) is unwilling or is refusing to act, (b) is bankrupt or otherwise unfit to act, (c) is incapable of acting …
it has an obligation to apply to court to remove the enforcer and appoint a replacement.123 While it does not say so expressly, if the problem can be resolved under the terms of the trust, for example, by the removal of the enforcer and appointment of a replacement by someone who has been validly appointed for that purpose, it is thought that it would normally be inappropriate for the trustee to apply to the court. Of course if there is any reasonable doubt about the validity of the exercise of the powers of removal and appointment, for example if those powers only arise if the current enforcer is incapable of acting and that is in dispute, the trustee would normally be justified in applying to court. That application is more likely to be under section 68124 or section 69 of the Trusts Law 2007.125
E. Replacement Enforcer It is prudent to ensure that the trust provides for the appointment of a replacement enforcer in each of the circumstances specified in section 12(9) of the Trusts Law 2007. While it is not thought that the trust would fail, it avoids that argument being raised and minimises the risk that an application to court will become necessary. There is no statutory requirement for the enforcer to be a party to the trust instrument or to consent in writing,126 but again, it would be prudent to ensure that this is also done: certainly the enforcer cannot be appointed without consent, as the office carries fiduciary duties with it.127
F. Resignation of Enforcer An enforcer may resign by delivering a written notice of resignation to the trustees,128 which takes effect on delivery, or such later date or event specified in the notice.129 However, a resignation that is given in order to facilitate a breach of trust or a breach of the enforcer’s fiduciary duty is of no effect.130 123 Trusts Law 2007, s 12(9). 124 See ch 12, section II.A. 125 See ch 12, section III.A. 126 Compare the position under BVI law, for example: see Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 110) para 20.1. 127 See section VI.H. 128 Trusts Law 2007, s 12(4). 129 Trusts Law 2007, s 12(5). 130 Trusts Law 2007, s 12(6).
Purpose Trusts 37 These two rules are not expressly made subject to the terms of the trust, as a number of other provisions of the Trusts Law 2007 are, so it is thought that this cannot be varied. An enforcer will, however, cease to be an enforcer on ‘the coming into effect of a provision in the terms of the trust under or by which he is removed from office or otherwise ceases to hold office’,131 so it is possible to provide for other forms of resignation, but the statutory method cannot be excluded in the trust. It is therefore good practice for the trust instrument to follow the wording of the statute to avoid any doubt on this point.
G. Enforcer Otherwise Ceasing to be Enforcer An enforcer immediately ceases to be an enforcer on: (a) his removal from office by the Royal Court, (b) his resignation becoming effective, (c) the coming into effect of a provision in the terms of the trust under or by which he is removed from office or otherwise ceases to hold office, or (d) his appointment as a trustee of the trust …132
H. Enforcer’s Rights, Powers and Duties An enforcer has a fiduciary duty to enforce the trust in relation to the trust’s noncharitable purposes,133 and has standing to make applications to the court in relation to the non-charitable purposes.134 An enforcer is entitled to be paid his or her proper expenses by the trustee from the trust fund.135 A trustee must provide an enforcer, on written request and at all reasonable times, with ‘full and accurate information as to the state and amount of the trust property’.136 As these rights to information are limited, consideration should be given to conferring additional rights on the enforcer, appropriate to his or her functions under the trust. Questions remain about what exactly it means to have a ‘duty to enforce the trust’. It is a fiduciary office so the enforcer must in normal circumstances be proactive, but the level of involvement and degree to which he or she must be so will depend on the circumstances. It is submitted that an appropriate test would be to apply the ‘en bon père de famille’ test, or the ‘prudent person of business’ test.
131 Trusts
Law 2007, s 12(7)(c). Law 2007, s 12(7). 133 Trusts Law 2007, s 12(2). 134 Trusts Law 2007, s 69(2). As to the orders which the court may make, see ch 12, section III.B. 135 Trusts Law 2007, s 13(2). 136 Trusts Law 2007, s 26(1). 132 Trusts
38 Express Trusts In other words, an enforcer must ensure that he or she takes the steps that a prudent person of business would take in order to protect the interests of persons for whom he or she feels morally obliged to provide. That includes ensuring adequate and regular flows of information. The duty to enforce includes the enforcement of duties imposed on other trust officials, such as protectors. That is clearly part of ‘the trust’, which is defined widely to include ‘the functions, interests and relationships under a trust’,137 ‘functions’ including ‘rights, powers, discretions, obligations, liabilities and duties’.138 That creates an obvious conflict between the two roles, so it is better if the enforcer (certainly if there is only one enforcer) is not also a protector.139
I. Enforcer’s Duty not to Profit Enforcers have statutory duties not to profit from their appointment, and not to cause or permit any other person to derive any such profit.140 In addition, they must not to enter into any transactions on their own account that may result in any such profit, unless authorised by the Trusts Law, the Court or the terms of the trust.141
J. Cy-près and Power to Vary The Royal Court’s cy-près jurisdiction142 also applies to non-charitable purpose trusts, with two differences: (i) section 59(g) of the Trusts Law 2007 (where the purposes have ceased to be charitable) does not apply; and (ii) under section 59(iii) the enforcer also has standing to apply to the court. The Court’s powers to approve an arrangement to vary or revoke the purposes, or to enlarge or modify the management or administrative powers143 also apply, although the enforcer does not have standing to apply to the Court under this jurisdiction.144 In practice, the enforcer may indirectly be able to ensure that such proceedings are brought before the Court, if he or she feels that the trustee ought to be doing so and is in dereliction of its duties. That could be done by making an application for an order ‘as to the exercise by a trustee of its functions’.145 137 Trusts Law 2007, s 80(1). 138 Trusts Law 2007, s 80(1). 139 See Pursall and Grasby, ‘Traps for the Unwary’ (n 102) (the article deals with Cayman and BVI trusts but the same principles apply). 140 Trusts Law 2007, ss 13(1)(a) and (b). This closely follows the equivalent provision for trustees, as to which, see ch 8, section I.D. 141 Trusts Law 2007, s 13(1)(c). 142 See section V.H. 143 See section V.I. 144 This appears to have been as a result of s 54 of the Trusts Law 1989 not being updated to reflect the introduction of enforcers when it was incorporated as s 60 of the Trusts Law 2007. 145 Trusts Law 2007, s 69(1)(ii); see also ch 12, section III.
Unit Trusts 39
VII. Employee Benefit Trusts There is no specific mention of employee benefit trusts in the Trusts Law 2007, so general trust law principles will apply. Guernsey trusts are often used for this purpose. The taxation of employee benefit trusts is dealt with in chapter 4 of this volume.146
VIII. Unit Trusts A unit trust147 must be created by an instrument in writing.148 For these purposes, a ‘unit trust’ is a trust established for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust in any profits or incoming [sic] arising from the acquisition, holding, management or disposal of property.149
Other than that, usual trust law principles will apply, although there are additional regulatory requirements, detailed discussion of which is outside the scope of this book.
146 See
ch 4, section V. to the taxation of unit trusts, see ch 4, section VI. 148 Trusts Law 2007, s 6(2); see ch 5, section IV. 149 Trusts Law 2007, s 80(1). 147 As
3 Trusts Arising by Operation of Law I. Introduction It is clear that implied, resulting and constructive trusts are part of Guernsey law: the Trusts Law 2007 expressly provides that the requirement for an instrument in writing to create a trust of Guernsey land does not apply to those types of trusts arising by operation of law.1 The Conveyancing (Guernsey) Law 1996 provides that nothing in the Law affects implied, resulting or constructive trusts.2 The Trusts Law also provides expressly for a resulting trust: where a trust is found to be invalid, the property ‘as to which the trust is invalid shall … be held by the trustees on trust for the settlor absolutely’.3 Similarly, under section 52 of the Trusts Law 2007, where: (a) an interest lapses, (b) a trust terminates, (c) there is no beneficiary and no person who can become a beneficiary in accordance with the terms of the trust, or (d) property is vested in a person otherwise than for his sole benefit, but the trusts on which he is to hold the property are not declared or communicated to him …
The relevant property is held on trust ‘for the settlor absolutely or, if he is dead, for his personal representative’.4
II. Constructive Trusts of Personalty In the 1980s, the Royal Court recognised the concept of the constructive trust in funds of personal property in two cases.5 In both cases, English legal principles were applied, and in light of the enactment of the Trusts Law 1989 and in the absence of any Guernsey authority to the contrary, it is thought that Guernsey law follows English law in this regard. 1 Trusts Law 2007, s 6(4); see also ch 5, section IV. 2 Conveyancing (Guernsey) Law, 1996, s 1(5). 3 In other words, there is a resulting trust for the settlor; Trusts Law 2007, s 11(5). 4 This is subject to the terms of the trust and to any order of the Royal Court. 5 CK Consultants (Plastics) Limited v Vines, Barnett Christie Finance Limited (Royal Court, 8 February 1982); Beachcomber Hotels Ltd v The Beaucette Yacht Marina (Guernsey) Ltd) 7 GLJ 82 (21 April 1989).
Constructive Trusts of Land 41
III. Liability as a Constructive Trustee The Trusts Law 2007 provides: A person who derives a profit from a breach of trust, or who obtains property in breach of trust, shall be deemed to be a trustee of the profit or property unless he derives or obtains it in good faith without notice of the breach of trust.6
A person who becomes a trustee as a result ‘shall deliver up the profit or property to the person properly entitled to it’.7 This is not a constructive trust in the strict sense of the term, but rather a situation in which equity compels a claimant to pay compensation.8
IV. Constructive Trusts of Land A. Before the Trusts Law 2007 The position regarding constructive trusts of land in Guernsey is less clear, at least before the enactment of the Trusts Law 2007. In Lloyd v Lloyd,9 Mr Lloyd brought an action against his daughter. He had advanced to her a sum of money to purchase a property in her name but for his benefit. In fact, without his knowledge, she had borrowed an additional sum to fund the purchase. He sought an order that she ‘pass contract by way of Deed of Gift’10 in order to pass the property to him. Counsel described her as ‘an agent and a trustee taking solely for the benefit of her principal’.11 The Bailiff, in his summing-up, directed the Jurats that ‘We have no means, certainly no procedure, which I know of, which would authorise us to order the Law Officers or Court Officials to make a transfer of this property in her name.’12 Counsel went on to state that such an order could be made in England under the English courts’ equitable jurisdiction, to which the Bailiff, in his summing-up, commented: Now we have been forced, to a certain extent, to accept some sort of equivalent jurisdiction in regard to trusts. We have no law on the subject (except that we have to 6 Trusts Law 2007, s 77(1). 7 Trusts Law 2007, s 77(2). 8 For a discussion of the two types of constructive trust, see L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) paras 7-010 (‘Classes of constructive trusts’) to 7-026 (‘Move towards recognition or remedial constructive trusts?’). The same distinction applies under Jersey law: Bagus Investments v Kastening [2010] JLR 355; it can have important consequences, such as in relation the application of limitation periods: this was the issue in Bagus (although the point was not decided as that was an interlocutory application), but see Williams v Central Bank of Nigeria [2014] UKSC 10. 9 Lloyd v Lloyd (Royal Court, 20 October 1956); followed in Spread Trustee Company Limited v Hutcheson and others [2009–10] GLR 403, 406. 10 Lloyd v Lloyd (n 9). 11 ibid. 12 ibid.
42 Trusts Arising by Operation of Law act ‘en bon père de famille’) and we have been compelled, in a very small number of instances, to adopt principles the like of those which have been long since adopted in the United Kingdom by the Courts of Equity, just because there was nothing else to be done. There was no other way of dealing with those matters, but, in this case, I think we are primarily and principally a Common Law Court and, in a Common Law Court, the ordinary remedy for deceit or whatever the wrong may be which is complained of, whether breach of contract or breach of trust, is damages.13
The Bailiff went on to say that to permit an order for specific performance, compelling the conveyance of the land to Mr Lloyd, would go against what had been decided in the Royal Court decision of Priaulx v Le Ray.14 In that case, the Guernsey Court decided it would not order specific performance of an undertaking to convey land. The Bailiff, in his summing-up in Lloyd v Lloyd, concluded: It does seem to me the true remedy is for damages for the misrepresentation which produced that assent [ie for the father to pay the purchase price of the property]. I think such a remedy would marry infinitely better with our system of law than the introduction for the first time of an equitable remedy which may, for all I know, if it is followed anyhow in its implications, play havoc with our insular conveyancing institution.15
Priaulx v Le Ray was unlikely to have been decided any other way with regard to specific performance, given what had been said by the Privy Council in Godfray v The Constables of the Island of Sark.16
B. Godfray In Godfray, Lord Davey, no doubt commenting on submissions that he had heard, stated: There is no Court which can decree specific performance of a private contract, or which administers the equities familiar to English lawyers arising out of part performance, acquiescence by the vendor in expenditure of money by the purchaser on the faith of the contract, or other similar equities. All this was admitted by counsel for the respondents …17
It is to be noted that in this unusual case, the Guernsey Royal Court was sitting at first instance on a Sark matter. There was no suggestion that Sark and Guernsey law were different with regard to the law to be applied. Indeed, the Deputy Bailiff in the CK Consultants case suggested that constructive trusts applied to land as well, and as there could not have been any order as
13 ibid.
14 Priaulx
v Le Ray, recorded in various parts of the official Court Registers between 1925 and 1931. v Lloyd (n 9). 16 Godfray v The Constables of the Island of Sark [1902] AC 534. 17 ibid 540. 15 Lloyd
Constructive Trusts of Land 43 sought in the Lloyd case, ‘the judgement was of limited application relating to the transfer of land where we have other and particular form [sic] of conveyancing’.18
C. Waterman v McCormack So, does the reasoning in Lloyd v Lloyd still stand? Waterman v McCormack19 deals with the nature of joint ownership in Guernsey land. At first instance, the Deputy Bailiff gave a lengthy judgment in 2001, which was reversed by a relatively brief judgment in the Guernsey Court of Appeal in 2002. The case at first instance canvassed a number of issues that the Guernsey Court of Appeal did not have to consider. At first instance, the question was raised as to whether the creation of joint ownership, either necessarily or potentially, creates a form of trust, such that one looked behind the ‘legal’ ownership of the joint owners to the interest that they might have beneficially. The Deputy Bailiff observed: A. … [T]his is a wholly new concept, as far as I am aware, in Guernsey law, and however desirable (or not) it might be considered to be, it is an area of law which is wholly unsuitable for judicial law making … The proposition … is one which would require lengthy and considered deliberation of all the potential issues, involved, starting, perhaps, with a full examination of all the great legislative reforms regarding real property introduced in England and Wales in the early part of the 20th century; questions of public policy would also undeniably be involved. All such matters must lie wholly within the province of the legislature.20
However, if there were a severance of the joint ownership, there might be cases where it would ‘be inequitable to allow one person to assert full beneficial ownership over property’.21 In other words, he was opening the door to the possibility of imposing a constructive trust, at that stage. The Deputy Bailiff referred to some of the relevant authorities on constructive trusts22 and went on to cite section 72(2) of the Trusts Law 1989, stating that it implicitly recognised trusts of real property.23 He said: (… All that sub-section [ie section 72(2)] states is that the Law, with the exception of the stated sections, does not apply to trusts of real property. No inference can be drawn as to the validity of trusts of real property – indeed the excepted sections indicate an opposite conclusion). 18 CK Consultants (Plastics) Limited v Vines, Barnett Christie Finance Limited (n 5). 19 Waterman v McCormack (CA, 20 May 2002) (Judgment 3/2002). 20 Selwood v Madeley; McCormack v Waterman (Royal Court, 19 December 2001) 36A–B. 21 ibid. 22 ibid 37A–C. They were J Gallienne, Traité de la Renonciation par Loi Outrée et de la Garantie (Barbet, 1845) 104; the Saisie Procedure (Simplification) (Bailiwick) Order, 1952 (ORC 3/1952), para 2(3); Beachcomber Hotels Ltd v The Beaucette Yacht Marina (Guernsey) Limited (n 5); CK Consultants (Plastics) Limited v Vines, Barnett Christie Finance Limited (n 5) (Deputy Bailiff ’s summing-up); and some of the various Orders in Council dealing with specific trusts. 23 Selwood v Madeley; McCormack v Waterman (n 20) 37D–E.
44 Trusts Arising by Operation of Law Then came what might be termed the Lloyd v Lloyd question, although that authority is not referred to in the Deputy Bailiff ’s judgment, that is, ‘whether the existence of that trust, and therefore the existence both of legal and beneficial interests, needs to be expressly stated in a document of title’. He concluded that remedies based on equitable principles must be provided for all persons for whom a property is specifically held in trust by another, or those representing the purposes for which such property is being held, and whether such relationship is created statutorily or otherwise. The availability of such remedies would, in principle, be equally recognised, I have no doubt, even where the terms of any such relationship or trust creating beneficial interests are not specifically stated in a document registered on the public records … [O]nce it is recognised that both legal and beneficial interests may separately exist, then their establishment by a document on the public records is not of the essence …24
All of this is obiter, as at that stage it was not concluded that there was any constructive trust situation.25 The case went to the Guernsey Court of Appeal,26 which reversed the Deputy Bailiff ’s judgment, in which he had held that when real property was conveyed to parties jointly and to the survivor of them, and their ownership was severed, there was a rebuttable presumption of equality between the parties. In his view, this presumption would be rebuttable by the application of equitable principles that a joint ownership will result in a 50:50 division, unless the conveyance itself provides otherwise. Bailhache JA, in the Court of Appeal, stated: Conveyancing practice has evolved and a jurisprudence, even if limited, has developed. While it is, of course, permissible to refer to other systems of law where inspiration has been drawn from such systems over a period of time, the assistance to be gained may be limited.27
In reaching its determination, the Court of Appeal noted that the decision of the Deputy Bailiff was contrary to two cases decided in 198228 and 1996,29 and Bailhache JA went on to note as follows: These two decisions of the Royal Court are important, particularly in a small jurisdiction where precedents are few, because legal practitioners will no doubt have advised their clients accordingly and the public will have relied on the decision.30
24 ibid 52A–D. 25 ibid 52E–F. The Deputy Bailiff said ‘[a]ll I am doing is to open the door to either (or any) of the parties’. 26 Waterman v McCormack (Guernsey Court of Appeal, April 2002). 27 ibid 9. 28 Carpenter v Field Aviation Limited (Guernsey Royal Court, 11 January 1982). 29 Barclays Bank Plc v Curry and Curry intervening (Guernsey Royal Court, 18 September 1996). 30 Waterman v McCormack (Guernsey Court of Appeal, April 2002) 14.
Constructive Trusts of Land 45 The Court of Appeal was of the view that there was much to be said for certainty and concluded, with regard to jointly-owned property, that in the event of a severance of joint ownership, the parties are entitled to the property, or to the proceeds of sale of the property, in equal shares. The proviso is that there seems to us no reason in principle why the parties to a conveyance into joint ownership should not, if they so wish, make different provision for the sharing of the property or the proceeds of sale in the event of severance. Such provision would obviously be included in the habendum. We leave open the question whether a private arrangement outside the conveyance could validly be made to the same effect.31
Clearly this is a decision in the tradition of Lloyd v Lloyd.32 However, some nine months later, in a differently constituted Guernsey Court of Appeal, Rokison JA in Roger v Roger,33 a case that sprang out of an eviction, stated as follows: In the end [the Respondent’s] case was put fairly and squarely on the application of the doctrine of proprietary estoppel. So far as the law is concerned, the Learned Bailiff in his summing up said that this was, so far as this jurisdiction is concerned, a ‘novel form of action’, but, rightly in our view, did not direct the Jurats to the effect that proprietary estoppel was not known to Guernsey law. Guernsey law has, as we understand it, generally followed and applied English equitable principles in appropriate cases, and we see no reason to exclude the possibility of proprietary estoppel being invoked in an appropriate case.
It might be noted that this makes no reference to the chain of authorities from Godfray v The Constables of the Island of Sark34 through to Priaulx v Le Ray35 and on to Lloyd v Lloyd, which show resistance to those English equitable principles. Godfray can be taken as merely descriptive of the position 100 years ago and, of course, the law does move on. Lloyd v Lloyd, however, did not, in all circumstances, rule out the possibility of the application of equitable principles with regard to land but counselled caution, and appeared to apply a test of necessity. In that case, the Court had thought that the test of necessity was not applicable on the facts of the case, in that there was an adequate financial remedy. It remains to be seen which of the two approaches will ultimately gain the upper hand. With great respect to the Court of Appeal in Roger v Roger, it does not appear that the general application of English equitable principles to questions relating to Guernsey land has been common practice over the past 100 years, or at all.
31 ibid
22. v Lloyd (n 9). 33 Roger v Roger, Judgment 10/2003 (Guernsey Court of Appeal, 10 January 2003) 19. 34 Godfray v The Constables of the Island of Sark (n 16). 35 Priaulx v Le Ray (n 14). 32 Lloyd
46 Trusts Arising by Operation of Law
D. Pirito v Curth The Court of Appeal’s decision in Waterman v McCormack has been reaffirmed by that Court in Pirito v Curth.36 That later decision related to jointly-owned land in Alderney. There had been an attempt to distinguish Waterman v McCormack on the ground that that case had failed to distinguish between legal and equitable interests in land and had proceeded on the basis that equity formed no part of Guernsey law. Southwell JA commented: The land laws of Alderney and Guernsey have developed through the centuries on the basis of ancient Norman customary law. To seek to engraft on to Alderney or Guernsey customary law relating to immovable property different concepts of English common law or equity is an exercise to be undertaken with the greatest care. This is clear from a number of decisions of the Privy Council of the 19th and 20th century [sic], and by analogy can be seen in the excellent guide to the Origin and Development of Jersey Law written by Miss Stephanie Nicolle QC, HM Solicitor General for Jersey.37
In addition, Southwell JA certainly thought it was not just to import the English equitable presumptions with regard to shares in joint ownership when the English law on this topic was itself inadequate.38 Thus, one can anticipate that general trust law principles will be applied as cases develop. Lloyd v Lloyd does not preclude the possibility of constructive trusts in certain circumstances. Indeed, the Conveyancing (Guernsey) Law, 1996,39 which was primarily passed to provide that an agreement for the sale or other disposition of real property must be in writing, thereby reversing accepted practice before that statute,40 states that in section 1(5): Nothing in this section affects the creation or operation of resulting, implied or constructive trusts.
E. Bougourd v Woodhead In Bougourd,41 the Deputy Bailiff said, obiter,42 ‘I do not consider that [English equitable principles] can be imported wholesale into Guernsey law’, and in that
36 Pirito v Curth, Judgment 23/2003 (Guernsey Court of Appeal, 10 April 2003). 37 ibid, para 26. 38 ibid, paras 27 and 39. 39 Conveyancing (Guernsey) Law, 1996, s 1(5). 40 Gauson v Harris 20 GLJ 42 (18 September 1995) Interestingly, in that case, the Deputy Bailiff did not accept the statement of Advocate Jeremie to the 1860 Commissioners in relation to conveyancing practice in Guernsey as being indicative of the modern practice. This could be compared with the approach of his successor in Selwood v Madeley; McCormack v Waterman (n 20). 41 Bougourd v Woodhead [2009–10] GLR 487. 42 As the case was decided on the basis that there was an express trust; see ch 5, section I.B.
Conclusions 47 case it would not have been ‘fair and equitable’ to have imposed a constructive trust, taking into account the effect of such a trust on possible saisie proceedings.
F. After the Trusts Law 2007 It is clear from the Trusts Law 200743 that some forms of constructive trusts, at least, are part of Guernsey law; that was also the position under the Trusts Law 1989.44 The definition of ‘trust’45 is wide enough to include resulting and constructive trusts.46 Jersey law has imported English legal principles in relation to constructive trusts47 and resulting trusts in a number of cases.48 Since 17 March 2008, it has been possible to create express private trusts of Guernsey land.49 As such, while the cases before that Law came into force were inconsistent, one of the key objections to the imposition of resulting and constructive trusts in some of the earlier cases – that general equitable principles have not been imported into Guernsey law – no longer applies.
V. Conclusions So while it has not yet been considered by the Guernsey Court, it seems likely that Guernsey law will develop the law of resulting and constructive trusts of all types of property, including land in Guernsey, in line with English legal principles, subject to any contrary provisions of customary law or statute, in the same way as other principles of trust law. However, while the Trusts Law 2007 applies to trusts created before it came into force,50 it does not affect the validity of anything done before then or the validity of a trust arising from a document or disposition executed or taking effect before then.51 The previous law remains relevant to those questions.
43 The Trusts Law 2007, s 77(3) expressly excludes any other circumstances in which a constructive trust may arise; see also s 6(4), section I of this chapter and ch 5, section IV. 44 Section 38(3). 45 Trusts Law 2007, s 1; see ch 5, section I. 46 As was held in a Jersey case in relation to the equivalent provision of Jersey law: United Capital Corporation Limited v Bender [2006] JLR 242. 47 In Jones v Plane [2006] JLR 438, it was accepted that English legal principles in relation to a common intention constructive trust of land in England applied under Jersey law; see also the arguments in Re Esteem [2003] JLR 188, although the court held that it did not need to decide the point. 48 See, eg, Koonmen v Bender [2002] JLR 407; In Re Exeter Settlement [2010] JLR 169 (resulting trusts). 49 See ch 2, section IV. 50 Trusts Law 2007, s 78. 51 Trusts Law 2007, s 84(1)(c), (d).
4 Taxation I. The Code of Practice The Code of Practice issued by the Guernsey Financial Services Commission (GFSC)1 requires trustees ‘to consider the tax status of the trust and, where appropriate, to file tax returns and to provide information to beneficiaries to enable them to file their own tax returns’.2
II. Guernsey Tax Liabilities Guernsey has a standard rate of income tax of 20 per cent. The island does not levy taxes upon inheritances, capital gains (with the exception of a dwellings profits tax – which is itself suspended) or gifts. There are no estate duties, except for an ‘ad valorem’ fee for the grant of probate or letters of administration. There is no stamp duty chargeable in Guernsey on the issue, transfer or redemption of shares in a Guernsey company.
A. Section 53(3) of the Income Tax Law, 1975 Guernsey resident trustees may be liable to Guernsey income tax. Section 53(1) of the Income Tax Law, 1975 states: A trustee may be charged with income tax at the appropriate rate (as if it were income of the person beneficially entitled to that income) in respect of any income which he is entitled to receive on behalf of any person or which is derived from property vested in him, but nothing herein contained shall affect the liability of the person beneficially entitled to such income to be charged in his own name.
If the settlement is revocable or deemed to be revocable,3 the income is taxed on the settlor as the person deemed to be beneficially entitled to the income for 1 As to the Codes of Practice, see ch 16, section VIII and ch 16, n 40. 2 Code of Practice – Trust Service Providers (1 August 2009) available at https://www.gfsc.gg/sites/ default/files/Code-of-practice-TSPs-2009.pdf, 4. 3 Under the Income Tax Law, 1975, s 65(3).
Guernsey Tax Liabilities 49 these purposes.4 Under section 65(3), a settlement will be deemed to be revocable unless the settlement is not revocable for a period exceeding six years or during the lifetime of the settlor and the settlor has divested himself, while the settlement remains irrevocable, of all control over or right to receive any beneficial interest under the settlement. Section 53(3) of the Income Tax Law states: Where any person is beneficially entitled to income which is payable to trustees or which is derived from property vested in trustees, and the residence of the person entitled to the income is material for determining the question whether or not that income is income in respect of which tax is chargeable, or the domicile or nationality and residence of the person entitled to the income is material for determining the amount of the assessable income, that question shall be determined with reference to the residence or domicile or nationality and residence, as the case may be, of the person so beneficially entitled.
B. Concessions for Trusts with no Guernsey Resident Beneficiaries By concession: Where the whole of the income of a trust is payable to beneficiaries resident outside Guernsey, the liability of the trustees will be restricted to the trust income which arises in Guernsey, apart from Guernsey bank interest.5
Thus, where the beneficiaries of a trust with Guernsey resident trustees are not resident in Guernsey, only Guernsey source income, other than bank interest, is liable to income tax. For these purposes, where the assets in the trust are held through an underlying company incorporated in Guernsey, it is the assets held in that underlying company that determine the source of the income.
C. Apportionment Where there are Guernsey resident and non-resident beneficiaries, there will be an apportionment of trust income, so that the Guernsey resident trustees will be taxable on the share of income allocated to the Guernsey resident beneficiaries. The trustees would also be taxable on any Guernsey income (other than Guernsey bank interest) of the Guernsey non-resident beneficiaries. Accumulated income is treated in the same way.6 4 Income Tax Law, 1975, s 53(1A). 5 Para M12 of the Statements of Practice (Issue 2014), as updated on 23 November 2015, available at www.gov.gg. 6 ibid.
50 Taxation
D. Sub-funds If a trust is split into separate funds then each fund will be considered separately in order to assess the trustees’ tax liability (if any).
E. Guernsey Resident Settlors The relevant Statement of Practice on the liability of Guernsey resident trustees to income tax states: This practice [ie the concession explained in section II.B (‘Concession for Trusts with no Guernsey Resident Beneficiaries’)] does not apply if a Guernsey resident individual is the settlor of a trust and they and their spouse have not been irrevocably excluded. In such a case the settlor will be taxable on the income of the trust, which would include the income of any entity underlying the trust (for example a company owned by the trust). If the settlor and their spouse are irrevocably excluded from benefit or if the settlor is non-resident in Guernsey, then any income which is accumulated in a company owned by the trust and not distributed to the trust would not be subject to Guernsey income tax if the company itself is not liable. Guernsey source income, other than bank interest, would continue to be subject to Guernsey income tax.7
This part of the Statement of Practice is a reference to section 65 of the Income Tax Law.
F. More than One Settlor If there is more than one economic settlor, proportionate shares are attributed to them. So, if there are two economic settlors who contribute property equally and who are Guernsey residents, but they are not excluded from the trust according to the terms of section 65, they will each be taxed as to 50 per cent of the trust income.
III. Liability to Non-Guernsey Taxes A Guernsey trust may be liable to tax arising in another jurisdiction. Although any such tax may not be enforceable in Guernsey, the Guernsey Court may approve the payment of such tax, if it is in the interests of the trust’s assets, its beneficiaries or the trustees.8 7 ibid. 8 Re Walmsley [1983] JJ 35. It is thought that the Guernsey courts would follow Jersey law on this point. The case of In the Settlement of Douglas [2000] JLR 73, dealt with the Jersey Royal Court’s
Liability to Non-Guernsey Taxes 51
A. Right of Recovery under UK Tax Law A particular problem is posed by the ‘right of recovery’ created by the United Kingdom’s (UK’s) Finance Act 1991. The right entitles settlors of UK nonresident trusts9 to recover from the trustees of their trust any amount paid to Her Majesty’s Revenue and Customs (HMRC) in the UK by way of capital gains tax. This issue has given rise to considerable discussion, principally as to whether it is a right that is more theoretical than real, when considering the likelihood of successfully enforcing it against non-UK resident trustees.10 In the period from 1981 to 1991, many thousands of UK non-resident trusts were created as vehicles for legitimate tax deferment and, in some cases, complete tax avoidance. In 1991,11 UK tax changes meant that many of the relevant tax benefits ended, but those changes did not apply retrospectively and so those tax benefits continued to apply to pre-1991 trusts. However, those benefits no longer applied to a trust that became ‘tainted’ by a further act carried out in relation to it, such as, for example, an addition to its trust assets. Further changes to the UK capital gains tax position were made in 1998, and it is those changes that pose the biggest problem for trusts. Where a capital gain is realised post-1998 in a trust structure that previously would not have created any liability for a settlor, that realised gain could give rise to a UK capital gains tax charge for the settlor, even though he or she may be excluded from benefit from the trust. If such a tax charge arises and the settlor has paid it, the settlor may seek to rely on the statutory right of recovery under the UK statute,12 which provides: The person [ie UK resident taxpayer who has paid the tax] shall be entitled to recover the amount of the tax from any person who is a trustee of the settlement.
B. Enforceability of Another State’s Revenue Laws The principal objection to a non-UK court’s allowing a settlor to recover a tax liability in its jurisdiction is not so much that a UK statute cannot create such a right, which in principle will be recognisable by a foreign court,13 but rather that it involves the enforcement of another state’s tax liability. approval of a re-settlement that could result in beneficial tax consequences for the persons concerned. For a discussion of the issues arising in connection with the payment of foreign taxes generally, see C Sly and M Parker, ‘Payment by Trustees of Foreign Taxes’ in The Hon Mr Justice D Hayton (ed), The International Trust, 3rd edn (Jordans, 2011) ch 8. 9 As to what constitutes a non-resident trust for UK tax purposes, see J Kessler, Taxation of Non-Residents and Foreign Domiciliaries, 17th edn (Key Haven Publications, 2018–19) ch 6. 10 See, eg, J Peacock, ‘A Worthless Right?’ [1999] PCB 204; P Matthews, ‘When is a revenue claim not a revenue claim?’ (1999) 3(1) Jersey Law Review 56; L Sartin, ‘Tax recovery claims by the settlor’ (1999) 6(3) PTPR 237; and R Venables QC, ‘A note on Leon Sartin’s “Tax recovery claims by the settlor”’ (1999) 8(3) OTR 241. 11 The relevant provisions from the UK’s Finance Act 1991 were consolidated into what is now s 86 of the UK’s Taxation of Chargeable Gains Act 1992. 12 Para 6(2) of sch 5 to the UK’s Taxation of Chargeable Gains Act 1992. 13 See section IV.H.
52 Taxation There is a line of case law authority dealing with cross-jurisdictional treatment of tax claims. The case that is the starting point is Government of India v Taylor,14 where the House of Lords recognised the principle that English courts have no jurisdiction to entertain an action for the enforcement, whether directly or indirectly, of a penal, revenue or other public law of a foreign state. The principle is recognised and applied in Guernsey.15 The principle is also reflected in statute. The Judgments (Reciprocal Enforcement) (Guernsey) Law, 1957,16 as amended, is expressly stated not to apply to judgments in respect of taxes or other charges of a like nature, or in respect of a fine or other penalty. In the Guernsey Court of Appeal case of HMRC v Gresh and RBC Trust Company (Guernsey) Limited,17 the Court was asked to consider whether HMRC could be joined as a party to a Hastings-Bass application to void a lump sum distribution of pension assets. The Court of Appeal confirmed the position taken by the House of Lords in Re State of Norway’s Application18 (which follows Government of India v Taylor): the Guernsey court will not directly or indirectly enforce a UK revenue law, but it can resolve an issue that may be important to the authority in due course in enforcing that foreign revenue legislation in its own home state.
C. Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd The right of recovery was considered in the English case of Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd.19 There, it was held that under the then procedural rules in force in England, an English resident settlor could commence proceedings in England against a UK non-resident trustee for reimbursement of a capital gains tax charge the settlor had paid. In that case, a pre-1991 trust was ‘tainted’ because an interest-free loan had been made between it and another trust. Judge Howarth QC20 noted that the right of recovery might be enforced in cases where one of a number of trustees was, in fact, UK resident, or (although the judge thought that this was unlikely) where the trustees voluntarily submitted to the jurisdiction of the English court. Also, there may be cases where a trustee of such a settlement might sometimes be in the jurisdiction of the English court. Implicit in Judge Howarth’s decision was that, for the UK right of recovery to be effective, the UK non-resident trustee must be amenable, in some way, to the English court’s jurisdiction. He said: [I]t seems to me, that, if proceedings were brought in Jersey, [it would] inevitably lead to a defence being mounted that this was an indirect enforcement of the Revenue Laws of 14 Government of India v Taylor [1955] AC 491. 15 Re Roy Clifford Tucker (a bankrupt) 23 (Civil) 1988; cited with approval in Kleinwort Benson v Wilson (Judgment 3/2003) at 6. 16 See ch 6, section IV.A. 17 HMRC v Gresh and RBC Trust Company (Guernsey) Limited [2009–10] GLR 239. 18 Re State of Norway’s Application (Nos 1 and 2) (Consolidated appeal) [1990] 1 AC 723. 19 Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd (1998/99) 1 ITELR 565. 20 ibid 572.
Liability to Non-Guernsey Taxes 53 the United Kingdom of which, certainly for revenue purposes, Jersey is not a part … So it makes no difference whether it is a prospective tax that has to be paid in the future and which is sought to be recovered or whether somebody has paid the tax and seeks to recover back the payment which they have made from the source which, for revenue purposes, is the primary source liable, it does not matter; a foreign court will not enforce it.21
D. Where the Liability May be Enforced by the Foreign State Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd illustrates that if there is some way of bringing the UK non-resident trustee before the English court, the settlor can seek to have the right of recovery enforced. Judge Howarth had not been informed of the proper law of the relevant settlements.22 He did not address the question of whether the right of recovery could be enforced against non-English23 law trusts with non-UK trustees and UK resident settlors.24 This is a distinction that is not without importance in this area, because the English proper law trust was often the preferred proper law of ‘Freezer Trusts’.25 The claim is also likely to be capable of enforcement where there are trust assets in the UK against which the claim may be enforced.26
E. Federal Trust Company Limited v MacDonald-Smith and Bermuda Trust (Guernsey) Limited In Federal Trust Company Limited v MacDonald-Smith and Bermuda Trust (Guernsey) Limited,27 a problem arose under the UK’s Finance Act 1991. An addition had been made to the assets of a pre-1991 trust, thereby ‘tainting’ it for UK capital gains tax purposes. As such, the settlor of this ‘Golden Trust’28 had to pay capital gains tax on certain gains made on trust assets. The settlor sought reimbursement of the tax charge from the current trustees. The proper law 21 ibid 579d–g. 22 ibid 582b–c. 23 In this context, ‘English law’ should be read as the law of any part of the UK. 24 Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd (n 19) 583–84, per Judge Howarth: ‘It [ie the capital gains tax liability] is not a liability of the settlement and, since the settlement inevitably is one which is administered outside the jurisdiction of the Court, Parliament would not have the right or power to legislate to vary in any way at all the terms of the settlement, and it seems to me that this is not, and cannot be at all therefore for that reason, an action for the execution of the trusts of the written instrument, but simply a claim against a person who is a trustee, coincidentally has to be a trustee, of a written instrument’. 25 The frequently employed name given to trusts created to take advantage of opportunities for tax deferment under the UK’s Finance Act 1981. 26 See L Tucker, N Le Poidevin QC, J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 21-026 (‘Foreign fiscal liabilities’); see also Sly and Parker, ‘Payment by Trustees of Foreign Taxes’ (n 8) para 8.52 (‘Payment where liability can be enforced in a foreign jurisdiction’). 27 Federal Trust Company Limited v MacDonald-Smith and Bermuda Trust (Guernsey) Limited (Royal Court, 6 April 2001). 28 As the privileged pre-1991 settlements were termed.
54 Taxation of the trust was originally that of Bermuda, and subsequently it was changed to Guernsey law, but at no time was the proper law of the trust the law of any part of the UK. The current trustees sought a declaration as to whether there was a legal obligation to comply with the statutory right to reimbursement under the UK legislation. The Guernsey Court decided that a declaration on this issue was not the appropriate method of dealing with the point. The potential position of the previous trustees had to be considered, as they had been trustees when the addition had been made that led to the ‘tainting’. It was recognised that the circumstances surrounding the case might lead to hostile litigation, and thus the issue in respect of which the declaration had been sought was not determined at that stage.29
F. Kleinwort Benson v Wilson In Kleinwort Benson (Guernsey) Trustees Limited, Robins and Gilligan v Wilson, Wilson, Risk et autres,30 a declaration was again sought from the Guernsey Court but, unlike the earlier Federal Trust case, this was in a non-hostile context.31 The relevant trusts were caught by the 1998 changes to the UK capital gains tax legislation, and therefore the settlors were taxed on arrangements that, at the time of the creation of the trusts, would not have given rise to a UK capital gains tax liability. There were two settlements in issue, both of which were governed by English law and had been exported, following the appointment of Guernsey resident trustees. The Guernsey Court considered that it must approach the statutory right of recovery as a matter of law from the viewpoint of whether the settlors could successfully bring proceedings against the Applicants in the Guernsey Court, the Applicants being a company established in Guernsey and two individuals employed by it, holding the assets of the Trust in respect of which the indemnity becomes payable in this jurisdiction.32
The Bailiff decided that the Guernsey Court would enforce the right of indemnity against the trustees. He said: The first point to note is that the Settlements are governed by English Law. English Law33 clearly has decreed that the Trustees of the Settlement, albeit that they could not 29 This is not to say that trustees should not apply to the Guernsey Court for directions when faced with a request to make a payment under the relevant statutory provision. A particular point in this case was that the previous trustees actively did not wish to participate. 30 Kleinwort Benson (Guernsey) Trustees Limited, Robins and Gilligan v Wilson, Wilson, Risk et autres, Judgment 3/2003 (31 December 2002). 31 Note that in the Kleinwort Benson case it would have been possible, by an exclusion of certain adult beneficiaries, to have guarded against the problem that resulted in a capital gains tax liability arising against the settlors. This was something on which solicitors had apparently failed to advise. 32 Kleinwort Benson v Wilson (n 30) 4; as to the general principles in relation to the recognition and enforcement of judgments in relation to trusts, see ch 6, section IV. 33 In this context, ‘English law’ should be read to refer to the law of any part of the UK.
Liability to Non-Guernsey Taxes 55 be sued by the Revenue for capital gains tax direct in Guernsey, if a liability accrued to them, must indemnify UK residents who were the original settlors, where they have paid the tax. Parliament decreed that this particular loophole be closed, albeit late in the day, and did this by directing that those left behind in the UK must pay the bill in respect of tax that has been notionally lost through the skilful management of the settlement’s affairs. I cannot see that there is any defence in a Guernsey Court to a claim from the settlors that they be indemnified in this way.
The Bailiff held that the Government of India v Taylor principle, that the courts of one state must not entertain an action to enforce the revenue laws of another, did not apply. The principle only applies ‘when a claim under that law remained unsatisfied’,34 whereas in a claim for recovery, ‘It matters not one iota to the Inland Revenue whether the First and Second Respondents succeed in their claim under the indemnity as the Revenue has been paid.’35
G. The 2018 Guernsey–UK Double Taxation Agreement A new double taxation agreement (DTA) has been signed between Guernsey and the UK, which requires the tax authorities to assist one another and to act as proxy for the other in the collection of revenue claims. The DTA entered into force on 7 January 2019, albeit that Article 27 (assistance in collection) is not yet in force. When Article 27 enters into force, it will allow the Guernsey tax authority to collect (or take measures to conserve) revenue if owed by a person who cannot, under the laws of the UK, prevent its collection. So, if a Guernsey-based settlor or trustee owed capital gains tax to HMRC, the Guernsey Income Tax Office could recover that from the settlor or trustee. However, the DTA does not import UK legislation into Guernsey legislation, and therefore would not import the right of a settlor to claim against a trustee for recovery of tax already paid. The DTA enables the relevant taxing authorities to collect taxes; it does not enable an individual to exercise his or her right of recovery as against a non-UK resident trustee. The DTA provides that the provisions relating to the mutual agreement procedure36 and exchange of information37 shall have effect from the date of entry into force of the DTA, without regard to the taxable period to which the matter relates (for Guernsey, being in respect of income tax for the year of charge 2020); and assistance in the collection of taxes38 shall have effect from the date specified in an exchange of letters, without regard to the taxable period to which the matter relates.
34 Kleinwort Benson v Wilson (n 30) 6; see also the discussion on this point in Matthews (n 10) 70–71; see further Air India v Caribjet [2002] 2 All ER (Comm) 76. 35 Kleinwort Benson v Wilson (n 30) 6. 36 DTA, Art 25. 37 DTA, Art 26. 38 DTA, Art 27.
56 Taxation Under Article 26 of the DTA, the tax authorities shall exchange information that is foreseeably relevant to the administration or enforcement of domestic laws concerning taxes of every kind and description imposed on behalf of the territories or of their political subdivisions or local authorities. Article 27 of the DTA requires the territories to assist each other in the collection of revenue claims: HMRC will be able to ask the Guernsey Income Tax Office to collect revenue claims (or to take measures of conservancy) on its behalf. However, the DTA provides39 that proceedings with respect to the existence, validity or the amount of a revenue claim of a territory shall not be brought before the courts or administrative bodies of the other territory. The advent of the DTA does potentially signal the end of the principle in Government of India v Taylor,40 vis-à-vis Guernsey and the UK. As such, if there is any remaining rationale for not enforcing a settlor’s right of recovery, that is likely to fall away once the DTA is in full force.
H. Where the Foreign State does not have a Means of Enforcing the Liability In Wilson, it was held that the liability is enforceable where the trust is governed by English law.41 The position where the trust is governed by Guernsey law (or a law other than English law) has not been considered by the Guernsey courts. Wilson was also decided before the firewall legislation42 was enacted, so its effect was not considered in that case. On the basis of the decision in Kleinwort Benson v Wilson, it is thought that this should be decided on the basis of whether the settlor would be able to bring proceedings in the Guernsey courts.
i. Is it Enforceable at Common Law? It was held by the Royal Court in Jersey that an action that vested in the plaintiff by virtue of a Guernsey statute was in principle directly enforceable in Jersey.43 The Guernsey States Insurance case only dealt with the transfer of a cause of action, but there is Australian authority44 that a cause of action created by statute in one state will in principle be recognised as a separate cause of action in another state. 39 Art 27(6). 40 See section III.B. 41 See section III.F (‘Kleinwort Benson v Wilson’). 42 See ch 6, section IV.B. 43 Guernsey States Insurance v Ernest Farley & Son Limited [1953] 1 JJ 47. 44 Hodge v Club Motor Insurance Agency Proprietary Limited (1974) 2 ALR 421; Borg Warner (Australia) v Zupan [1982] VR 437; see the discussion in P Matthews, ‘When is a revenue claim not a revenue claim? A footnote’ (2000) 3 Jersey Law Review.
Liability to Non-Guernsey Taxes 57 It is submitted that, in principle, a claim based on the right of recovery under the UK statute does create a valid cause of action enforceable in the Guernsey courts.45
ii. Do the Firewall Provisions have any Application? In relation to Guernsey trusts, the common law rules have been amended by the statutory conflict rules, under which all matters in relation to a Guernsey trust are to be determined in accordance with Guernsey law.46 It is thought that the question of the enforceability in principle of a foreign statutory claim is not a ‘matter in relation to a Guernsey trust’,47 although it may involve questions that are: a question about the enforceability of a contractual obligation against the trustee is not (primarily) a question of trust law, although related questions, such as whether the trustee’s liability is limited to the trust assets48 or whether the trustee has a right of indemnity from the trust fund in respect of that liability, are matters in relation to a trust so, in relation to a Guernsey trust, must be determined solely under Guernsey law. If the settlor were to obtain the judgment of a UK court ordering the trustee to reimburse him or her, that would not be recognised or enforced by the Guernsey court to the extent it was ‘inconsistent with Guernsey law’.49 Where the debt is properly payable, it is enforceable against the trustee as a third party debt like any other, and is not therefore ‘inconsistent with Guernsey law’.50 The court still has discretion in that situation to order that the foreign order should not be recognised and enforced either ‘for the purposes of protecting the interests of the beneficiaries or in the interests of the proper administration of the trust’.51 One situation in which the court might exercise that discretion is if the trustees would otherwise be exposed to personal liability.52
iii. Public Policy Claims created by foreign statute will nevertheless not be enforced if they are contrary to public policy: If a foreign statute gives the right, the mere fact that we do not give a like right is no reason for refusing to help the plaintiff in getting what belongs to him … Similarity of legislation has indeed this importance – its presence shows beyond question that the foreign statute does not offend the local policy … the courts are not free to refuse
45 See
also Matthews, ‘When is a revenue claim not a revenue claim?’ (n 10) 58. Law 2007, s 14(1); ch 6, sections II.C and II.D. 47 That is supported by Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd (n 19). 48 See ch 7, section XII. 49 Trusts Law 2007, s 14(4); see ch 6, section IV. 50 ibid; see ch 6, section IV. 51 Trusts Law 2007, s 14(4). 52 See also section III.H.iv. 46 Trusts
58 Taxation to enforce a foreign right at the pleasure of the judges to suit the individual notion of expediency or fairness. They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep rooted tradition of the common weal.53
Similarly, in Hodge v Club Motor Insurance Agency Proprietary Limited,54 it was held that rule applies if ‘there is no reason of public policy to the contrary’. There is no ‘similarity of legislation’ in Guernsey that would put the position beyond doubt, but there seems no public policy reason for not recognising the obligation in normal circumstances.
iv. Personal Liability of Trustees? Having said that, the right of recovery is expressed to be ‘from any person who is a trustee’. It is not limited to the trust assets. Furthermore, the statutory limitation of liability will not assist the trustee, as the settlor is not a ‘third party’ for these purposes, even if the settlor is excluded from benefit from the trust: a third party is defined as ‘a person other than a settlor, trustee, enforcer, trust official or beneficiary’. The trustee may therefore conceivably find itself exposed to personal liability for the reimbursement claim, perhaps after it has distributed the trust property or otherwise has insufficient assets to meet the claim. It is submitted that this is likely to be a situation in which the Guernsey court would consider it contrary to public policy to enforce the settlor’s claim, at least where there is no wrongdoing on the part of the trustee. It is thought that a trustee has no duty of care to the settlor to ensure that the tax liability did not arise.55 Nevertheless, it is possible that the court may take a different view in circumstances where a trustee has distributed trust assets when it knew or ought to have known of the liability, but a detailed discussion of this is outside the scope of this book.
v. Exercise of Power to Reimburse the Settlor The question of the exercise of trustee discretion is unlikely to arise – either the claim is enforceable and the trustees will have an obligation to pay it, or they have no trust assets out of which to pay it. But there may be circumstances, such as being barred by prescription or limitation rules, in which the claim fails but the trustees still have trust assets from which they could pay it. In that situation, once the Government of India v Taylor objections have fallen away, the question becomes whether it is a liability ‘properly incurred by 53 Borg Warner (Australia) v Zupan (n 43). 54 Hodge v Club Motor Insurance Agency Proprietary Limited (n 43). 55 Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd (n 19) 594, although Howarth J did note that ‘different minds might well reach a different conclusion’.
Guernsey Charities 59 [the trustee] in the performance of [its] duties and the exercise of [its] powers and discretions as trustee’.56 It is thought that the trustee has a power to pay these types of liabilities, whether or not there is an express power to pay foreign tax liabilities. The key question, as with the payment of any other liability, is whether it is a proper trust expense. As any express powers are normally also fiduciary, so must be exercised in accordance with the trustee’s usual duties, it is unlikely that a typical express power will alter the general principles that apply.57 Whether the liability is properly payable in a particular case will depend on the facts; if in doubt, the trustees should consider an application to court.
vi. Settlor Exclusion Clauses If the trustees have an obligation to pay a liability, or they have properly exercised discretion to pay it, it is a proper trust expense. It has the same status as any other third-party debt. It has been held in the Jersey Royal Court that a clause excluding the settlor from benefit would prevent the trustee’s reimbursing the tax paid.58 It is respectfully submitted that a settlor exclusion clause does not prevent reimbursement and that Re T would not therefore be followed in the Guernsey courts. It is accepted by HMRC that reimbursement of the tax paid confers no benefit on the settlor.59 That is because the right does not arise under the settlement but under statute.60 That conclusion can also be reached on two alternative grounds: either that it may also fairly be said that the settlor has not gained any advantage; or that this is an administrative power, not a dispositive one.61
IV. Guernsey Charities The income from a Guernsey registered charity or a charity that is not required to be registered62 is exempt from Guernsey income tax, so far as the income is applied for charitable purposes only. For these purposes, ‘charity’ means: (i) any body of persons or trust established for charitable purposes only; and
56 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 26) para 21-003 (‘Indemnity out of Trust Property in Respect of Administration Expenses – The general principle’). 57 ibid, para 21-027 (‘Express powers to pay foreign tax liabilities’). 58 In the Matter of the T Settlement [2002] JRC 33 (6 February 2002) para 27 (‘Re T’). 59 HMRC Statement of Practice 5 (1992), paras 8–10. 60 See J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts, 1st edn (Sweet & Maxwell, 2014) para 12.10 (‘What does a settlor exclusion clause cover?’). 61 ibid, para14.2 (‘Significance of administrative/dispositive distinction’). 62 Pursuant to the Charities and Non Profit Organisations (Registration) (Guernsey) Law, 2008; see ch 2, section V.D.
60 Taxation (ii) where any property or fund the income whereof is applicable to charitable purposes only is entrusted to any person or body of persons, means, in relation to that property or fund and the income thereof, that person or body.63
V. Employee Benefit Trusts The general principles of taxation apply equally to employee benefit trusts.64 However, if there are Guernsey resident65 employees who benefit from trusts that operate as share award schemes or share option schemes, the benefits conferred on those beneficiaries will be liable to income tax as part of the employees’ emoluments.66 A share award scheme exists where shares are acquired on behalf of or are allocated to participating employees, and a share option scheme is where options are granted enabling employees to acquire shares at a discount.67 The principles governing the taxation of the schemes are contained in paragraph E43 of the Statements of Practice (Issue 2014). Part A deals with share award schemes and part B deals with share option schemes. These rules are subject to a general anti-avoidance rule, which is wide enough to catch trusts.68 It should be noted that an emolument arises when the share option is granted, not when the share option is exercised.69 The amount taxable is the difference between the arm’s length market value of the shares at the time the option is granted and the option price paid by the employee. In the event the option is never exercised, it is possible to apply to the Director of Income Tax for the income tax assessment to be revised.
VI. Unit Trusts Guernsey unit trusts are taxed as investment companies.70 The concession71 exempting trusts with no Guernsey resident beneficiaries does not apply to unit trusts.
63 Income Tax Law 1975, s 40(k). 64 As to which, see ch 2, section VIII. 65 Residence is defined in the Income Tax Law 1975, s 3. The trustees may also be liable to income tax under s 53; see section II.A. 66 The principal charging provision is the Income Tax Law 1975, s 8. 67 Para E43 of the Statements of Practice (n 5). 68 Income Tax Law 1975, s 67(1). 69 By way of comparison, this is the opposite to the position in the UK. 70 Income Tax Law 1975, s 170. 71 Para M12 of the Statements of Practice (n 5).
5 Creation, Validity and Termination I. Existence of a Trust A trust exists if a person (a ‘trustee’) … holds … property which does not form … part of his own estate for the benefit of another person (a ‘beneficiary’) … and/or for any purpose,1 other than a purpose for the benefit only of the trustee.2
Compare the definition of a trust contained in Article 2 of the Hague Convention:3 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.
While the wording is different, the essential elements are the same, and it is submitted that there is no difference in substance.4
1 As to the meaning of and requirements for non-charitable purposes, see ch 2, section VI.B; as to charitable purposes, see ch 2, section V.E. 2 Trusts Law 2007, s 1; the Trusts Law also confirm that the trustee’s interest (as trustee) in the trust property is ‘limited to that which is necessary for the proper performance of the trust’ and that ‘the trust property does not form part of the trustee’s estate’: s 72(1). 3 The Hague Convention on the Law Applicable to Trusts and on their Recognition (1 July 1985), to which Guernsey is a party: see ch 1, section XI.B; ch 1, n 52; ch 6, section II.E; for a discussion of other definitions of ‘trust’ under English law, see L Tucker, N Le Poidevin QC and J Brightwell (eds) Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) paras 1-001 to 1-009 (‘Definition of a trust’). 4 But see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3), ch 1, fn 2: ‘Contrast the very wide definition in the Trusts (Guernsey) Law 2007.’
62 Creation, Validity and Termination
A. Meaning of ‘Trust’ In Jersey, it has been held that the equivalent definition is wide enough to cover a constructive trust5 and a trustee de son tort6 and bare trusts,7 but it does not cover a director’s fiduciary relationship with the company.8 It is thought that the position under Guernsey law is the same on those points.9 A curatelle – a customary law procedure dealing with the administration of a person who is unable to manage his or her own affairs – is not a trust.10
B. Purpose Trusts The ‘purpose’ of a purpose trust must be a valid one under the relevant governing law, so where the trust in question is a Guernsey trust, it must comply with the relevant provisions of the Trusts Law 2007.11 In Bougourd v Woodhead, it was held that: (i) there was an express trust ‘for the specific purpose of applying it towards the purchase of [the property] … a purpose which is still continuing’;12 and (ii) the trusts did not extend to any interest in the property itself but was subject to the plaintiffs’ having a right to live in the property for life. Both findings raise further questions. With regard to (i), it is not clear on what basis a trust for purposes was upheld, as only charitable purposes were valid at that time under section 11(2)(c) of the Trusts Law 1989, and no further analysis was given. As far as (ii) is concerned, a trust will normally attach to property derived from the original property; if a change in the nature of the property did cause the trust to terminate, presumably on the basis that the trust had been fulfilled, it is not clear as to the basis on which the right to live in the property could be enforced (the court had found that there was no binding contract, and no droit d’usufruit or droit d’habitation).
5 United Capital Corporation v Bender [2006] JLR 242; as to constructive trusts generally, see ch 3 of this volume. 6 In the Matter of the Representation of BB [2011] JLR 672; see ch 7, section XI. 7 In the Matter of the Representation of Publicis Graphics Group Holdings SA [2011] JLR Note 18. 8 In the Matter of Northwind Yachts Limited, Guenier v Fuller [2005] JLR 137. 9 But see ch 12, section II. 10 In the Matter of X, an Incapable [2007–08] GLR 387; see also Rothschild Trust Guernsey limited v Adamantios (Diamantis) Pateras & Katigko-Kalliopi (Royal Court, 3 May 2011) (Judgment 15/2011). 11 Trusts Law 2007, ss 12–13; see ch 2, section VI. If it does not comply, it will be invalid by virtue of the Trusts Law 2007, s 1(2)(c). 12 Bougourd & Bougourd v Woodhead & Woodhead [2009–10] GLR 487, para 93.
Principles of Construction 63
C. The Three Certainties The three certainties are not referred to in the Trusts Law 2007, but it has been held that the English rules on this point apply under Guernsey law:13 [T]here must be certainty of words, certainty of subject matter, and certainty of objects. Certainty of words requires that the words used are sufficient to demonstrate an intention to create a trust, and, so far as necessary, the terms of that trust. Second, the property to be comprised within the trust must itself be identified with sufficient clarity. Finally, the class of persons who are beneficiaries of the trust have to be sufficiently ascertained.14
Whilst it is not necessary to use the word ‘trust’, and indeed no technical expressions are necessary,15 it must be shown that there was a sufficient intention to create a trust.16 Any property may be held on trust, including real property in Guernsey.17 The test for certainty of objects, as it applies to beneficiaries, is discussed further in chapter 9 of this work.18 The relevant test for non-charitable purpose trusts is discussed in chapter 2.19
II. Principles of Construction It was held in Re C Trust20 that the English principles, which also applied in Jersey, apply under Guernsey law.21 The Deputy Bailiff quoted the principles set out in a Jersey case,22 as follows: The correct approach to the task before the court is to a large extent the same as it is for any instrument the meaning of which is in contention: (i) the aim is to establish the presumed intention of the maker(s) of the document from the words used …; 13 As to the English rules, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3), paras 4-002 et seq. 14 OT Computers Limited (in administration) v First National Tricity Finance Limited (2003) 6 ITELR 117, 124–25. 15 Trusts Law 2007, s 6(5). 16 Bougourd v Woodhead (n 12) paras 68–72. 17 Trusts Law 2007, s 7. ‘Property’ is widely defined: Trusts Law 2007, s 80(1). 18 See ch 9, section III. 19 See ch 2, section VI.B. 20 In the matter of the C Trust (Royal Court, 21 March 2013) (Judgment 17/2013) paras 21–23. 21 For a discussion of the principles of interpreting trust documents generally, including the inadmissibility rule, under British Virgin Islands law, which follows English law on this point, see J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts (Sweet & Maxwell, 2014) ch 3. 22 In the matter of the Internine and the Intertraders Trusts [2005] JLR 236, paras 62–63; followed in Jersey in In the matter of the Representation of BBB Limited [2011] JRC 240.
64 Creation, Validity and Termination (ii) words must, however, be construed against the background of the surrounding circumstances or ‘matrix’ of facts existing at the time when the document was executed – a principle that has been a bedrock of English law since the judgment of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381 and appears now to have been accepted as also properly reflecting the approach that this court should adopt in relation to such matters; (iii) the circumstances relevant and admissible for this purpose are those that must be taken to have been known to the maker at the time or, where there are more than one, known to the makers of or the parties to the document and include (to use the language of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Bldg Socy ([1998] 1 WLR at 913), from whose speech only Lord Lloyd of Berwick dissented) – ‘… absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man’; (iv) evidence of subjective intention, drafts and negotiations and other matters extrinsic to the document in question is inadmissible, as is evidence of events subsequent to the making of the instrument (evidence of this kind being relevant where an estoppel is said to arise but not in this jurisdiction, unlike some others, as an aid to construing the original meaning of the document); (v) the critical provisions …, as with all words and phrases, have to be read in the context of the document as a whole; (vi) words should as far as possible be given their ordinary meaning: ‘Loyalty to the text of a commercial contract, instrument, or document read in its contextual setting is the paramount principle of interpretation’: per Lord Steyn in Society of Lloyd’s v Robinson ([1999] 1 WLR at 763); and (vii) this last precept may, however, have to give way if consideration of the document as a whole, having regard to the principles set out above or common sense, points to a different conclusion: ‘common sense’ in the context being best reflected by the passage from the speech of Lord Reid in Schuler (L) AG v Wickman Machine Tool Sales Ltd ([1974] AC at 251) in which he observed:
‘The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.’ (See also Lord Steyn, again in Society of Lloyd’s v Robinson ([1999] 1 WLR 756 at 763), and Lord Hoffmann’s observations in the Investors Compensation Scheme case concerning the need, on occasion, for a court to accept that the parties must have used the wrong words or syntax.)
The learned Commissioner continued in paragraph 63: ‘It is also elementary, first, that when attempting to discern the true meaning of a power conferred in a trust deed or other instrument the court must have regard to the nature of the deed and the purpose for which the power appears to have been granted – though this will depend to a large extent on the terms of the instrument itself; and secondly, that a power of amendment reserved in a trust must be exercised for the purpose for which it was granted and not for one beyond the contemplation of the makers of the original instrument (Lord Steyn (ibid), citing Hole v Garnsey [1930] AC 472).’
Principles of Construction 65
A. Admissibility of Extrinsic Evidence i. General Principles While it is clear from Re C23 that Guernsey law follows general English (and Jersey) law principles of construction, the precise extent to which extrinsic evidence of the settlor’s intention is admissible24 has not been determined by the Guernsey courts. There is an argument that Guernsey law should look first to English law for guidance, in the trust context, following the approach of the Privy Council in Spread Trustee Company Limited v Hutcheson.25 However, the contrary view and, it is thought, the better view is that Guernsey law should follow Norman customary law, as the question applies in a wider context and there should be consistency of approach on this point. Indeed, the Jersey Royal Court held, in the context of this issue, that ‘Pothier and Dalloz are a surer guide to the law of Jersey than is the law of England’.26 In Re the A Settlement,27 quoting Dalloz (in translation),28 the Deputy Bailiff said that ‘the judges must steep themselves above all in the actual terms of the will, if these terms are not sufficiently clear, one may have recourse to extrinsic circumstances to interpret the will.’ On that basis, he allowed extrinsic evidence of the settlor’s intention from the settlor’s widow – even though there was ‘[o]n the face of the settlement … no ambiguity’29 – to include illegitimate children as beneficiaries when referring to ‘children’. In a subsequent Jersey case,30 the Royal Court held that ‘children’ was unambiguous and excluded illegitimate children. The rationale for allowing extrinsic evidence in Re the A Settlement is not clear from the judgment. To the extent it is authority that extrinsic evidence is generally admissible to show a contrary intention in this context, it is thought that it would not be followed in Guernsey. It may be that while there was no ambiguity on the face of the instrument, the surrounding circumstances were sufficient to show a contrary intention,31 or that in light of the surrounding circumstances, there was an ambiguity that did allow extrinsic evidence of subjective intention to be admitted. In any event, it seems that the Jersey Royal Court did not disagree on the principles to be applied, only on whether the document was unambiguous on its face. With regard to the principles, it seems to have been accepted that they are the 23 In the matter of the C Trust (n 20) paras 21–23; see section II of this chapter. 24 This is an example of the parol evidence rule, ie that no evidence of extrinsic circumstances is admissible to add to, contradict, vary or alter terms of a written instrument; see also n 21. 25 Spread Trustee Company Limited v Hutcheson [2009–10] GLR 403 (CA), [2011] UKPC 13 (PC); see ch 1, section X.A. 26 In the Matter of the A Settlement [1996] JLR 226, 232. 27 ibid 231–32. 28 Dalloz, Nouveau Repertoire, 1st edn, ‘Testaments’. 29 Re the A Settlement (n 26) 231. 30 Philean Trust Company Limited v Taylor [2003] JLR 61. 31 As to which, see section II.A.ii and II.B of this chapter.
66 Creation, Validity and Termination same under Norman and English law, with the one exception of the distinction between latent and patent ambiguity, which is discussed in section II.B. Indeed, Lewin was quoted with approval in Philean Trust Company v Taylor,32 including on the question of the admissibility of evidence of surrounding circumstances.33 It was held that the parol evidence rule did not exclude extrinsic evidence ‘of the surrounding circumstances to explain the objective meaning of a settlement, only as forbidding evidence called to show that the subjective intention of the settlor was different from what the settlement itself expresses’.34
ii. Interpretation of Trusts for Children The Law Reform (Inheritance and Miscellaneous Provisions) (Guernsey) Law, 2006 (‘the Law Reform Law 2006’) provides that, subject to a contrary intention, any reference in a trust instrument to a relationship between two persons is to be construed without regard to whether either of those persons (or any person through whom the relationship is deduced) is legitimate or illegitimate. However, that only applies to instruments executed after 8 May 2008 (when the Law came into force);35 instruments executed before then are prima facie construed as excluding illegitimate children.36 With regard to ‘overseas adoptions’, unless a contrary intention appears, adopted children are treated as children of the adopters with regard to ‘anything done or any event’ on or after 1 June 1979.37 The same does not apply to Guernsey adoptions, as references to ‘children’ in an instrument effecting a disposition of property made after the date of an adoption order are, unless a contrary intention appears, treated as being or including references to adopted children; it does not matter when the instrument was made.38 Whether there is a contrary intention depends on the proper construction of the instrument itself.39 The court can therefore infer a contrary intention from surrounding circumstances. The approach of the English courts has been to take a
32 Philean Trust Company Limited v Taylor (n 30). 33 Also known as the ‘matrix of fact’: Prenn v Simmonds [1971] 1 WLR 1381, HL, at 1384, per Lord Wilberforce; see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) paras 6-004 to 6-018 (‘Evidence to Interpret Settlements’). 34 Philean Trust Company Limited v Taylor (n 30) 68. 35 Law Reform Law 2006, s 1(3), (5). 36 The common law rules apply to the determination of whether a child is legitimate (or treated as legitimated) (as to which see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) para 6-019 (‘Construction of gifts to children at common law’), subject to limited extensions of the rule by statute: Legitimacy (Guernsey) Law, 1966, which only applies to children whose fathers were domiciled in Guernsey at the relevant time. But see also section II.C of this chapter as to the impact of the Human Rights Law 2000 on the interpretation of provisions in favour of children. 37 Adoption (Guernsey) Law, 1970, s 5(1). 38 Adoption (Guernsey) Law, 1960, s 15(2). 39 See, eg, Re Brinkley’s Will Trusts [1968] Ch 407.
Principles of Construction 67 fairly liberal approach as to what should be considered as part of the surrounding circumstances in this context: In construing this will, we have to look at it as the testator did, sitting in his armchair, with all the circumstances known to him, at the time. Then we have to ask ourselves: ‘What did he intend?’ We ought not to answer that question by reference to technical rules of law.40
For example, in Re Jones Will Trusts,41 the surrounding circumstances included the testator’s former testamentary dispositions,42 and they were sufficient to demonstrate a contrary intention. It is thought that Guernsey law will follow English law on this point
B. Latent and Patent Ambiguities Under English law, an ambiguity is patent if it is ambiguous on the face of the document: Lewin gives an example of a gift to ‘one of my children’ when the settlor has more than one living child. A latent ambiguity is one that is not obvious on the face of the document but becomes one from the admissible evidence of surrounding circumstances. An example from Lewin is a gift to ‘my nephew Joseph Grant’ when there are two individuals who meet that description. Extrinsic evidence of the settlor’s intention is admissible for latent but not for patent ambiguities.43 In Re A Settlement, it was held, obiter, that there was no such distinction under Jersey law, so that in the case of either ambiguity, extrinsic evidence would be admissible. The point was not specifically addressed in Philean v Taylor:44 it was held that there was neither type of ambiguity, so the point did not arise. It is thought that Guernsey law is likely to follow Jersey law on this point, for the reasons already explained.
C. Human Rights Law i. Application of Convention to Private Arrangements The majority of the provisions of the European Convention on Human Rights45 including Article 12 (Right to marry) and Article 14 (Prohibition of discrimination)
40 In Re Jebb, deceased [1966] Ch 666 (CA), 672, per Lord Denning MR. 41 Re Jones’ Will Trusts [1965] Ch 1124. 42 ibid 1132. 43 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) paras 6-012 to 6-014 (‘Ambiguities’). 44 See section II.A of this chapter, n 30. 45 The Convention for the Protection of Human Rights and Fundamental Freedoms (1950) (‘ECHR’), available at www.echr.coe.int.
68 Creation, Validity and Termination have been incorporated into Guernsey law.46 Article 14 ECHR prevents disadvantaging children on the basis of their birth or status, which catches discrimination on the basis that a child is, for example, illegitimate or adopted. However, the Convention does not apply to private arrangements, so it is not unlawful to discriminate in a trust instrument: The prohibition against discrimination applies to governments which have become signatories to the Convention, but the same prohibition does not apply to private individuals, even if they are citizens of a state which has adopted the Convention. The United Kingdom government is therefore prevented from introducing legislation discriminating against adopted children, but individual citizens are not. If therefore the settlor in the present case has included a discriminatory provision in his settlement, he has done nothing wrong and the provision is valid. The task of the court of construction would then be to determine and declare the true meaning and effect of the provision, discriminatory though it is, and I apprehend that in general terms the United Kingdom would not then be infringing the Convention. There will however be an infringement if the court creates a discrimination which was not effected by the settlor.47
In Philean Trust Company Limited v Taylor, the Jersey Court construed the words ‘children’ and ‘issue’, when used in a Jersey law trust, as not to include illegitimate children, holding that it does not seem that the European Convention on Human Rights is of as much assistance to Mr Sinel as he would wish. Article 12 (‘the right to marry and found a family’) is, in the view of the court, at best neutral. Article 14 (‘the enjoyment of [Convention] rights … shall be secured without discrimination’) does not really seem to be relevant here. This is not a case of succession but one where the beneficiaries are nominated by formal deed where the settlors had the right to include or exclude any of their children or issue as they wished.48
ii. Relevance of Convention to Matters of Construction Nevertheless, the Human Rights Law 2000 may affect the construction of trust instruments. That is because any Guernsey legislation must be read and given effect in a way that is compatible with Convention rights, so far as it is possible to do so.49 That applies whenever the legislation was enacted,50 so there is a degree of retrospectivity. As we have seen,51 Guernsey law (in common with English and Jersey law) discriminates against illegitimate children with regard to trust instruments
46 The Human Rights (Bailiwick of Guernsey) Law, 2000 (‘the Human Rights Law 2000’), s 1(1). 47 In re Erskine 1948 Trust [2013] Ch 135, para 25. The Human Rights Law 2000 is based on the UK’s Human Rights Act 1998. 48 Philean Trust Company Limited v Taylor (n 30), para 23. 49 Human Rights Law 2000, s 3(1). 50 Human Rights Law 2000, s 3(2)(a). 51 Section II.A.ii of this chapter.
Principles of Construction 69 executed on or before 8 May 2008 and children adopted outside Guernsey, with regard to anything done or events taking place before 1 June 1979 (‘the discriminatory provisions’). The discriminatory provisions raise three questions in relation to the impact of the Human Rights Law 2000 on Guernsey trust instruments. The first question is whether the discriminatory provisions are incompatible with Convention rights? It has been held in England, following decisions by the European Court of Human Rights, that the equivalent provisions under English law are incompatible as far as adopted children52 are concerned (and there seems no reason why the position should be any different as regards illegitimate children).53 The second question is whether and, if so, to what extent the Human Rights Law 2000 applies to dispositions made before it came into force, the argument being that retrospectivity acts as a deprivation of property rights contrary to A rticle 1 of the First Protocol to the Convention.54 In the context of the application of the Consumer Credit Act 1974 in the UK, it has been held that the UK’s Human Rights Act 1998 did not apply where the cause of action arose and the parties’ rights were determined before the 1998 Act came into force.55 But that limit on retrospectivity was in a very different context. In England, it has been held in this context that the provision equivalent to section 3(1) of the Human Rights Law 200056 applies both to expectancies that became interests in possession after the provision came into force,57 and to interests in property that vested before it came into force but which did not fall into possession until afterwards.58 Since provisions which affect existing rights prospectively are not retroactive, the presumption against retroactivity does not apply. Nor is there any general presumption that legislation does not alter the existing legal situation or existing rights: the very purpose of Acts of Parliament is to alter the existing legal situation and this will often involve altering existing rights for the future …59
One point that has not been the subject of a decided case is whether an interest which has vested in possession before 1 September 2006 is protected from the impact of the Human Rights Law 2000, or whether it is only where the beneficiary had become indefeasibly entitled to the actual property before then. Part of the reason given for the decision in Re Hand’s Will Trust was that the question of who was a ‘child’ only fell to be determined after the relevant date. As such, it is thought 52 Re Hand’s Will Trust [2017] Ch 449. 53 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) paras 6-048 (‘The impact of the Human Rights Act 1998’). 54 Articles 1–3 of the Fist Protocol are incorporated into Guernsey law by Human Rights Act 2000, s 1(1)(b). 55 Wilson v First County Trust Ltd [2004] 1 AC 816. 56 Human Rights Act 1998, s 3(1). 57 Re Erskine (n 47). 58 Re Hand’s Will Trust (n 52); the Court did not follow Re Erskine (n 47) on this point. 59 Wilson v First County Trust Ltd (n 55) para 192; cited with approval in Re Hand’s Will Trust (n 52) [94].
70 Creation, Validity and Termination that the Law would not affect the right of a life tenant to continue to receive trust income. The third question is whether the discriminatory provisions can be read so as to be compatible with Convention rights, rather than their being declared incompatible with Convention rights under section 4. The latter would not affect the beneficial interests under the trust but would give the relevant individual a right to make a claim in the European Court of Human Rights against the State of Guernsey for compensation. In Re Hand’s Will Trusts, it was held that there is no requirement for ambiguity in the legislation for the provision to apply, and that it is possible to interpret legislation in a compatible way by reading in wording that gives it the opposite effect to that which it would otherwise have.60 The point has not yet been considered by the Guernsey courts and cannot be regarded as settled under either English or Jersey law,61 as there is some contrary authority in those jurisdictions, but it is submitted that the decision in Re Hand’s Will Trust is likely to be followed in Guernsey. It was upheld on appeal,62 whereas the other decisions were first instance only, and was the subject of detailed argument and reasoning on the point, which does not appear to have occurred in the other cases.
III. Settlor The settlor is ‘a person who directly or indirectly provides trust property or makes a testamentary disposition on trust or to a trust’.63 It is therefore possible for a company to settle a Guernsey trust, as ‘person’ includes a body corporate.64 Of course there remains a question of the capacity of the company to do so, but a full discussion on that point is outside the scope of this work. Where two or more persons provide property to a trust (such as husband and wife, or where a nominee is used),65 they will all be settlors for the purposes of the Trusts Law 2007. A settlor may be a beneficiary66 or a trustee.67 60 Re Hand’s Will Trust (n 52) [99]–[106]. 61 Timothy Everard Upton v National Westminster Bank Plc and others [2004] EWHC 1962 (Ch); Philean Trust Company Limited v Taylor (n 30); Re Hand’s Will Trust (n 52) has also been doubted and described as ‘controversial’ in a recent case in England: PQ and another v RS and others [2019] EWHC 1643, [22]–[24]. 62 Re Hand’s Will Trust (n 52) was upheld on appeal on 15 August 2018, but the Court of Appeal judgment is unreported; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) para 6-047 (‘The impact of the Human Rights Act 1998’) at fn 215. 63 Trusts Law 2007, s 80(1). 64 The Interpretation (Guernsey) Law 1948, s 2(1). 65 For a brief discussion on the practice of using nominee settlors, see J Kessler, T Pursall and N Chand, Drafting British Virgin Islands Trusts (n 21) para 9.14 (‘Nominal settlor’). 66 Trusts Law 2007, s 8(4); see also Trusts Law 2007, s 15(1)(i): ‘A trust is not invalidated by the reservation … by the settlor … of a beneficial interest in the trust property.’ 67 That is implicit in the definition, which refers to property ‘which has ceased to form part of his own estate’; see section I of this chapter.
Duration and Perpetuities 71
IV. Formalities Other than unit trusts and trust of real property in Guernsey, Guernsey trusts may be created orally, by an instrument in writing, by conduct or in any other manner.68 Unit trusts69 may only be created by an instrument in writing. Similarly, express trusts of Guernsey land created after 17 March 2008 may only be created by an instrument in writing, but the requirement does not apply to resulting, implied or constructive trusts of Guernsey land.70
V. Duration and Perpetuities The English rule against perpetuities has never applied in Guernsey,71 and there was no restriction on the duration of a Guernsey law trust established prior to the Trusts Law 1989.72 Following the advent of the Trusts Law 1989, a maximum duration of 100 years applied to Guernsey law trusts.73 There is no maximum duration for Guernsey trusts established after 17 March 200874 (in this section and the next, a ‘new trust’), and no rule against perpetuities, remoteness of vesting or analogous rule applies to any new trusts. A trust established before 17 March 2008 but after the Trusts Law 1989 came into force (in this section and the next, an ‘old trust’) must still terminate on the expiration of 100 years from the date of its creation, unless it is charitable or is terminated sooner.75 A foreign trust that was established before the Trusts Law 1989 came into force of which the proper law was changed to Guernsey law after the Trusts Law 2007 came into force is not subject to the 100-year maximum duration.76
A. Appointments between Trusts Except as otherwise provided by the terms of the trust, no advancement, appointment, payment or application of income or capital from one trust to another is
68 Trusts Law 2007, ss 6(1), (2) and (3). 69 See also ch 2, section VIII. 70 Trusts Law 2007, s 6(4). 71 Re Tardif 13 GLJ 78 (9 May 1953), see ch 2, n 60. 72 Mercator Trustees Limited v Chrisalis Trustees (Guernsey) Limited, In Re the XYZ Settlement (Royal Court, 25 April 2014) para 26. 73 Note that this is not a perpetuity period as understood under English law, where the interests must vest within the relevant period, so the trust could, in fact, last much longer. Under the old Guernsey rule, the trust had to terminate by the end of the 100-year period. 74 Trusts Law 2007, s 16(1). 75 Trusts Law 2007, s 16(2). 76 Mercator Trustees Limited v Chrisalis Trustees (Guernsey) Limited (n 72) para 31.
72 Creation, Validity and Termination invalidated solely by reason of the recipient trust’s continuing beyond the date on which the first trust must terminate.77 Thus a resettlement from an old trust onto a new trust to extend its duration is permitted in principle, although thought will need to be given to the scope of the relevant powers and whether it is proper exercise of those powers in a particular case. While it is not expressly covered by the legislation, it is also thought that there is no reason why an old trust cannot (in principle) be amended to extend its duration, subject to the same provisos about the scope and exercise of the relevant powers.78
VI. Validity and Enforceability The Trusts Law 2007 puts it beyond doubt that one can create a trust under Guernsey law: Subject to subsections (2) and (3), a trust is valid and enforceable in accordance with its terms.79
Section 11(2) specifies the circumstances in which a trust is invalid and unenforceable (certain aspects of which are discussed below), and section 11(3) considers the position when some of the terms of a trust are invalid and others are not. Subsection 11(2) provides that: A trust is invalid and unenforceable to the extent that: (a) it purports to do anything contrary to [the] law of Guernsey,80 (b) it confers or imposes any right or function the exercise or discharge of which would be contrary to the law of Guernsey, (c) it has no beneficiary identifiable or ascertainable under section 8(1), unless – (i) it is for a charitable purpose, and/or (ii) it is for a non-charitable purpose in relation to which it is valid and enforceable by virtue of section 12(1).81
77 Trusts Law 2007, s 16(3). 78 As to the position under the court’s power to approve a variation, see ch 14, section IV and ch 14, section IV.L regarding the power to restart the perpetuity period. See also Mercator Trustees Limited v Chrisalis Trustees (Guernsey) Limited (n 72), where a trust established under English law in 1972 and changed to Guernsey law in 2008 (after the Trusts Law 2007 came into force) was due to terminate after 60 years; the court approved a variation to extend it, so that it could last in perpetuity. 79 Trusts Law 2007, s 11(1). 80 While the majority of the ECHR (n 45) has been incorporated into Guernsey law (see n 46), it does not affect arrangements made by private individuals, so discrimination in such instances is not contrary to the law of Guernsey, but there may be circumstances in which the Convention affects the construction of a Guernsey trust: see section II.C of this chapter; it may also be relevant to the exercise of the Court’s discretion: see ch 14, section IV.E.i. 81 Trusts Law 2007, s 11(2)(a), (b) and (c); as to s 8(1), see ch 9, section III.
Validity and Enforceability 73
A. Duress, Fraud, Undue Influence or Misrepresentation A trust is invalid and unenforceable to the extent that the Royal Court declares that ‘it was established by duress, fraud, mistake, undue influence or misrepresentation or in breach of fiduciary duty’.82 The Royal Court has held that the position in relation to undue influence is the same as under English law.83 There have been no reported Guernsey cases on rescission due to misrepresentation or duress,84 so the position is less clear, but it is thought that Guernsey law would follow English law on this point.85
B. Mistake See chapter 15, section II (‘General Principles Applicable to Rectification and Rescission) to section IV.D (‘The Customary Law Doctrine of Erreur’).
C. Breach of Fiduciary Duty A trust may also be set aside where that trust is established ‘in breach of fiduciary duty’. One example is where an official receives bribes86 and uses them to create a trust, but this head is potentially very wide; for example, there does not appear to be any additional requirement, such as that which applies to the rule in Hastings-Bass,87 that the person acting in breach of fiduciary duty would have acted differently if he or she had not acted in breach, but the courts may be called upon to clarify its operation in due course. On the other hand, a duty that is not a fiduciary one, even if it is a breach of a duty by a fiduciary, such as a duty of skill and care, would not appear to fall under this head.88
82 Trusts Law 2007, s 11(2)(d)(i). 83 Hitchins, Levy & Hitchins v Hill and Lloyds TSB Offshore Trust Company Limited (Royal Court, 17 October 2011) (Judgment 32/2011); for a summary of the position under English law, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3), paras 4-084 to 4-086 (‘Rescission on the grounds of fraud, duress, misrepresentation or undue influence’). 84 Picot v Jehan (Guernsey CA, 8 March 1990) concerned claims of duress (and undue influence), but the reported case was a preliminary hearing dealing only with matters of evidence. 85 For a summary of the position under English law, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) paras 4-084 to 4-086 (‘Rescission on the grounds of fraud, duress, misrepresentation or undue influence’). 86 Attorney-General for Hong Kong v Reid [1994] 1 AC 324. 87 As to which, see ch 15, section V; Re Hastings-Bass [1975] Ch 25. 88 See the discussion on this point in ch 15, section V.D in the context of the rule in Hastings-Bass.
74 Creation, Validity and Termination
D. Contrary to Public Policy The Court may declare a trust invalid and unenforceable where it ‘is immoral or contrary to public policy’.89 An obvious example of the latter would be where it is created to further a criminal purpose. In the long-running Esteem litigation in Jersey,90 the Jersey Court emphasised that the question of a trust’s being treated as invalid because it is contrary to public policy must be considered as at the time that the trust is established. The Court thought that it would be ‘highly exceptional’ for a trust that is initially valid to become invalid on the grounds of being contrary to public policy. It gave the example of a trust established for an organisation whose sole purpose was religious education, which later furthered terrorist purposes. In those circumstances, the Court could envisage such a trust’s becoming invalid on the grounds of public policy. The Jersey Court in Esteem91 stated that ‘It is undoubtedly contrary to public policy for dispositions to be made (whether into trust or otherwise) with intent to defeat creditors.’ In any event, section 84(2) of the Trusts Law 2007 provides: Nothing in this Law derogates from the powers of the court which exist independently of this Law … to make an order relating to the avoidance of fraud on creditors.
E. Immoral As this is a separate ground, it must be wider than public policy, but there is no guidance as to what is intended to be covered, so it will need to be clarified by the courts. It does raise some interesting questions, which may yet prove to be productive for trust litigators in the Bailiwick. For example, given the current debate about the morality of tax avoidance, particularly in light of the recent comments in the Gresh case,92 might that provide scope for a challenge? It is not thought that such challenges are likely to succeed in normal circumstances, but there may be extreme examples in which they could.
F. Uncertainty Section 11(2)(d)(iii) permits the Court to declare a trust invalid and unenforceable where the terms of the trust ‘are so uncertain that its performance is rendered impossible’.93
89 Trusts
Law 2007, s 11(2)(d)(ii). The Esteem Settlement (Abacus (CI) Limited as Trustee) [2003] JLR 188. 251. 92 See ch 15, section III.B and ch 15, section IV.B. 93 See also ch 9, section III and ch 2, section VI.B. 90 Re
91 ibid
Validity and Enforceability 75 An example comes from Re the Double Happiness Trust,94 a Jersey decision of 2002. Hong Kong accountants drafted a trust instrument subject to Jersey law. There were a number of conflicting provisions and some of the terms were ambiguous. The Jersey Court held95 that there was uncertainty both as to the identity of the beneficiaries and in establishing the beneficial interests. The Court emphasised that it was reluctant to allow a trust to fail for uncertainty because of poor drafting. However, as it could not ascertain the beneficial interests created, it felt it had no option in that case but to declare the trust void for uncertainty. The Guernsey courts will have regard to the English cases on uncertainty,96 but subject to the obvious proviso that non-charitable purpose trusts will not fail under the beneficiary principle97 if the statutory requirements relating to enforcers have been met.98
G. Incapacity In accordance with section 11(2)(d)(iv), the Court may declare a trust invalid and unenforceable if ‘the settlor was, at the time of its creation, incapable of creating such a trust’. Under Guernsey’s conflict of laws rules, the settlor’s capacity is determined under Guernsey law.99
H. Partial Invalidity Where certain terms of a trust are invalid but others are not,100 the Guernsey Court may, if the terms can be separated, declare the other terms of the trust (and, therefore, the trust) to be valid.101 But if the invalid terms of the trust are inseparable from the valid ones, the whole trust will be declared invalid.102 Where the Court has declared parts of the trust to be invalid and others valid, it may declare what property is held on trust and what is not.103 The property of an invalid trust will normally be held by the trustees on trust absolutely for the settlor, or, if he or she is dead, for his or her personal representative.104 94 Re the Double Happiness Trust (2002–03) 5 ITELR 646; [2002] JLR Note 48. 95 ibid 654–55. 96 See, eg, Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) para 4-035 (‘Certainty of objects’). 97 In other words, there must be someone in whose favour the courts can order enforcement; ibid para 4-043 (‘The beneficiary principle’). 98 See ch 2, sections VI and VI.A. 99 Trusts Law 2007, s 14(1); see ch 6, section II.C. 100 For example, where a particular term is ‘so uncertain as to render performance impossible’: Trusts Law 2007, s 11(2)(d)(iii). 101 Trusts Law 2007, s 11(3)(b). 102 Trusts Law 2007, s 11(3)(a). 103 Trusts Law 2007, s 11(4). 104 Trusts Law 2007, s 11(5).
76 Creation, Validity and Termination
VII. Reservation of Powers by the Settlor A common issue with any lifetime trust is how far the settlor can be involved in running the trust without affecting the trust’s validity. Of course, there may be onshore tax or other reasons why any such involvement by the settlor trust is counter-productive to the planning behind it, or which may effectively determine the extent of any powers the settlor may reserve.105 On the assumption that there are no such onshore issues, this section considers the roles a settlor can play in a trust that he or she has settled under Guernsey trust law. This is entirely separate from the question of whether a trust is a sham.106
A. The Test for the Validity of a Lifetime Trust In essence the test is a simple one: has the settlor retained sole beneficial ownership in the trust property? Or, to put it another way, does the document create immediate rights in someone other than the settlor? If the answer to the latter question is yes, it creates a valid trust. So, if the trust contains provisions that are clearly intended to take effect during the settlor’s lifetime, such as giving dispositive powers to the trustees or protector if the settlor becomes mentally incapable, that is clear evidence of the intention to create a lifetime trust.107 But it is not necessary.108 There is a helpful discussion of the earlier cases in the Privy Council decision on Baird v Baird.109 There were two cases in which the documents in question were held to be invalid testamentary gifts: In re MacInnes,110 ‘[h]aving regard to the trusts of the scheme, under which it was perfectly clear that the deceased had an absolute beneficial interest in his share of the fund during his lifetime’;111 and In Re Shirley,112 in which ‘the settlor was entirely free to deal with the fund as his own absolute property’. It is worth stepping back for a moment and recalling that the principle behind the extra requirements for the valid execution of a will are to prevent fraud. So a document that is intended to come into effect only on death is ineffective if it fails to comply with those requirements. That risk of fraud is much reduced for
105 As to the Norman customary law doctrine of donner et retenir ne vaut, see ch 13, section III. 106 As to which, see ch 13, section II. 107 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) paras 1-014 to 1-015 (‘Settlement and will’). 108 ibid para 1-015. 109 Baird v Baird [1990] 2 AC 548. 110 In re MacInnes [1935] 1 DLR 401. 111 Baird v Baird [1990] 2 AC 548 at 558. 112 In Re Shirley (1965) 49 DLR (2d) 474.
Reservation of Powers by the Settlor 77 the typical trust with which we are concerned, where the settlor has executed a detailed written document, normally with the benefit of expert legal advice. In those circumstances, a court would (and should) be very reluctant to strike it down as invalid and defeat the settlor’s wishes.
B. Reservation of Beneficial Interests A settlor may be a trustee, or a beneficiary or both.113 It is also clear that a settlor may reserve a life interest and a power of revocation.114
C. Powers of Revocation, Amendment and Appointment If a settlor validly revokes or varies a trust, that does not prejudice anything lawfully done by a trustee before receiving notice of the revocation or variation.115 If a trust is revoked, in whole or in part, the trust property that is affected by the revocation will be held in accordance with the terms of the trust instrument, or, if there are no such terms, on trust for the settlor absolutely or, if he or she is dead, for his or her personal representative.116 While it does not say so expressly, it is clear in this context that the personal representative must take in a representative capacity, not beneficially. The settlor may also reserve a power to advance, appoint, pay or apply any trust income or capital, so may reserve a general power of appointment,117 as well a power to amend.118
D. Power to Direct Investments The settlor may reserve a power to direct investments.119 That may be a fiduciary or non-fiduciary power.120 As to the issues that arise where family companies are settled on trust, see chapter 12 of this volume. 113 See section III of this chapter. 114 Tompson v Browne (1835) 3 My & K 32; that is confirmed by Trusts Law 2007, s 15(1)(a) (revocation) and s 15(1)(i) (beneficial interest). 115 Trusts Law 2007, s 50(2). 116 Trusts Law 2007, s 50(3). 117 This follows from the general principles outlined above, but is confirmed by Trusts Law 2007, s 15(1)(b) and s 49; see also ch 8, section II.P. 118 Trusts Law 2007, s 15(1)(a). 119 Lord Vestey’s Executors v IRC [1949] 1 All ER 1108; Re Hart’s Will Trust [1943] 2 All ER 557; confirmed by Trusts Law 2007, s 15(1)(d). 120 Lord Vestey’s Executors v IRC (n 120), but a non-fiduciary power requires ‘the most direct and express words’.
78 Creation, Validity and Termination
E. Is there such a Thing as an Excess of Reserved Powers? Much has been written on this topic,121 including the possibility that an excess of powers might mean that the trust is no more than a bare trust and that there are, unfortunately, no clear rules as to which powers may be reserved. As outlined above, the test is – in principle – a simple one: if the trustee is holding the assets to the order of the settlor, there is a bare trust only. In principle, it does not therefore matter how many powers the settlor reserves, as a power is not property.122 However, there are three important caveats to that. First, a provision that is, on the face of it, couched in terms of a power may, on its true construction, mean that the settlor retains sole beneficial ownership in the assets. For that reason, it is not normally advisable to state that ‘The Trustee shall hold the trust fund and its income as the settlor directs during her life and on her death …’. Second, where a settlor does retain significant control, it becomes even more important to ensure that the trust is administered meticulously and that all formalities are complied with.123 Third, it is critical not to exclude rights beneficiaries would otherwise have, such as rights to information and the inspection of documents, as the result may be that no rights have been created in anyone other than the settlor during his or her lifetime.124
F. The Irreducible Core? It is sometimes said that if a settlor reserves too many powers, there is a risk that the trust will fail because the trust will not have the ‘irreducible core’ of obligations. This is a reference to Lord Millett’s judgment in Armitage v Nurse,125 in which he said: I accept the submission made on behalf of Paula that there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which
121 For example, see C McKenzie, ‘Having and Eating the Cake: A Global Survey of Settlor Reserved Power Trusts’ [2007] PCB 336 (part 1) and [2007] PCB 428 (part 2), which contains references to much of the literature on the topic available at the time. 122 Although certain powers may be treated as if they were property for certain purposes: Tassarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17. 123 For a discussion of the drafting issues, see J Kessler QC and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) paras 16.14–16.21; J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts (n 21) paras 16.14–16.22. 124 In the Bermuda case, Re AQ Revocable Trust [2011] WTLR 373, the fact that the settlor could release himself (as sole trustee) from any liability meant that there was no accountability to anyone other than the settlor, and that was a key factor in the court’s finding that it was not a valid lifetime trust and that the settlor remained sole beneficial owner of the assets. 125 Armitage v Nurse [1998] Ch 241, 254.
Reservation of Powers by the Settlor 79 is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient.
While Lord Millett’s comments are undoubtedly correct, care should be taken in reading too much about reserved powers into this judgment. Armitage v Nurse was concerned solely with the validity of an exoneration clause126 and what minimum standard of care was required to give substance to the trusts. Lord Millett said nothing about the reservation of powers. In relation to duties, he confirmed the point made above,127 that there must be some obligations owed to beneficiaries other than the settlor.
G. Reservation of Powers – Statutory Provisions The Trusts Law 2007 confirms that the reservation to the settlor or grant to any person of any or all of a list of powers does not invalidate the trust.128 The relevant powers are: (a) a power to revoke, vary or amend the terms of the trust or any trusts or functions arising thereunder, in whole or in part, (b) a power to advance, appoint, pay or apply the income or capital of the trust property or to give directions for the making of any such advancement, appointment, payment or application, (c) a power to act as, or give directions as to the appointment or removal of, a director or other officer of any corporation wholly or partly owned as trust property, (d) a power to give directions to the trustee in connection with the purchase, retention, sale, management, lending or charging of the trust property or the exercise of any function arising in respect of such property, (e) a power to appoint or remove any trustee, enforcer, trust official or beneficiary, (f) a power to appoint or remove any investment manager or investment adviser or any other professional person acting in relation to the affairs of the trust or holding any trust property, (g) a power to change the proper law of the trust or the forum for the administration of the trust, (h) a power to restrict the exercise of any function of a trustee by requiring that it may only be exercised with the consent of the settlor or any other person identified in the terms of the trust, (i) a beneficial interest in the trust property.
126 Trustee exoneration clauses are discussed in ch 8, sections V.H to V.K; and protector exoneration clauses are discussed in ch 10, section XI. 127 See section VII.A of this chapter. 128 Trusts Law 2007, s 15(1); see also s 49 and ch 8, section II.P of this volume.
80 Creation, Validity and Termination As we have seen, many of these confirm that Guernsey law follows the English case law, and it is thought that they are merely declaratory of the position under English law in any event, although it is helpful for it to be clarified so that it is put beyond doubt. It also provides that the reservation or grant of those powers does not make the holder of the power or interest a trustee or, subject to the terms of the trust, a fiduciary.129 The trustee is not liable for any loss to the trust property as a result of the reservation, grant or exercise of any such powers,130 nor is it acting in breach of trust if it complies with a valid exercise of a reserved power.131
H. Pugachev It is not thought that the Pugachev132 decision affects the position in relation to the validity of reserved powers trusts. The case concerned five New Zealand law trusts, but was decided by the High Court in England on the basis that New Zealand law was the same as English law in all material respects. The background was that Mr Pugachev had controlled Mezhprom Bank, a private bank that went into liquidation in the 2008 financial crash with liabilities exceeding US$1bn. He fled Russia in 2011, after a criminal investigation was commenced against him in connection with the bank’s collapse. He established the trusts in 2013, and the liquidator of the bank commenced proceedings against him in the High Court in England in 2014 to recover the bank’s losses. One of the claims – referred to as ‘The True Effect of the Trusts Claim’133 – was that the trusts were not valid trusts and that Mr Pugachev remained the absolute beneficial owner of the assets. Mr Pugachev was the protector of each of the trusts, and the trust deeds provided that his protectorship would automatically terminate in circumstances where he was ‘under a disability’, a term that included when Mr Pugachev was subject to the claims of creditors. The protector’s powers were extensive, and included powers to: (a) (b) (c) (d) (e) (f)
veto the distribution of income or capital from the trusts; veto the investment of the trust funds; veto the removal of beneficiaries; veto any variation to the trust deeds; veto the release or revocation of any power granted to the trustees; veto the early termination of the trust period;
129 Trusts Law 2007, s 15(2)(a) and (b), but see ch 10, section V. 130 Trusts Law 2007, s 15(2)(c). 131 Trusts Law 2007, s 15(3). 132 JSC Mezhdunarodniy Promyshlenniy Bank and another v Sergei Viktorovich Pugachev and others [2017] EWHC 2426 (Ch) (‘Pugachev’). 133 ibid [212]–[279].
Reservation of Powers by the Settlor 81 (g) appoint and remove trustees, with or without cause; (h) add further beneficiaries; and (i) veto an amendment to the trusts by the trustees. Mr Pugachev was also one of the discretionary beneficiaries. The decision has spawned considerable comment in the legal press, much of it critical.134 In our view, much of the criticism is well-founded. First, the test that Birss J applies appears to be whether the settlor had power in practice to procure the transfer of the trust property to himself, without the consent of any other person and being able to act solely in his own selfish interest. For example, he says: If Mr Pugachev’s powers as Protector are limited as contended for by the defendants then the effect of these deeds on their face would be that he has ceded control of the assets to the trustees without the power to get them back. He would not then be the beneficial owner of the assets.135
and However consider a protector who is not a fiduciary. In the capacity of such a protector, the unscrupulous person can prevent the trustees from distributing the money to anyone but himself (or herself) and can remove recalcitrant trustees who fail to do his or her bidding and replace them with trustees willing to do what the unscrupulous person wants.136
With respect to Birss J, that cannot be the proper test. It is settled law that the retention of a power of revocation, which would permit exactly that, is valid.137 Second, that test was in any event not met in the Pugachev case. It was suggested that ‘[a] trustee who refused to distribute trust assets to the Protector could be removed and replaced by one who will’.138 But it was accepted that the trustee had fiduciary powers. If the protector did act in that manner, the removed trustee, if it believed it was being replaced in order to facilitate a breach of trust, is likely to have a duty to apply to the court for directions.139 It would also be a breach of trust
134 See, eg, D Russell and T Graham, ‘Sham Trusts and Pugachev, The International Academy of Estate and Trust Law’ (2018) 24(1) Trusts & Trustees 1; G Hogan, ‘Mezhprom Bank v Pugachev [2017] EWHC 2426 (Ch)’ (2018) 24(2) Trusts & Trustees 212; J Brightwell and L Richardson, ‘Mezhprom Bank v Pugachev: bold new approach or illusory development?’ (2018) 24(5) Trusts & Trustees 398; R Davern and A Way, ‘An offshore perspective on the “True Effect” of Mr Pugachev’s trusts’ (2018) 24(5) Trusts & Trustees 406; C Moss, ‘A sham trust, and an Illusory trust but not in those terms; Pugachev explained’ [2018] PCB 126. 135 Pugachev (n 132) [246] (emphasis added). 136 ibid [182]. 137 See section VII.B of this chapter. 138 Pugachev (n 132) [244]. 139 Jasmine Trustees Ltd v L [2015] JRC 196, paras 48–49; In the matter of the Z Trust [2016] JRC 048; see also the discussion in Brightwell and Richardson, ‘Mezhprom Bank v Pugachev: bold new approach or illusory development? (n 134).
82 Creation, Validity and Termination for the new trustee to act on the protector’s instructions, without regard to the interests of the beneficiaries as a whole.140 Third, the finding that the protector’s power to remove and appoint trustees was a wholly beneficial141 power is questionable, and has been described as a ‘surprising one’, in light of the fact that there was no evidence of subjective intention outside of the terms of the trust itself and (as Brightwell and Richardson argue) that insufficient weight had been given to the relevant case law.142 In addition, one of the reasons given for that finding was that the power was expressed to be exercisable ‘with or without cause’: The fact that the power of removal of trustees is expressed to be ‘with or without cause’ is significant. In the context of all the other factors in this case, to go to the trouble of saying expressly that removal of a trustee may be without cause seems to me to negative any idea that the power is subject to a limitation of any kind.143
However, while it is not a standard provision, it is not particularly unusual. Nor, crucially, does it mean that the powers are not fiduciary.144 It simply means that there is no need for any fault on the part of the trustee before the power becomes exercisable. That simply states the position under the general law in the absence of such a provision, and is entirely consistent with the power’s being fiduciary.
I. Duties to Consult and Obtain Consent A trust may impose obligations on the trustee to consult or obtain the consent of another person before exercising any functions.145
VIII. Termination of Trusts The rule applicable to Guernsey trusts is that146 notwithstanding the terms of the trust, where all the beneficiaries are in existence and have been ascertained, and none is a person under legal disability or minor, 140 See the discussion in Brightwell and Richardson, ‘Mezhprom Bank v Pugachev: bold new approach or illusory development? (n 134); this point is clearly illustrated by the hypothetical scenarios discussed in Davern and Way, ‘An offshore perspective on the “True Effect” of Mr Pugachev’s trusts’ (n 134) 410–11, under the heading ‘Some other considerations’. 141 They are generally referred to as ‘purely personal’ in the judgment; eg see Pugachev (n 132) [244]; see also ch 10, section V and ch 10, section V.A for a discussion of this point generally. 142 Brightwell and Richardson, ‘Mezhprom Bank v Pugachev: bold new approach or illusory development? (n 134) 401. 143 Pugachev (n 132) [272]. 144 Davidson v Seelig [2016] EWHC 549 (Ch). 145 Trusts Law 2007, s 32(2); ch 10, section II.A and ch 10, section V. 146 As to the application of the rule in Saunders v Vautier (1841) 4 Beav 115 to 1890 Trusts, see ch 2, section II.E.
Termination of Trusts 83 they may require the trustees to terminate the trust and distribute the trust property among them.147
While it had previously been held that this was a codification of the rule in Saunders v Vautier,148 which applies under English law,149 it has now been held that the statutory rule under Guernsey law differs. In particular, with regard to a discretionary trust, there is no need for the class of beneficiaries to have closed before section 53(3) can be invoked. So a power to add beneficiaries does not prevent the rule from applying if the sole members of the class acting together wish to terminate the trust.150 The Deputy Bailiff noted that ‘[t]here is nothing on the face of section 53(3) of the 2007 Law that refers to the beneficiary or all the beneficiaries having to establish an absolute, vested and indefeasible interest in the trust property’.151 It is, however, interesting that the Deputy Bailiff himself noted in Rusnano that ‘This conclusion may not be what was intended when section … 53 of the 2007 Law was enacted.’152 The application of section 53(3) may have some unintended consequences. For example, it follows that a so-called ‘black hole trust’ that has a charity, often the Red Cross, as the only named beneficiary, with a power to add further beneficiaries, could be terminated by that charity at any time, with all the trust property then being distributable to the charity, which would in most cases defeat the settlor’s intentions. Beneficiaries cannot require trustees to act in breach of their obligations to third parties or override the rights of the trustees, so the trustee is entitled to retain some or all of the trust assets to satisfy its right to indemnity.153 So where the obligation of the trustee under a bare trust to transfer property as directed by the beneficial owner was expressly subject to conditions that all of the trustee’s outstanding fees had been paid and the beneficial owner had identified an alternative administrator, it seems that those conditions must normally be met before the trustee is under the obligation to transfer the property.154 The rule will not therefore apply ‘where it would undermine the fundamental commercial purpose of the transaction in which the trust device has been used’.155 However, the mere fact that there might be a breach of the trustee’s obligations to third parties is not sufficient to prevent the application of the rule if the ‘balance 147 Trusts Law 2007, s 53(3). 148 Saunders v Vautier (n 146). 149 Maria Bond v Equiom Trust (Guernsey) Limited (Royal Court, 4 June 2018) (Judgment 24/2018) para 25; see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) para 24-009 (‘Conversion of special trust into simple trust – the rule in Saunders v Vautier’). 150 Rusnano Capital AG v Molard and Pullborough [2019] GRC 011. 151 ibid para 32. 152 ibid para 33. 153 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 3) para 24-012; Maria Bond v Equiom Trust (n 149) para 25. 154 Maria Bond v Equiom Trust (n 149) 37. 155 J McGhee QC (ed), Snell’s Equity, 33rd edn (Sweet & Maxwell, 2014) para 29-030 (‘Rule in S aunders v Vautier’).
84 Creation, Validity and Termination lies in favour’ of the beneficial owner, in that the ‘certainty of the position vis à vis the [beneficial owner] is stronger and so outweighs the possibilities of what might follow were [the third party] to take action against [the trustee] at some future point’.156 On termination of a trust, the trustees have an obligation to distribute the trust property within a reasonable time in accordance with the terms of the trust to the persons entitled to it.157 They may however, require reasonable security for liabilities before distributing it.158 The court has wide powers, on the application of any person mentioned in section 69(2)159 of the Trusts Law 2007, to: (a) direct the trustees to distribute, or not to distribute, the trust property, or (b) make such other order in respect of the termination of the trust and the distribution of the trust property as it thinks fit.
156 Maria Bond v Equiom Trust (n 149) 33. 157 Trusts Law 2007, s 53(1). 158 Trusts Law 2007, s 53(2); as to the meaning of ‘reasonable security’ in this context, see ch 7, section VII.C. 159 See ch 12, section III.A.
6 Conflict of Laws I. Introduction Where there is no statutory provision or customary law, Guernsey law will normally apply English common law rules to questions of private international law, unless they are demonstrably unsatisfactory.1 French legal principles will be considered.2 But as the conflict rules in relation to trusts are set out in some detail in the Trusts Law, it is only necessary to consider the customary law rules in limited circumstances, as discussed below. With regard to the characterisation of the issue for private international law purposes, the principles of Guernsey law are the same as English law, except where they have been modified by a Guernsey statute.3
II. Proper Law The proper law is that chosen, expressly or impliedly, by the settlor in the terms of the trust.4 If no such law has been chosen, the proper law is that with which the trust has its closest connection at the time of its creation, regard being had in particular to: (i) (ii) (iii) (iv)
the place of administration designated by the settlor; the situs of the assets; the place of residence or business of the trustee; the objects and the places where they are to be fulfilled.5
The closest connection test closely follows the wording of the Hague Convention,6 so English cases (and those from other jurisdictions that are parties to the Convention) will be persuasive in Guernsey.7 To come within paragraph (i), the 1 G Dawes, Laws of Guernsey, 1st edn (Hart Publishing, 2003) ch 20, 507–09. 2 See, eg, B Audit, Droit International Privé, 7th edn (Economica, 2013). 3 Investec v Glenalla [2018] UKPC 7 [64]–[65]. 4 Trusts Law 2007, s 3(1)(a). This is expressly subject to s 51 (‘Change of proper law’) and s 57 (‘Variation of trusts on behalf of minors etc’). 5 Trusts Law 2007, s 3(1)(b); see also Rothschild Trust Guernsey limited v Adamantios (Diamantis) Pateras & Katigko-Kalliopi (Royal Court, 3 May 2011) (Judgment 15/2011). 6 The Hague Convention on the Law Applicable to Trusts and on their Recognition (1 July 1985). 7 See, eg, Armenian Patriarch of Jerusalem v Sonsino and others [2002] EWHC 1304.
86 Conflict of Laws place of administration must be ‘designated by the settlor’.8 If it is not so designated, the place of administration is not one of the criteria to which particular regard should be had, but as these criteria are not exhaustive, it may still be considered as a factor in certain circumstances. It is not clear whether the designation must be express or can be implied from the terms of the trust and surrounding circumstances, but it is thought that an implicit designation should be sufficient, as it is the settlor’s intention here that is significant.
A. Proper Law of Transfers of Beneficial Interests in Trusts Where the proper law of the trust is Guernsey, the proper law of any purported transfer of a beneficial interest in the trust is also that of Guernsey.9
B. Change of Proper Law The terms of a trust may provide for the proper law to be changed from Guernsey law to that of any other jurisdiction. Any such change does not affect the legality or validity of, or render anyone liable in respect of, anything done before the change.10 The Trusts Law 2007 is silent on the change of the proper law to that of Guernsey, but there is no doubt that it is permitted under general law.11
C. Significance of Proper Law All questions arising in relation to a Guernsey trust or any disposition of property to it are determined according to Guernsey law, without reference to the laws of any other jurisdiction.12 This specifically includes questions as to: (a) the capacity of the settlor; (b) the validity, interpretation or effect of the trust or disposition, or any variation or termination thereof; (c) the administration of the trust, whether it is conducted in Guernsey or elsewhere, including (without limitation) questions as to the functions, appointment and removal of trustees and enforcers; 8 See AE von Overbeck, Explanatory Report on the 1985 Hague Trusts Convention (1984), para 78. 9 Hitchins, Levy & Hitchins v Hill and Lloyds TSB Offshore Trust Company Limited (Royal Court, 17 October 2011) (Judgment 32/2011) para 13. 10 Trusts Law 2007, s 51(1) and (3). 11 See, eg, L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 11–229 (‘Changing the proper law’). 12 Trusts Law 2007, s 14(1); this section was referred to in Rothschild Trust Guernsey limited v Adamantios (n 5).
Proper Law 87 (d) the existence and extent of any functions in respect of the trust, including (without limitation) powers of variation, revocation and appointment, and the validity of the exercise of any such function; (e) the distribution of the trust property. For the purposes of this provision, references to Guernsey law exclude Guernsey rules of private international law, so it is clear that the trust rules take precedence over any other such rules (eg in relation to property, succession, bankruptcy or matrimonial law) that may otherwise be relevant. These rules are made ‘subject to the terms of the trust’, so different aspects of the trust can be made subject to different proper laws.13
D. Reservation of All Questions to Local Law The Guernsey legislation refers all questions in relation to a Guernsey trust to Guernsey (domestic) law, rather than a list of specific matters only.14 This ensures that there are no potential gaps where an argument may be made that a foreign law should be applied. It has been noted15 that the list of specific matters covered includes some, but not all of those matters listed in Article 8 of the Hague Convention, but nothing can turn on that, as it is clear that all questions are governed by Guernsey law and that the list is non-exclusive (it is introduced by the words ‘including (without limitation)’.
E. The Hague Convention There has been some discussion as to the interaction of Articles 15 and 16 of the Hague Convention with the statutory conflict rules, both generally16 and in relation to the Guernsey rules in particular.17 In fact, while the Convention was extended to Guernsey by the UK,18 it does not form part of Guernsey domestic law. There is therefore no risk of conflict.
13 As to which, see section II.F.ii. 14 For a discussion on this point, see S Collins, ‘The Last frontier: enforcing foreign judgments against offshore trusts after Pattni v Ali’ (2009) 15(1) Trusts & Trustees 21. 15 J Harris, ‘Guernsey’s private international law rules for trusts – model offshore solution or recipe for conflict?’ JGLR, October 2008 para 3. 16 The Hon Mr Justice D Hayton, ‘International Recognition of Trusts’ in D Hayton (ed), The International Trust, 3rd edn (Jordans, 2011) ch 3, paras 3.42–3.54. 17 Harris, ‘Guernsey’s private international law rules for trusts’ (n 15), paras 8–9. 18 The notification was registered on the Records of the Island on 29 June 1993: Ordres en Conseil, vol XXXIV, 438.
88 Conflict of Laws It seems that the approach taken was to enact the key substantive provisions of the Hague Convention into domestic law without reference to the Convention.19 The policy letter resulting in the 1989 Trusts Law supports that conclusion: Enactment of a formal Trusts Law will also enable an extension to Guernsey of the 1984 Hague Convention on the Law Applicable to Trusts and on their Recognition.20
That also seems to have been the view of the Royal Court:21 In the case of England and Wales, the incorporation of the provisions of the Hague Convention into domestic law by way of the 1987 Act,22 which is the equivalent of the relevant provisions in Guernsey’s 2007 Law …23
Given the content of the policy letter, it is thought that regard may be had to the Convention if the Trusts Law 2007 is ambiguous,24 although the clarification of the extent of section 65 by the Privy Council25 has reduced the circumstances in which consideration of the Hague Convention might be needed. Even if the Hague Convention were part of Guernsey domestic law, it is not thought that there would be any real risk of conflict. Article 15 provides that: The Convention does not prevent the application of provisions of the law designated by the conflicts rules of the forum, in so far as those provisions cannot be derogated from by voluntary act …
We need to consider the effect on each forum separately. As far as the Guernsey courts are concerned, it is clear that the law ‘designated by the conflicts of laws rules of the forum’ is Guernsey law, subject only to the specific provisos set out in section 14(2).26 That is put beyond doubt in section 14(1), which provides that it is ‘without reference to the laws of any other jurisdiction’ and that, importantly, the reference to the application of Guernsey law does not include Guernsey’s private international law rules. It is therefore clear that all Guernsey conflict of laws rules on all other areas of law, including those listed in Article 15, are excluded. If the matter comes before a court of another jurisdiction that has ratified the Hague Convention, it may (or must, depending on which view is correct27) apply 19 One example is Trusts Law 2007, s 65 (‘Enforceability of foreign trust’), as to which see section III.A. By contrast, the Convention has direct legislative effect in the UK by virtue of the Recognition of Trusts Act 1987, s 1(1): ‘The provisions of the Convention set out in the Schedule to this Act shall have the force of law in the United Kingdom.’ The position in Jersey is similar: J Sheedy and S Baker, Litigating Trust Disputes in Jersey, 1st edn (Hart Publishing, 2017) paras 2–68 to 2–72. 20 Billet d’État No IX of 1988, 244. 21 Dervan v Concept (Royal Court, 30 November 2012) (Judgment 38/2012); see also the Guernsey Court of Appeal judgment in Stuart-Hutcheson v Spread Trustee Company Limited (CA, 15 July 2002) (Judgment 9/2002) para 20. 22 Recognition of Trusts Act 1987. 23 Dervan v Concept (n 21) para 20 (emphasis added). 24 Pepper v Hart [1993] AC 593. 25 See section III.A. 26 See section II.F. 27 See Harris, ‘Guernsey’s private international law rules for trusts’ (n 15) paras 8–9 for a discussion of this point.
Proper Law 89 the law designated by its conflict rules. So a court in a civil law jurisdiction may (or will) disregard a Guernsey trust to the extent it contravenes its mandatory rules on forced heirship. Thus, where a Guernsey trust is in contravention of another jurisdiction’s mandatory rules, the Guernsey courts will apply Guernsey law (without regard to the laws of any other jurisdiction) and the courts of other jurisdictions may (or must) apply their own mandatory rules.
F. Provisos to the General Rule: Derogations in Favour of Foreign Law i. Ownership of Property There are nevertheless seven provisos where foreign law applies. These provisos are based on the equivalent Jersey provisions, which are in turn based on the Cayman foreign element law.28 The first two are that the general rule: (a) does not validate any disposition of property which is neither owned by the settlor nor the subject of a power of disposition vested in the settlor, (b) does not affect the recognition of the law of any other jurisdiction in determining whether the settlor is the owner of any property or the holder of any such power …29
These paragraphs preserve the conflict rules under property law for determining whether the settlor owned the property or had power to dispose of it. The questions of whether the settlor has capacity to effect the transfer of the property and to do so in trust are to be determined under Guernsey law by virtue of the general rule that all matters in relation to a Guernsey law trust, including questions as to the capacity of the settlor, are to be determined by Guernsey law.30 As to the transfer of legal title to the property to the trustee, see section II.F.iv (‘Formalities for the Transfer of Property’).
ii. Subject to Contrary Provision in the Trust The general rule: (c) is subject to any express provision to the contrary in the terms of the trust or disposition …31
The precise scope of this provision is not entirely clear, but if it were intended to give unfettered power to a settlor to change the choice of law rules, it is thought
28 Trusts
Law (2020 Revision), s 90. Law 2007, s 14(2)(a) and (b). 30 See section II.C. 31 Trusts Law 2007, s 14(2)(c). 29 Trusts
90 Conflict of Laws that clearer wording would have been used. It is submitted that the better view32 is that it reflects the fact that a settlor may apply a different proper law to different aspects of the trust,33 or may, for example, make a disposition expressly subject to foreign forced heirship rights.34
iii. Capacity of a Corporation The general rule: (d) does not, in determining the capacity of a corporation, affect the recognition of the law of its place of incorporation …35
In contrast to paragraph (a),36 this is not limited to the corporation’s capacity to act as settlor, and it is therefore thought that it includes its capacity to act as a trustee, beneficiary or protector (or other trust official). However, the Hague Convention37 provides that the proper law (that is the law excluding the conflict of laws rules38) governs the capacity of the trustee to act as such, so it is arguable that Guernsey domestic law will apply to the question of a foreign corporation’s capacity to act as trustee, and that this proviso should be construed as excluding that question. It has been suggested39 that the use of the word ‘recognition’ could confer discretion on the Guernsey court. It is thought that the better view is that the Guernsey courts are required to apply the law of the place of incorporation to determine the capacity of the corporation. That is supported by the use of the phrase ‘does not … affect’, which implies that the previous conflict rules are preserved.40
iv. Formalities for the Transfer of Property The general rule: (e) does not affect the recognition of the law of any other jurisdiction prescribing the formalities for the disposition of property …41 32 That is also Professor Harris’s view: Harris, ‘Guernsey’s private international law rules for trusts’ (n 15) para 14. 33 This is consistent with Art 9 of the Hague Convention, which provides that ‘In applying this Chapter a severable aspect of the trust, particularly matters of administration, may be governed by a different law’. 34 See section IV.D. 35 Trusts Law 2007, s 14(2)(d). 36 See section II.F.i. 37 Art 8(a). 38 Art 17. 39 See Harris, ‘Guernsey’s private international law rules for trusts’ (n 15) para 16. 40 The capacity of a corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country that governs the transaction in question. All matters concerning the constitution of a corporation are governed by the law of the place of incorporation; the capacity of a corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country that governs the transaction in question: Lord Collins (ed), Dicey, Morris & Collins, The Conflict of Laws, 15th edn (Sweet & Maxwell, 2012, 5th Supplement 2018) para 30R-020 (Rule 175). 41 Trusts Law 2007, s 14(2)(e).
Proper Law 91 This preserves the application of the law designated by Guernsey’s choice of law rules for the formal validity of dispositions of property.42 As with the rule concerning the capacity of a corporation,43 it uses the word ‘recognition’, but it is thought that this does not confer any discretion on the court.
v. Real Property Dispositions Subject to section 14(3) of the Trusts Law 2007,44 the general rule: (f) … does not validate any trust or disposition of real property situate in a jurisdiction other than Guernsey which is invalid under the law of that jurisdiction …45
As this is subject to section 14(3), the fact that the law of the jurisdiction where the real property is situated does not recognise trusts, or that the trust would defeat heirship rights or rights conferred by a personal relationship to the settlor or a beneficiary, does not affect the validity of the trust or the disposition. Subject to that, Guernsey law will defer to the relevant foreign law to determine whether the trust or disposition of foreign real property is valid.
vi. Testamentary Dispositions Subject to section 14(3) of the Trusts Law 2007,46 the general rule: (g) … does not validate any testamentary disposition which is invalid under the law of the testator’s domicile at the time of his death …47
This does not distinguish between real and personal property, so it seems that a Guernsey testamentary trust of foreign real property must be valid under the law both where the property is situated and where the testator is domiciled.
vii. Joint and Community Property Proviso (a)48 prevents a co-owner of property from settling it on trust without the consent of the other co-owner, as he or she is not the owner and does not have the requisite power of disposal for these purposes. Depending on the nature of the co-ownership, the disposal may be effective as to the settling co-owner’s share. 42 While the wording might have been clearer, it is not thought that there is any real doubt on this point; Professor Harris also concludes that it ‘must mean’ this: see Harris, ‘Guernsey’s private international law rules for trusts’ (n 15) para 17. 43 See section II.F.iii. 44 Section 14(3) deals with non-recognition of trusts by the foreign jurisdiction and issues relating to foreign matrimonial and forced heirship claims, as to which see section IV.D. 45 Trusts Law 2007, s 14(2)(f). 46 Section 14(3) deals with non-recognition of trusts by the foreign jurisdiction and issues relating to foreign matrimonial and forced heirship claims, as to which see section IV.D. 47 Trusts Law 2007, s 14(2)(g). 48 See section II.F.i.
92 Conflict of Laws Community of property is more nuanced and will normally turn on an analysis of the relevant regime. If the effect of the regime is such that the spouse is the beneficial co-owner of the property, the gift into trust will be invalidated by proviso (a), at least in relation to the other co-owner’s share.49 Conversely, if it merely gives rise to a contractual claim, it is likely that the settlement of the relevant property will be valid, as capacity is determined under Guernsey law.
III. Jurisdiction of the Guernsey Court The Royal Court has jurisdiction in respect of a Guernsey trust50 and any other trust: (i) a trustee of which is resident in Guernsey, (ii) any property of which is situated or administered in Guernsey, or (iii) the terms of which provide that the Royal Court is to have jurisdiction.51
Regarding (i), a corporation52 is resident in the place where it has its registered office.53 Regarding (ii), if shares in a company are transferrable by an entry on the register under the law of its incorporation, they will be situated where the register is kept, which is not necessarily the same as the location of the registered office.54 Under (iii), jurisdiction can be conferred on the Guernsey courts where there is no connection to Guernsey other than the jurisdiction clause. It is of course another matter whether the Guernsey court will consider Guernsey to be the most appropriate forum to determine relevant proceedings.
A. Foreign Trusts A foreign trust55 is ‘governed by, and shall be interpreted in accordance with, its proper law’.56 This means that the applicable foreign law governs ‘all the types of 49 S Warnock-Smith QC, ‘Community property versus the firewall: a warning to trustees and their advisers’ (2014) 20(4) Trusts & Trustees 335–38. The background to Re Med Vineyards Ltd (in liquidation) 20 GLJ 7 (25 July 1995), was that payments through a company were attacked on the grounds that a community property regime had been breached. 50 A ‘Guernsey trust’ is one of which the proper law is the law of Guernsey: Trusts Law 2007, s 3(2). It is thought that this includes a constructive trust: see ch 3, section IV.F and ch 5, section I.A. 51 Trusts Law 2007, s 4(1). This section was referred to in Rothschild Trust Guernsey limited v Adamantios (Diamantis) Pateras & Katigko-Kalliopi (Royal Court, 3 May 2011) (Judgment 15/2011); in Colour Trusts, Wilson and Monaghan v Le Gallez (Royal Court, 24 May 2012) (Judgment 24/2012), the Court held that it had jurisdiction under this section over a Jersey law trust administered from Guernsey. 52 A ‘corporation’ is a ‘body corporate wherever incorporated’: Trusts Law 2007, s 80(1). 53 Trusts Law 2007, s 80(2). 54 Dicey, Morris & Collins, The Conflict of Laws (n 36) para 22–044 (‘Shares in companies’). 55 That is one whose proper law is not that of Guernsey: Trusts Law 2007, s 80(1). 56 Trusts Law 2007, s 65(1); as to ‘proper law’, see section II.
Jurisdiction of the Guernsey Court 93 matter dealt with in relation to Guernsey trusts by Part II’57 of the Trusts Law 2007, including the liability of trustees to third parties. A foreign trust is unenforceable to the extent that: (a) it purports to do anything contrary to the law of Guernsey, (b) it confers or imposes any right or function the exercise or discharge of which would be contrary to the law of Guernsey, or (c) the Royal Court declares that it is immoral or contrary to public policy.58
This echoes the equivalent provisions in relation to Guernsey trusts.59
B. Exclusive Jurisdiction It is better to avoid references to the ‘forum for administration’: the phrase is ambiguous and has led to considerable litigation over recent years.60 It is a matter of construction, so its meaning may depend on the precise wording and context, but it is thought that a typical provision (eg ‘the courts of Guernsey shall be the forum for the administration of this trust’) confers exclusive jurisdiction on the Guernsey courts in relation to matters of administration.61 The better course is to refer to the courts that have exclusive jurisdiction, if that is the intention.62 With regard to the effect of exclusive jurisdiction clauses, it was held in Crociani63 that the starting point is to apply the principles applicable to such clauses in contracts, that is: [T]he English court will ordinarily exercise its discretion … to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum (the burden being on him) can show strong reasons for suing in that forum …64
However, there is some authority that less weight would be given to them in trusts on the basis that there was no contractual bargain with the successor trustees and beneficiaries.65 57 Investec v Glenalla [2018] UKPC 7 [95]. 58 Trusts Law 2007, s 65(2). 59 As to which, see ch 5, sections VI et seq. 60 Koonmen v Bender [2002] JC 218, on appeal from [2002] JLR 407; Helmsman v Bank of New York Trust Company (Cayman) Limited [2009] CILR 490; Crociani v Crociani [2014] UKPC 40. 61 As to which, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 11) para 11–054 (‘Matters within the scope of jurisdiction clause’). 62 In In the matter of the Representation of AA [2010] JRC 164, it was held that a clause stating that the courts of Jersey were the forum of administration did not confer exclusive jurisdiction on the Jersey courts. 63 Crociani v Crociani [2014] UKPC 40, a decision of the Privy Council on appeal from the Jersey Court of Appeal. 64 Donohue v Armco [2001] UKHL 64 [24], per Lord Bingham. 65 Crociani [33]–[37]; EMM Capricorn Trustees Limited v Compass Trustees Limited [2001] JLR 205; see also Colussi v Investec Trust (Guernsey) Limited (Royal Court, 25 May 2007) (Judgment 16/2007) which applied the usual rules in relation to forum non conveniens action, but did not expressly address the question of the weight to be placed on the exclusive jurisdiction clause.
94 Conflict of Laws Nevertheless, it is noteworthy that Crociani involved the Jersey court in deciding whether to override an exclusive jurisdiction clause in favour of the Mauritius courts. It is submitted that a different approach is appropriate where the matter concerns a Guernsey trust and Guernsey trust law issues. In a Guernsey case in 2015,66 where the dispute concerned an application by a Guernsey trustee to determine the validity of a Guernsey trust and the proper basis for its administration, it would be ‘a strong thing to refuse to entertain such an application’.67 In that case, there appears to have been no exclusive jurisdiction clause (at least there was no reference to such a clause), so the argument for the Guernsey court to exercise jurisdiction would have been even stronger if there had been one. Indeed, it is arguable that Guernsey’s specific jurisdiction rules68 and the rules applying to non-recognition of foreign judgments mean that less weight should be given to forum non conveniens rules and more weight to exclusive jurisdiction clauses.69
IV. Firewall Provisions The Guernsey firewall legislation70 is largely based on the Cayman Islands foreign element law,71 but with a number of modifications aimed at strengthening and clarifying the rules.72
A. Recognition and Enforcement of Foreign Judgments Generally Certain judgments are directly enforceable in Guernsey on a reciprocal basis, under the Judgments (Reciprocal Enforcement) (Guernsey) Law 1957.73 That applies to the courts of England and Wales, the Isle of Man, Israel, Jersey, the
66 Credit Suisse Trustees Limited v Haggiag (Royal Court, 17 October 2015) (Judgment 47/2015). 67 ibid, para 89. 68 See section III. 69 See, eg, Professor J Harris QC, ‘Jurisdiction and Judgment in International Trusts Litigation – Surveying the landscape’ (2011) 17(4) Trusts & Trustees 236, 255. 70 See also ch 13 of this volume. 71 Trusts Law (2020 Revision) (Cayman Islands), ss 87–94; which came into force on 31 May 1987. 72 See also L Diggle and M McMillan, ‘The Cayman Islands firewall legislation: Does it need further fireproofing?’ Cayman Financial Review, 2012 (Q2), Issue 27; see also the discussion in Professor J Harris QC, ‘Launching the Rocket’ in Hayton (ed), The International Trust (n 16) ch 2, in particular paras 2.70–2.129 (‘Capacity and the transfer of property in offshore jurisdictions’). 73 See also ch 13, section IV.B.
Firewall Provisions 95 Netherlands plus the Netherlands Antilles, Northern Ireland, Italy, Scotland and Surinam.74 Other than that, the common law rules will apply. The question of whether foreign non-money judgments are enforceable at common law is not entirely clear. Historically, the common law position was that only money judgments were directly enforceable.75 However, there have been recent cases in Jersey76 and the Cayman Islands,77 which have held that foreign non-money judgments are directly enforceable, at least on a discretionary basis. Those cases followed (or purported to follow) the Canadian decision in Pro Swing Golf Inc v Elta Golf Inc78 and the Privy Council in Pattni v Ali.79 Nevertheless, it is not clear that Pattni v Ali went any further than confirming the long-standing principle that a foreign judgment was capable of being recognised,80 and the recent Supreme Court decision in Rubin v Eurofinance,81 while not precisely on point, casts some doubt on the wider interpretation of Pattni v Ali.82 The issue has not yet been decided in the Guernsey courts, but it is submitted that the better view is that the distinction between money and non-money judgments still stands, so a foreign judgment in personam83 will only be enforceable if it is for a definite sum of money.84 An in personam non-money judgment will normally85 be recognised and relied on in proceedings in Guernsey. The court retains the power to decide whether to order a remedy and if so, what remedy, but even if the approach of the Jersey and Cayman courts is preferred, it is worth bearing in mind that enforcement is discretionary. 74 Judgments (Reciprocal Enforcement) Ordinance 1973. 75 This had been the accepted position under English law for 200 years: Sadler v Robins (1808) 1 Camp 253; Dicey, Morris & Collins, The Conflict of Laws (n 36) Rule 42(1). 76 Brunei Investment Agency Ltd v Fidelis Nominees Ltd [2008] JLR 337. 77 Bandone v Sol Properties Ltd [2008] CILR 301. 78 Pro Swing Golf Inc v Elta Golf Inc [2006] SCR 612, SCC. 79 Pattni v Ali [2006] UKPC 51 (Isle of Man). 80 That is, as res judicata, the rule that a final judgment on the merits by a court having jurisdiction is conclusive between the parties to litigation as to all matters that were litigated or that could have been litigated in that action. Dicey, Morris & Collins, The Conflict of Laws (n 36), Rule 42(2), ch 14, section A (‘Jurisdiction and foreign judgments – Enforcement and recognition’). 81 Rubin v Eurofinance [2013] 1 AC 236. 82 See G Halkerston, ‘Enforcement of foreign non-money judgments at common law in offshore jurisdiction: back to basics’ (2015) 21(9) Trusts & Trustees 969. Halkerston also argues that the ProSwing case is weak authority for offshore jurisdictions, and highlights a number of problems that a change to the law in this area would cause. 83 ‘A claim in personam may be defined positively as a claim brought against a person to compel him to do a particular thing, eg the payment of a debt or of damages for a breach of contract or for tort, or the specific performance of a contract; or to compel him not to do something, e g when an injunction is sought’: Dicey, Morris & Collins, The Conflict of Laws (n 36) para 11–002. This is in contrast to a claim in rem: ‘A judgment in rem is a judgment whereunder either (1) possession or property in a thing is adjudged to a person, or (2) the sale of a thing is decreed in satisfaction of a claim against the thing itself ’: ibid para 14–109. 84 ibid Rule 42(1). 85 As to the principles that apply to the recognition of the foreign judgment, see ibid Rules 43–54.
96 Conflict of Laws
B. Non-recognition of Foreign Judgments in Relation to Trusts As foreign non-money judgments were never enforced under English common law, firewall legislation that merely restricts or excludes enforcement of foreign judgments is of limited effect; to be fully effective, it is necessary to exclude recognition as well. The Guernsey law does this: Notwithstanding any legislation or other rule of law for the time being in force in relation to the recognition or enforcement of judgments, no judgment or order of a court of a jurisdiction outside Guernsey shall be recognised or enforced or give rise to any right, obligation or liability or raise any estoppel if and to the extent that— (a) it is inconsistent with this Law; or (b) the Royal Court, for the purposes of protecting the interests of the beneficiaries or in the interests of the proper administration of the trust, so orders …86
It is clear (‘Notwithstanding any legislation …’) that this provision overrides the Judgments (Reciprocal Enforcement) (Guernsey) Law 1957.87 Under Guernsey law, both the recognition and enforcement of foreign judgments are prohibited, so a foreign judgment that is inconsistent with G uernsey trust law is of no legal effect in Guernsey, even where the party in question has submitted to the foreign jurisdiction.88 This was confirmed in a recent case before the Jersey Royal Court in relation to its (similar, though not identical) conflict rules. In explaining that the application was not one that sought for the English order to be enforced or ‘given effect’,89 it was held that ‘The English Order and the judgment are those of a foreign court and, under Article 9, the findings of that court would be of no effect.’90 This concerned an application seeking the blessing of the court in relation to a momentous decision reached by the trustee,91 taking into account the English order as one of the relevant factors. That blessing is not an order that recognises the foreign order. Where the foreign judgment is consistent with Guernsey trust law, the Royal Court has a discretion (under section 14(4)(b)) to order that it shall not be enforced or recognised, either to protect the interests of the beneficiaries or in 86 Trusts Law 2007, s 14(4) (emphasis added). 87 See section IV.A. However, as these are reciprocal arrangements, it is arguable that these provisions breach the mutuality of those provisions, but a detailed analysis is outside the scope of this work. In any event, the statute does not apply to matrimonial claims: s 1(2). 88 See Harris, ‘Jurisdiction and Judgment in International Trusts Litigation’ (n 69) 249; HSBC International Trustee Limited v Poon Lok To Otto and others [2011] JRC 167, para 8. 89 The Trusts (Jersey) Law 1984, Art 9(4)(b) prohibits a Jersey court from ‘giving effect to’ an inconsistent foreign order rather than its being ‘recognised’. It is not thought that there is a substantive distinction for these purposes, but that is not a point that has been addressed by the Guernsey Royal Court. 90 In Re EFG Trust Company Limited and the R Trust [2015] JRC 267A, para 8; HSBC International Trustee Limited v Poon Lok To Otto (n 80) para 8. 91 As to which, see ch 12, section V.B.
Firewall Provisions 97 the interests of the proper administration of the trust. This would appear to envisage a situation in which the foreign court has applied the correct principles of Guernsey law but the Guernsey Court, having examined the case afresh, perhaps in light of new facts, reaches a different conclusion based on the same principles. In that s ituation, the Guernsey Court could exercise its discretion not to follow the foreign judgment.
C. Inconsistency with Any Aspect of Guernsey Trust Law The Guernsey legislation excludes the recognition and enforcement of a foreign judgment if it ‘is inconsistent with [the Trusts Law 2007]’. The Trusts Law 2007 includes the conflict rules that reserve all questions in relation to a Guernsey trust to Guernsey law.92 It is not therefore restricted to specific provisions of Guernsey trust law: if the foreign judgment is inconsistent with any aspect of Guernsey trust law, it will not be recognised or enforced.93 Indeed, there is an argument that it would be contrary to public policy for the Guernsey courts to direct trustees to comply with a foreign court order that was contrary to Guernsey law.94 This is on the basis that the policy behind the legislation was to discourage foreign courts from hearing cases involving Guernsey trusts or, if they do so, from applying anything other than Guernsey law. In the Jersey Royal Court, it has been held that it is ‘immaterial that the … trust may not be a post-nuptial settlement capable of variation under the [Jersey] Matrimonial Causes Law’.95 That is because the ‘inconsistency’ must relate to matters of trust law.96 92 See section II.D. 93 The position under Jersey law is similar, though not identical: see Art 9(4) of the Trusts (Jersey) Law 1984, under which a foreign judgment is not enforced ‘to the extent it is inconsistent with [Art 9]’; but contrast the position under (i) British Virgin Islands law: Trustee Act 1961 (BVI), s 83A(19) provides for non-enforcement of foreign judgments to the extent they are inconsistent with s 83A(13)–(18) (the provisions dealing with heirship rights and rights conferred by reason of a personal relationship); (ii) Cayman Islands law: Trusts Law (2020 Revision) (Cayman Islands), s 93, ‘A foreign judgment shall not be recognised, enforced or give rise to any estoppel insofar as it is inconsistent with section 91 or 92.’ Outside of those specific provisions, there is an argument that a foreign court order inconsistent with local law is in principle capable of being recognised and enforced under local law. Interestingly, that argument was rejected in the Cayman Islands Grand Court, which held that ‘An order of the Hong Kong Court purporting to effect a variation of the trust, whether in a matrimonial proceeding or otherwise, cannot be recognized by the Trustee. That is so even if the Trustee were to attorn to the jurisdiction of the Hong Kong Court.’ In Re B Trust, RBS Coutts Trustees v W [2010] (2) CILR 348, para 23. See also Merrill Lynch Bank and Trust Company (Cayman) Limited v Demeril and others [2010] (2) CILR 75, paras 16–17. But it is not clear that it is caught by Trusts Law (2020 Revision) (Cayman Islands), as s 93 only refers to the matters in ss 91–92; while it is clear that the recognition and enforcement of a foreign order in matrimonial proceedings involving the settlor are excluded, it is not clear why that should be the case in other proceedings. 94 See Harris, ‘Jurisdiction and Judgment in International Trusts Litigation’ (n 69). 95 In Re B [2006] JLR 562, para 15. 96 See also D Hochberg, ‘Jersey’s New Private International Law Rules for Trusts – A Response’ JGLR, 2007, paras 9–10.
98 Conflict of Laws
D. Exclusion of Foreign Law The Trusts Law 2007 provides: No Guernsey trust, and no disposition of property to or upon such a trust, is void, voidable, liable to be set aside, invalid or subject to any implied condition, nor is the capacity of any settlor, trustee, enforcer, trust official or beneficiary to be questioned, nor is any settlor, trustee, enforcer, trust official,97 beneficiary98 or third party99 to be subjected to any obligation or liability or deprived of any right, claim or interest, by reason that— (a) the laws of any other jurisdiction prohibit or do not recognise the concept of a trust, or (b) the trust or disposition— (i) avoids or defeats or potentially avoids or defeats rights, claims, interests, obligations or liabilities conferred or imposed by the law of any other jurisdiction on any person— (A) by reason of a personal relationship to a settlor or any beneficiary, or (B) by way of foreign heirship rights, or (ii) contravenes or potentially contravenes any rule of law, judgment, order or action of any other jurisdiction intended to recognise, protect, enforce or give effect to any such rights, claims, interests, obligations or liabilities.100
For the purposes of section 14(3)(b)(i)(B), ‘foreign heirship rights’ are defined as any right, claim or interest arising under the law of a jurisdiction other than Guernsey in, against or to the property of any person arising, accruing or existing in consequence of, or in anticipation of, that person’s death, other than a right, claim or interest created by will or expressed in any other voluntary disposition by that person or resulting from an express limitation in the disposition of the property to that person.101
It therefore covers rights in relation to the property of any beneficiary (or indeed anyone else), as well as such rights in respect of the settlor. It also confirms that the settlor can expressly preserve foreign heirship rights in the relevant disposition. So, for example, this protects the Guernsey trust against forced heirship claims against a beneficiary, as it would otherwise subject the beneficiary to an ‘obligation or liability or [deprive the beneficiary] of any right, claim or interest’.
97 A ‘trust official’ is ‘a person having a function or holding an office in respect of the trust other than a settlor, trustee, enforcer or beneficiary’: Trusts Law 2007, s 80(1). 98 A ‘beneficiary’ is ‘a person entitled to benefit under a trust or in whose favour a power to distribute trust property may be exercised’: Trusts Law 2007, s 80(1); see also ch 9, section I. 99 A ‘third party’ is ‘a person other than a settlor, trustee, enforcer, trust official or beneficiary’: Trusts Law 2007, s 80(1). 100 Trusts Law 2007, s 14(3). 101 Trusts Law 2007, s 80(1).
Firewall Provisions 99
i. Foreign Matrimonial Order as a Relevant Factor One of the effects of section 14(3) of the Trusts Law 2007 is that if a foreign law confers rights on a spouse to share in trust assets on divorce, that will be of no legal effect in Guernsey. While these provisions have been referred to as ‘draconian’102 in relation to the non-recognition of the orders of foreign family courts, it does not mean that those orders will be ignored. In fact, it was (rightly, in the authors’ view) held in a Cayman Islands case103 on similar statutory provisions that a foreign family court order was a factor the trustee should consider in the exercise of its discretions: The parties before me are agreed that consideration of such ‘judicious encouragement’ by the Hong Kong court would and should be taken into consideration in any possible exercise of the trustee’s discretion together with all of the other circumstances which are relevant.104
Indeed, it is a factor to which considerable weight should normally be given: The trustee cannot, of course, fetter its discretion now by suggesting how it may act in the future. In exercising its discretion, it must take into account all of the relevant circumstances existing at the time it is called upon to make a decision. One relevant circumstance, to which respectful and attentive consideration will be given, is any judicious encouragement received in the form of a judgment or ruling from the court in Hong Kong.105
The Jersey courts have taken a similar approach, on the basis that their power to issue directions to the Trustee is unaffected by the equivalent provision.106 Under Jersey law, a distinction has been drawn between a ‘variation’ (a change to the terms of the trust that is within the scope of the powers contained in the trust instrument) and an alteration’ (that was outside the scope of those powers). The Court could give the trustee directions that ‘varied’ the trust but not directions that ‘altered’ it.107 However, the Royal Court could approve a variation under the statutory jurisdiction,108 on behalf of minor and unborn beneficiaries, provided the adult beneficiaries of full capacity had consented. 102 Harris, ‘Guernsey’s private international law rules for trusts’ (n 15) para 26. 103 RBS Coutts (Cayman) Limited v W [2010] (2) CILR 348. 104 ibid para 26; see also Hochberg, ‘Jersey’s New Private International Law Rules for Trusts – A Response’ (n 88) para 12. 105 RBS Coutts (Cayman) Limited v W [2010] (2) CILR 348, para 35. 106 Re H [2006] JLR 562, para 15; approved in Re B [2007] JLR 569, paras 42–43; see also In Re EFG Trust Company Limited and the R Trust (n 82) para 8. 107 In the Matter of the IMK Family Trust [2008] JLR 250. 108 Trusts (Jersey) Law, Art 47 (which would constitute an ‘alteration’ using this terminology). In principle, this is possible even if the spouse has been irrevocably excluded from benefit: see ch 14, section IV.C and n 28. Alternatively, where the settlor is a beneficiary, it may be for his or her benefit to pay the debt owed under the foreign order, so that this type of ‘alteration’ (via a statutory variation) may not be necessary, although much will depend on the facts: In the Matter of the Esteem Settlement and the No 52 Trust [2001] JLR 7.
100 Conflict of Laws As the equivalent Guernsey jurisdiction109 permits the Court to consent to a variation on behalf of adult beneficiaries as well,110 there is more flexibility; it is not essential to obtain the consent of the adult beneficiaries, provided the leave of the Court is obtained and, in principle, a variation could be made in favour of an excluded beneficiary,111 although the fact that that person had been excluded will of course be another factor to consider.
E. Submission to a Foreign Court The question of whether the trustee should submit to the jurisdiction of the foreign court is discussed in chapter 13.112
F. Right, Claim or Interest Section 14(3) of the Trusts Law 2007 provides that no beneficiary shall be deprived of any ‘right, claim or interest’, rather than simply any ‘right’. It is doubtful whether this constitutes a real difference, as any interests and claims are presumably included within the term ‘rights’, but the point has been raised elsewhere.113
G. Personal Relationship to Settlor or Any Beneficiary The Guernsey legislation provides that no challenge may be made to a Guernsey trust on the basis that it defeats rights conferred by a relationship ‘to any beneficiary’ as well as rights conferred by a personal relationship to the settlor.114
109 As to variation generally, see ch 14, section IV. 110 Trusts Law, 2007, s 57(i)(e). 111 In the Matter of the X Trust, the Y Trust and the Z Trust (Royal Court, 2 November 2014). 112 See ch 13, section IV.C. 113 See Diggle and McMillan, ‘The Cayman Islands firewall legislation: Does it need further fireproofing?’ (n 64). 114 For an example of circumstances in which this might be relevant, see ibid.
7 Trustees I. Number of Trustees The default position is that there must be two trustees, but the exceptions are such that a sole trustee will almost always be sufficient. One trustee is permitted where: (a) (b) (c) (d)
only one was originally appointed; there is a Guernsey resident corporate trustee; the Public Trustee is acting; the terms of the trust provide otherwise.1
A ‘trustee’ is defined in section 1 of the Trusts Law 2007,2 and includes a corporate trustee and the Public Trustee.3
A. Effect of there Being Insufficient Trustees A trust does not fail if there are fewer than the minimum required, and a trust will not fail even if there is no trustee at all,4 but the required additional number ‘shall be appointed’.5 Until that is done, the existing trustee may only act to preserve trust property.6 The use of the passive voice – ‘shall be appointed’ – does not specify who has the obligation to do the appointing, but presumably if there is someone with the power under the trust to appoint additional trustees, it would be that person. These provisions are subject to the terms of the trust, so the trust may specify different consequences.
1 Trusts Law 2007, s 17(1). In Rothschild Trust Guernsey Limited and Adamantios (Diamantis) Pateras & Katigo-Kalliopi (Royal Court, 3 May 2011) (Judgment 15/2011), it was confirmed that a corporate Guernsey trustee could act as sole trustee of a Guernsey trust. 2 See ch 5, section I. 3 Trusts Law 2007, s 80(1). 4 Trusts Law 2007, s 17(2). 5 Trusts Law 2007, s 21(a). 6 Trusts Law 2007, s 21(b).
102 Trustees
II. Appointment of New or Additional Trustees The trust instrument may – and commonly does – include express powers of appointment. The statutory provisions apply if: (a) the terms of a trust contain no provision for the appointment of a new or additional trustee, (b) any such provision has lapsed or failed, or (c) the person with power to make any such appointment is not capable of exercising the power …7
In those circumstances, the power to appoint new or additional trustees is vested in the existing trustee, the last remaining trustee, the personal representative or the liquidator of the last remaining trustee, or the Royal Court.8 So the last remaining trustee may exercise the power after ceasing to be a trustee, in contrast to the more restrictive position under English law, where it is only the personal representatives who have that power.9 If the last two (or more) trustees cease to act at the same time, it is thought that they are jointly the ‘last remaining trustee’ for this purpose, as the singular includes the plural. Even if that is wrong and the power must be exercised only by one last trustee, if both of the last trustees join in the appointment, that must be effective, whichever one is, in fact, the last trustee. However, it is thought that the statutory power does not permit the appointment of an additional trustee where a trustee has lost mental capacity. Under section 18 of the Trusts Law, the power devolves to the ‘existing trustee’ and then to the ‘last remaining trustee’. As both of these would still include the incapable trustee, and as there is a need for both trustees to act together, this will preclude reliance on this section.10 The same principle applies to trustees who refuse or are unfit to act.11 Subject to the terms of the trust, a trustee appointed under the statutory power has the same functions,12 and may act in all respects, as if he or she had been originally appointed a trustee.13 7 Trusts Law 2007, s 18(1). 8 Trusts Law 2007, s 18(1)(i)–(iv). 9 See L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) paras 14-007 (‘Section 36 of the Trustee Act 1925’) and 14-031 (‘Personal representative of the last remaining or continuing trustee’). 10 In contrast to the position under English law: the Trustee Act 1925 permits ‘the surviving or continuing trustees or trustee for the time being’ to exercise the power of appointing a new trustee, and the trustee that does have capacity can exercise the power alone as the ‘continuing’ trustee; ibid para 16-020 (‘Trustee lacks capacity and no available nominated person but another trustee available to act’). 11 Under English law, the other trustees (as the ‘continuing trustees’) would have the power of appointment under Trustee Act 1925, s 36; ibid paras 14-016 to 14-017 (‘Trustee refusing or is unfit to act’). The court would have power in those circumstances: see section VIII.E. 12 ‘Functions’ includes rights, powers, discretions, obligations, liabilities and duties: Trusts Law 2007, s 80(1). 13 Trusts Law 2007, s 18(2).
Appointment of New or Additional Trustees 103 A trustee may be removed from office if it fails to exercise its power to appoint trustees.14 Beneficiaries do not have the power to appoint or remove trustees.15
A. Nature of Powers of Appointment of Trustees In principle, the question of whether an express power to appoint and remove trustees is fiduciary is a matter of construction,16 although it is normally a fiduciary power. Where it is fiduciary, consideration should be given at the drafting stage to matters similar to those taken into account for any other fiduciary power.17 This also raises questions where trustees wish to sell their fiduciary businesses.18 That can in principle be covered by the terms of the trust or by the trust company’s standard terms of business, as the duty not to profit can be excluded by the terms of the trust instrument. On general principles, the statutory power is also a fiduciary one when vested in the existing trustee. It seems reasonably clear that the last remaining trustee will also have fiduciary duties in relation to the exercise of the power, by analogy to the position of removed trustees, who continue to owe fiduciary duties ‘as though they were trustees in relation to their dealings with the trust property’.19 However, it is thought that the last remaining trustee cannot have the same duties to be proactive, as he or she is no longer a trustee but may be passive and need not take any action unless and until called upon to do so. Of course, that is a separate question from whether he or she may be liable if he or she took action while a trustee that led to there being no trustees in the first place.
B. In the Matter of Jasmine Trustees Limited In the Re Jasmine Trustees case,20 Sir Michael Birt set out in some detail the reasons why the purported appointment of a successor trustee was invalid. While they 14 Trusts Law 2007, s 18(3). 15 There is no equivalent of the Trusts of Land and Appointment of Trustees Act 1996 (England), s 19, which reversed the decision in Re Brockbank [1948] Ch 206, which held that the beneficiaries, who are all of full age and capacity and are together absolutely beneficially entitled to the trust property, cannot appoint or remove trustees. 16 Confirmed by Trusts Law 2007, s 15(2), but it is thought that this is the position under general principles: see ch 10, section V.A; see also ch 5, section VII.G. 17 As to which see ch 10, section XIX. See also section II.B of this chapter. as an example of circumstances in which a purported appointment was invalid as the appointor had failed to comply with his duties in relation to the appointment. 18 As an appointment (assuming the power is fiduciary) in return for a sum of money cannot stand: Sugden v Crossland (1865) 3 Sm & G 192; while an argument might be made that the principle should not necessarily be applied today given the very different nature of the trust industry, it is thought that the same general principles apply and that Sugden does still represent good law. 19 Virani v Guernsey International Trustees Limited (Guernsey CA, 4 December 2002) (Judgment 11/2003). 20 In the Matter of Jasmine Trustees Limited [2015] JRC 196.
104 Trustees will not all be relevant in every case, this does provide a helpful checklist of some of the matters retiring or removed trustees should consider investigating, and in particular those that may give cause for concern. We think it is worth setting out the reasons in full: In our judgment, the appointment of Kairos, in the particular circumstances of this case in relation to these Trusts, was invalid. We would summarise our reasons for so concluding as follows:– (i) There was considerable delay in supplying the standard due diligence information requested of Kairos. Mr Jenner stated in evidence that this was a routine request to a professional trustee and he would have expected there to have been a package of documents and information available for immediate provision on a regular basis. (ii) No information was provided at any stage about the financial position of Kairos or of its parent companies. Nothing was provided to show that it had expertise and experience in the field of trust administration. (iii) It appeared ultimately to be 100% owned by an individual director. (iv) No information was provided as to its insurance cover, its capital base and other matters which might be thought relevant to whether it was suitable to act as a trustee of these two substantial Trusts. (v) Although in due course the names of the three directors were provided, no information about their careers, experience in trust administration etc was ever provided. The three directors resided in New Zealand, Italy and the Isle of Man respectively and the Isle of Man director was aged 80. (vi) Kairos appeared to have no presence on the internet nor did it have an internet domain name and related email accounts. Mr Hanley was shown on the website for a company called Pearse Trustees (which appeared from its website to be an international trust company) as the manager of that company which operated from the same address as Kairos; but Kairos was not mentioned at all on the website of Pearse Trustees. (vii) The beneficiaries of the two Trusts are resident in the United States and the United Kingdom. Whilst the fact that a trustee is incorporated or carries on business in a jurisdiction where none of the beneficiaries live (as is the case for both the Cayman Islands and Jersey in relation to these Trusts), is not a reason to q uestion the appointment of a trustee, the fact that New Zealand is on the other side of the globe and in a wholly different time-zone which would make communication between trustee and beneficiaries more difficult, is at least a factor to be considered by an appointor. (viii) Highly significantly, the father does not appear to have considered any of these matters prior to making the appointment. Thus he was unable to assist when information was requested by Jasmine/Lutea and he said merely that he expected to be in touch with one of Kairos’ legal representatives in New York on 15th March. But this was of course after he had appointed Kairos. (ix) The father has explained in his affidavits why he wished to replace Jasmine and Lutea. However the sole reason that he has given for choosing Kairos as the replacement trustee is that he was advised in mid-2013 that it might be preferable to relocate the trust to a ‘white listed’ jurisdiction as considered from the perspective of ‘relevant authorities’ (Jersey, he said, not being such a white listed
Power to Remove Trustees 105 jurisdiction). He was further advised that New Zealand was such a jurisdiction and that Kairos was a New Zealand trust company which had been identified and was happy to accept the role as trustee. On enquiry by the Court, which understood that Jersey was indeed a white listed jurisdiction for OECD purposes, the Court was informed that the ‘relevant authority’ which the father had in mind was Italy. As none of the beneficiaries resides in Italy, it was not made clear why that would be a material consideration.21
C. Restrictions on the Exercise of the Power An appointment under an express power must comply with the terms of the power, and it is thought that Guernsey law follows English law in this regard.22 As far as the statutory power is concerned, none of the restrictions that apply to the exercise of the statutory powers under English law apply to the Guernsey power, including the restrictions on the power to appoint additional trustees.23
III. Power to Remove Trustees There are no specified statutory grounds for removal as exist under English law24 and in those jurisdictions whose trust laws are more closely based on English law, so no specific provisions are needed in the trust instrument to exclude the application of those provisions.25 Nor are there any provisions that either prevent the discharge of an outgoing trustee unless there is a minimum number of continuing trustees,26 or which prevent a reduction in the number of trustees by retirement in the guise
21 ibid para 48. 22 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 14-002 to 14-003 (‘Compliance with terms of an express power’). 23 ibid para 14-034 (‘Power to appoint additional trustees’); see also J Kessler QC and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) para 5.37 (‘Further provisions concerning appointment of additional trustees?’) and J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts, 1st edn (Sweet & Maxwell, 2014) para 5.37 (‘Further provisions concerning appointment of additional trustees’). 24 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 14-013 to 14-027 (‘Circumstances in which the power may be exercised’). 25 See, eg, Kessler and Pursall, Drafting Cayman Islands Trusts (n 23) paras 5.33 (‘Appointment of foreign trustees’) and 5.34 (‘Power to remove trustees’); and under British Virgin Island (BVI) law, see Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 23) paras 5.33 (‘Appointment of foreign trustees’) and 5.34 (‘Power to remove trustees’). 26 This is a rule that has caused havoc – and much litigation – in a number of trusts subject to English law; see Jasmine Trustees Ltd v Wells & Hind [2008] Ch 194; Adam v Theodore Goddard [2000] WTLR 349; LRT Pension Fund Trustee Co Ltd v Hatt [1993] PLR 227.
106 Trustees of an appointment.27 Of course, the trust itself can provide that a trustee is not discharged unless there is at least one trustee to continue as trustee. Unlike the position on a resignation,28 there is no statutory restriction on the removal of a trustee, even if that would mean that there were fewer than the minimum number of trustees, or indeed no trustees at all in office,29 although anyone seeking to remove a trustee in those circumstances should be mindful of his or her fiduciary duties, where relevant,30 and whether it is in the interests of the trust to leave it with no trustees. Such an act is only likely to be justified in fairly unusual circumstances, such as serious concerns about the current trustees, where it is not possible or practical to appoint a successor at the same time.
IV. Vesting of Property in the New Trustees On a change of trustees or the appointment of an additional trustee, ‘anything necessary to vest the trust property in [the new or additional trustee] jointly with his co-trustees (if any) shall be done’.31 All trust property needs to be vested in the new and continuing trustees – there is no equivalent of the automatic vesting that applies under English law.32
V. Disclaimer of Trusteeship No one can be compelled to accept office as trustee, but he or she is deemed to do so if he or she ‘knowingly intermeddles with the trust or its affairs’.33 A person appointed as trustee may renounce the trusteeship, before actual or deemed acceptance, either by written notice to the settlor or other trustees, or if the settlor is deceased or cannot be found34 and there are no trustees, by application to
27 Adam v Theodore Goddard [2000] WTLR 349; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 14-037 to 14-041 (‘Number of trustees’). But see section I.A. 28 See section VI. 29 The question of whether this is permitted without the appointment of a new trustee was apparently raised in argument in Virani v Guernsey International Trustees Limited (n 19) para 52, but does not appear to have been decided, so this point may not be settled; by contrast, a resignation leaving no trustees in office is not effective: see section VI. 30 See section II.A. 31 Trusts Law 2007, s 18(4). 32 Under the English Trustee Act 1925, s 40. 33 Trusts Law 2007, s 19(1). 34 On a literal reading, a notice is effective if given to a settlor who is mentally incapable, but it is submitted that on principle, a notice to a settlor who is incapable of understanding the nature and effect of the notice should not be effective for these purposes.
Resignation 107 court.35 If the person appointed does not do one of those things within a ‘reasonable period of time of becoming aware of the appointment’, he or she is deemed to have accepted it.36 This is in contrast to the position under English law, which permits more informal disclaimers and implied disclaimers, even after long delays,37 which is consistent with the principle that no one can be compelled to be a trustee. While the Guernsey position has the benefit of greater certainty, it has the potential for harsh consequences. For example, someone may be deemed to be a trustee, with all the responsibilities that entails, without ever having taken any action to accept office; and indeed, it seems, even if he or she has orally declined. If there is no settlor or trustee on whom to serve a valid notice, the deemed trustee may be required to spend money on an application to court for relief, although his or her reasonable costs will normally be payable from the trust fund.38 In a Jersey case,39 a renunciation of an executorship was held to be an effective renunciation of the trusteeship arising under the will, although it seems that was decided as a matter of construction of the deeds of renunciation.
VI. Resignation Subject to the terms of the trust, trustees (other than a sole trustee) may resign by written notice to their co-trustees,40 and the resignation takes effect on delivery of the notice, or on such later date or event as is specified in the notice.41 As the statutory provisions for resignation are subject to the terms of the trust, any express terms of the trust take precedence. A resignation given to facilitate a breach of trust, or which results in there being no trustees or fewer than the minimum required by statute,42 is of no effect.43 This applies irrespective of the terms of the trust.44 A trustee ceases to be a trustee on resignation, removal or pursuant to the terms of the trust.45
35 Trusts Law 2007, s 19(2). 36 ibid. 37 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 12-008 to 12-010 (‘How a trust is disclaimed’) and para 12-026 (‘Effect of inaction’). 38 ibid para 12-022; see also ch 12, sections VII and VII.A. 39 In the Matter of the Will of Brown [1997] JLR 137. 40 Trusts Law 2007, s 20(1). This is in contrast to the position under English law which requires the co-trustees’ consent: Trustee Act 1925 (England), s 39(1). 41 Trusts Law 2007, s 20(2). 42 As to which, see section I; contrast the position in relation to removal: section III. 43 Trusts Law 2007, s 20(3). 44 Trusts Law 2007, s 20(6) provides that only s 20(1) and (2) are subject to the terms of the trust, clearly implying that s 20(3), (4) and (5) are not. 45 Trusts Law 2007, s 20(4).
108 Trustees
VII. Duties of Outgoing Trustee There are two statutory duties imposed on outgoing trustees. The first is that any trustee who ceases to be a trustee ‘under … section [20] shall do everything necessary to vest the trust property in the new or continuing trustees’. The second is that when a trustee ‘resigns or is removed’, he or she must ‘duly surrender all trust property held by or vested in him or otherwise under his control’.46 The second duty is subject to the right of an outgoing trustee to reasonable security for ‘liabilities (existing, future, contingent or otherwise)’ before surrendering the trust property.47 On the face of it, the second duty (and the concomitant right to reasonable security) does not apply in other circumstances in which a trustee may cease to be a trustee. In contrast, the section 20 power also applies on the ‘the coming into effect of, or the exercise of a power under, a provision in the terms of the trust under or by which he is removed from or otherwise ceases to hold his office’.48 This point has not yet been decided by the Guernsey courts, but there seems no reason in principle why a trustee who ceases to be a trustee for some other reason should have different rights and duties as an outgoing trustee. In a Jersey case,49 the fact that the process by which the trustee was to retire had changed to an appointment onto new trusts did not alter the trustee’s duties as an outgoing trustee in any way. It is thought that, in line with that approach, the Guernsey courts would give ‘removed’ in section 43 a wide meaning, such that the same principles should apply to all outgoing trustees, whatever the means by which they cease to be trustees.
A. Duties in Relation to the Handover In another Jersey case,50 it was held: On the transfer of a trusteeship the outgoing trustee is under a duty to co-operate fully and actively in the transfer by making all relevant documents and correspondence available promptly to the incoming trustee and by providing any explanation to questions reasonably raised by the incoming trustee.51
46 Trusts Law 2007, s 43(1)(a). 47 Trusts Law 2007, s 43(1)(b); trustees have the same right to reasonable security before distributing assets on the termination of a trust: see ch 5, section VIII. 48 Trusts Law 2007, s 20(4)(c). 49 In the Matter of the Caversham Trustees Limited [2008] JRC 065. 50 Ogier Trustee Ltd v CI Law Trustees Ltd [2006] JRC 158; see also Re Capita Trustees Limited (as trustee of the Dunlop Settlement) [2011] JRC 138, where the same principle was applied where an individual director refused to provide information and documents to the new trustee and costs were awarded against him on the indemnity basis. 51 Ogier Trustee Ltd v CI Law Trustees Ltd (n 50) 7.
Duties of Outgoing Trustee 109 As a result, costs were ordered against the outgoing trustee on the indemnity basis as a result of its delays in providing information on the handover. It is thought that the position is the same under Guernsey law.52 The onus lies with the outgoing trustee to show why the normal rule should not be followed:53 [The] incoming trustee, is entitled to be put in the same position knowledge-wise as the outgoing trustees and, on the basis that it has been accepted that there have been documents that the [incoming trustee] has not yet seen, it follows that there is something that in principle is capable of being disclosed.54
It has been held in Jersey55 that legal advice, even where it is paid for out of trust assets, is not trust property. It is arguable that the position under Guernsey law is different, as ‘trust property’ includes any property a person holds that ‘does not form … part of his own estate – for the benefit of another person (a “beneficiary”)’. It may therefore extend to legal advice and the documents, although the point has not been decided.56
B. Re Caversham The duty of full cooperation with the incoming trustees from the Ogier case was confirmed in Jersey in Re Caversham.57 The Jersey Royal Court also set out the specific matters it thought the outgoing trustee was under a duty to pursue proactively, as part of the duty to surrender the trust property,58 in the circumstances of that case. These were as follows: (i) Instructing lawyers in Jersey to draft the formal documents by which the assets would be appointed to the new trust and any indemnities to be given; (ii) marshalling and preparing the assets so that they were ready to be transferred; (iii) ascertaining the identity of the entities to whom the assets were to be transferred 52 Ogier was cited with approval in Rawlinson & Hunter Trustees SA v ITG Limited and Bayeax Limited) (Royal Court, 30 January 2017) (Judgment 4/2017) para 46; while the decision was in relation to a Jersey law trust, it was held (obiter) that the position was the same under Guernsey law (ibid para 48). See also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 23–105 (‘Transfer of trust papers on change of trusteeship’) and 23–106 (‘Judicial discretion’), which were cited with approval in Rawlinson & Hunter Trustees. 53 Ogier v CI Law Trustees (n 50) para 20, cited with approval in Rawlinson & Hunter Trustees (n 52) para 48. 54 Rawlinson & Hunter Trustees (n 52) para 64. This was the same even though the application by the incoming trustee ‘could and perhaps should have made sooner than it was’ (ibid para 66), and even thought the Deputy Bailiff was ‘critical of the [incoming trustee] for the manner in which its position has changed since making the application’ (ibid). 55 In the matter of the Bird Charitable Trust and the Bird Purpose Trust [2012 (1)] JLR 62, para 21; cited with approval in Rawlinson & Hunter Trustees (n 52) para 49. 56 It was said to be ‘arguable’ in Rawlinson & Hunter Trustees (n 52) para 51, but was not decided in that case. 57 In the Matter of Caversham Trustees Limited [2008] JRC 065, para 8. 58 ibid para 10.
110 Trustees (iv) where necessary obtaining advice on the steps required to effect and the tax implications, if any, of and cost to be incurred in the actual conveyance or transfer of the assets in the jurisdictions in which they were sited; (v) setting out a timetable for the transfer of the assets; (vi) providing information to the new trustee to enable it properly to accept the assets; (vii) carrying out due diligence on the new trustee; (viii) providing explanations to questions reasonably raised by the new trustee in relation to the assets.
Importantly, it was held that the outgoing trustee had a duty to advance all these steps together, not consecutively, so as to not to cause undue delay. On the other hand, it was also acknowledged that the handover is a two-way process, and the outgoing trustee should not be penalised for any delays caused by the new trustees. The outgoing trustees were justified in raising concerns about the new trustees who were originally proposed, as they were unregulated companies with no assets and no insurance, thus rendering any indemnities effectively of little value, as well as raising questions as to their suitability.59 The key consequence was that Caversham were not allowed their trustee fees for the period of the handover, which the Court found was due to their delay or acting unreasonably in negotiations.
C. What is ‘Reasonable Security’? With regard to the question of what ‘reasonable security’ is, this will depend on the facts of each case. In the Caversham case, a proposal that the amount of the fees claimed by Caversham (which was in dispute) should be held in an escrow account under the joint control of Caversham and the new trustees was found to be reasonable. Seeking to retain the whole of the trust fund as security was not reasonable.60 The question of what was ‘reasonable security’ was also considered by the Guernsey Royal Court in 2006,61 in the context of the amount to be retained to cover the trustee’s fees, which were in dispute. The Lieutenant Bailiff adopted one of the main principles in security for costs applications, that ‘the amount set by the Court must not be oppressive or unfair to the party from whom the security is required’.62 And, quoting with approval from an English case63 on security for costs, stated that ‘the simple and single criterion is what is just in the circumstances
59 As to the factors pointing to unsuitability, see In the matter of Jasmine Trustees Limited (n 20) para 48. 60 See also In the Matter of the Carafe Trust [2005] JLR 159. 61 Walbrook Trustees (Guernsey) Ltd v Baxter (re Mrs Megan Baxter No 2 Life Interest Settlement) (Royal Court, 20 April 2006) (Judgment 21/2006); see also Artemis Trustees Limited and another v Martin John Sandle and Rodney Gray Denton (Royal Court, 29 June 2016) (Judgment 28/2016) paras 26–28. 62 Walbrook Trustees v Baxter (n 61) para 12. 63 Oded Moshe Leyvand v Amnon Barasch & others (HC, 15 February 2000).
Duties of Outgoing Trustee 111 of the particular case’.64 The duty of the Court in such cases was to strike a balance between the competing principles of protecting an applicant – here, the trustee’s legitimate fears that Mr Baxter as successor trustee might remove assets from the jurisdiction – and the respondent – that Mr Baxter should not be prevented from pursuing his just rights (in this case the transfer of the trust property to him as successor trustee).
D. Negotiation of Indemnities Where security is given in the form of an indemnity against the trust property, it cannot, without leave of the Court or the consent of all the beneficiaries, be greater than that to which the trustee would have been entitled had it remained a trustee.65 This codifies the position before the Trusts Law 2007 came into force. In a Guernsey Court of Appeal case in 2003, it was held that ‘[t]he Respondents had no justification in holding out for anything that went beyond [the indemnity in the trust deed]’.66 In the Caversham case, it was held that extending the indemnity to cover officers, directors and employees of the outgoing trustee was reasonable, whereas seeking to extend it to cover directors and employees of ‘associates’ of the trustee, or of companies in which the trustee may have invested the trust fund, was not reasonable.67 It is thought that Caversham would not be followed on this point in Guernsey: if the officers, directors and employees are not entitled to an indemnity under the trust instrument, the indemnity under the instrument of appointment and retirement should not be extended to them. If it is, the new trustee giving the indemnity will be personally liable but may not be entitled to be indemnified from the trust fund in respect of that indemnity. Having said that, where the indemnity is restricted to those liabilities for which the indemnified persons would be entitled to be reimbursed from the trust fund, there would be no liability under the express indemnity in any event. On the other hand, if the restriction is limited to all liabilities except those caused by (say) the indemnified person’s own fraud, wilful misconduct or gross negligence, that could create a personal liability. Interestingly, in Caversham, the Court was also ‘critical of the conduct of Caversham in amending their standard provisions without first taking legal advice’.68
64 Walbrook Trustees v Baxter (n 61) para 45. 65 Trusts Law 2007, s 43(2). 66 Virani v Guernsey International Trustees Limited (n 19) para 59. In particular, it is not normally reasonable for an outgoing trustee to insist on confirmation that the trust has been properly administered, or on being released from claims from beneficiaries as a precondition for leaving office or handing over the trust property. 67 Caversham (n 57) para 20. 68 ibid 21.
112 Trustees
E. Enforcement of Indemnities An indemnity in writing given by a trustee or beneficiary and expressed to be in favour of a previous trustee is, subject to its terms, enforceable by the previous trustee even if that previous trustee is not a party to it.69 It is thought that this will not benefit a director, officer or employee of the trustee – the usual solution is for the trustee to hold the benefit of the indemnity covenant as trustee for those persons.70
F. Non-possessory Lien Statute provides71 trustees with a non-possessory lien in respect of proper expenses and liabilities, which includes their fees. (If there were any doubt, it has been confirmed that ‘liabilities’ in section 43 clearly includes trustee fees.72) The lien is ‘the right of the trustee, where he is not exonerated or reimbursed from the trust property, to follow, recover and appropriate the trust property for the purpose of realisation, payment and reimbursement’.73 It continues after the trustee has ceased to be trustee and after it has surrendered the trust property, and is in addition to any other indemnity or security to which the trustee is entitled.74 It is therefore clear that it survives where the outgoing trustee has the benefit of contractual indemnities from the incoming trustee, and even where it has the benefit of additional security, such as an escrow account or charges over trust property to support indemnities. The lien confers an equitable interest in the trust property on the trustee.75 It would seem to follow that the new trustee may have a duty to consider the former trustee’s interest in the trust fund in the exercise of its powers, at least where it is on notice of a potential claim.76 The lien also survives distribution to beneficiaries, even if the trust has terminated.77 In this respect, it appears that Guernsey law differs from English law.78
69 Trusts Law 2007, s 43(4). 70 For an example of a precedent, see R Williams, A Murphy and T Graham, A Practical Guide to the Transfer of Trusteeships, 3rd edn (Globe Law and Business, 2017) App F (‘Guernsey law precedents’); see ibid para 14.4.12 (‘Indemnities’) for a discussion on the point. 71 Trusts Law 2007, s 44(1). 72 Virani v Guernsey International Trustees Limited (n 19). 73 Trusts Law 2007, s 44(5). 74 Trusts Law 2007, s 44(2). 75 Jennings v Mather [1901] 1 QB 108, 113–14; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, refers to ‘two classes of persons having a beneficial interest in the trust: first, the cestuis que trust … and second, the trustee in respect of his right to be indemnified out of the trust assets’. 76 See section XIII.E. 77 Trusts Law 2007, s 44(4). 78 Under English law, the lien is normally lost on a distribution to beneficiaries, although that may not apply to a distribution by a new trustee in respect of a former trustee’s lien, at least where the new
Duties of Outgoing Trustee 113 The lien is lost, however, if it is expressly waived or released,79 or if the property: (i) is no longer identifiable, (ii) is in the hands of a bona fide purchaser for value or a person (other than the trustees) who derived title through such a purchaser, or (iii) comprises real property.80
As the lien is lost in these circumstances, trustees will typically not rely on the statutory provisions but will insist on express contractual indemnities from the recipient of the trust assets. A waiver of the lien might constitute a disposition and therefore be vulnerable to being set aside through a Pauline action. The required elements for a Pauline action under Guernsey law can be summarised briefly as follows: (a) the person bringing the Pauline action must have been a creditor at the time of the transaction under attack (here, the waiver of the lien); (b) the creditor seeking to set aside the transaction must show that the debtor was insolvent at the time of the transaction under attack (or was rendered insolvent by that transaction); (c) the debtor’s insolvency is measured on a balance-sheet basis; (d) the creditor must show that the debtor carried out the transaction with the intention of defrauding his creditors; if the debtor carried out the transaction with more than one purpose, it suffices that the dishonest intention to defraud was a substantial purpose of the transaction. A Pauline action is a revocatory action that, if successful, leads to the setting aside of the transaction under attack. As will be appreciated, it would be difficult in practice to establish that a waiver of a lien by a trustee was made with an intent to defraud the trustee’s creditors.
G. Discharge of Outgoing Trustee A trustee who complies with his or her duty to ‘duly surrender the trust property’81 is relieved of liability to any beneficiary, trustee or other person interested under the trust for any act or omission in relation to the trust property or to his or her functions as a trustee. However, a trustee is not by reason only of such compliance relieved of any liability: (a) arising from a breach of trust to which he (or, in the case of a corporate trustee, any of its officers or employees) was a party or was privy, trustee knew of the liabilities of the former trustee; Rothmere Farms Pty v Belgravia Farms Pty Ltd (1999–00) 2 ITELR 159; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 17-034 to 17-036 (‘Continuation of former trustee’s right of indemnity after appointment of new trustees’). 79 Trusts Law 2007, s 44(3)(a). 80 Trusts Law 2007, s 44(3)(b). 81 That is, the duty under the Trusts Law 2007, s 43(1)(a).
114 Trustees (b) in respect of an action to recover from him (or, in the case of a corporate trustee, any of its officers or employees) trust property or the proceeds thereof in his possession.82
This raises some interesting questions, which may have to be resolved by the courts. First, has an outgoing trustee complied with his or her duty if he or she has surrendered the trust property but has not done so in accordance with the handover duties outlined in cases like Ogier and Caversham? It is submitted that the trustee ought to be able to rely on this provision in those circumstances (if and to the extent that it does provide substantive protection), and that the appropriate penalty for failure for a breach of the handover duties is that the trustee may be unable to recover some or all of its trustee fees or costs (or both). Second, however, it is not clear what protection, if any, this gives an outgoing trustee. In what circumstances would an existing trustee be liable, other than in respect of a breach of trust to which it was a party or privy? In fact, if read literally, it may put the trustee in a worse position, for two reasons. The first is that it does not take into account any exoneration clause, so on the face of it, a trustee is liable for a breach of trust even if the trust instrument exempts the trustee from liability except in the case of its own gross negligence. In addition, the trustee is liable under this provision if a director or an officer is a party to or privy to a breach of trust. Does this mean that the trustee is liable for the acts of those officers even in circumstances in which the trustee would not be vicariously liable under normal rules? It is thought that the answer to both questions must be ‘no’, as it cannot have been intended to put the trustee in a worse position after it has ceased to be a trustee, but that leaves open the question of what the effect of this provision is. It appears to be based on the provisions dealing with limitation and prescription of actions,83 which are in turn based on the equivalent provisions in the Limitation Act in England.84 In the context of limitation periods, the purpose and effect is clear – that no such periods apply to fraud or to recovery of trust property from the trustee – in this context, their effect is less clear.
VIII. Appointment and Removal of Trustees by the Court A. Guernsey Trusts The Court has two statutory powers to appoint trustees, the first applying only to Guernsey trusts that have no Guernsey resident85 trustee. A beneficiary may apply to the Court for the appointment of an additional Guernsey resident trustee.86
82 Trusts
Law 2007, s 43(3)(a) and (b). Law 2007, s 76; see ch 12, section VIII. 84 Limitation Act 1980 (England), s 21(1). 85 A company is resident where it is incorporated: Trusts Law 2007, s 80(1). 86 Trusts Law 2007, s 54(1). 83 Trusts
Appointment and Removal of Trustees by the Court 115 The Royal Court may appoint an additional trustee: (a) if satisfied that notice of the application has been served on the existing trustees, (b) having heard any representations of the existing trustees, of the settlor or his personal representatives, of the other beneficiaries, and of any other person described in section 32(2), and (c) having ascertained that the person nominated is willing to act …87
Section 32(2) of the Trusts Law 2007 provides that the terms of the trust may require a trustee to consult or obtain the consent of another person before exercising any functions.88
B. General Power The Court has a wide statutory power to make orders in relation to trustees generally, whether or not it is a Guernsey trust or a foreign trust, including for the removal of trustees and the appointment of new or additional trustees.89 The Court also has power to make orders in relation to the appointment and removal of trustees under its inherent jurisdiction in relation to trusts, in line with Jersey authority.90 The application may be made by HM Procureur, a trustee, a settlor, a beneficiary, any person whom the trustee must consult or whose consent it must obtain, the enforcer (in relation to a non-charitable purpose) or, with leave of the Court, any other person.91 Where the Court removes or appoints trustees: (a) it may also impose ‘such requirements and conditions as it thinks fit, including requirements and conditions as to the vesting of trust property’; and (b) subject to the Court’s order, a trustee appointed by the Court ‘has the same functions and may act in all respects as if he had been originally appointed as trustee’.92
C. Hostile Removal Applications The Guernsey Court has not considered this jurisdiction, but a number of cases have come before the Jersey courts in respect of very similar legislation, where there are hostile applications by beneficiaries to remove trustees. In those cases the
87 Trusts
Law 2007, s 54(2). ch 10, section II.A. 89 Trusts Law 2007, s 69(1)(a)(ii); see also ch 12, section III.A. 90 West v Lazard Bros [1987–88] JLR 414. 91 Trusts Law 2007, s 69(2). 92 Trusts Law 2007, s 69(3). 88 See
116 Trustees Jersey courts have applied English legal principles,93 in particular those laid down by the Privy Council in Letterstedt v Broers.94 In particular, the Jersey courts have held that they have discretion to order removal if there is misconduct, or if there is hostility between trustee and beneficiary that is affecting the administration of the trust.95 Mere friction between the trustee and beneficiary is insufficient if it does not render the trust unmanageable or is caused by the administration of the trustee.96 Where the trustee had an obvious conflict of interest, it should resign from one or preferably both offices without applying to the Court for directions.97 The Court will remove a trustee who fails to recognise an obvious conflict of interest. The trustee does not need to resign immediately, as it is entitled to make reasonable enquiries and seek legal advice on the issue. In addition, it will often be entirely reasonable for the trustee to seek the Court’s directions. It is thought that Guernsey would apply the same principles, having regard to the Jersey cases.
D. Other Removal Cases In circumstances other than hostile removal cases, it is submitted that the Court will have regard to the English decisions, but care should be taken, as the statutory test that applies under English law98 does not apply under Guernsey law, although it may be that Guernsey will adopt similar principles. Indeed, there are good arguments for doing so, in that it should create greater certainty and confidence in the jurisdiction, given the substantial body of case law in England on the issue.99
93 West v Lazard Bros (n 90); as to the English principles, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 13-062 to 13-072 (‘By the court under its inherent jurisdiction’). 94 Letterstedt v Broers (1884) 9 App Cas 371, [1884] UKPC 18. 95 West v Lazard Bros (n 90). 96 Parujan v Atlantic Trustees [2003] JLR N[11]. 97 In the Matter of the E, L, O and R Trusts [2008] JLR 360. In this case, there was a dispute between the principal beneficiaries of two different sets of trusts with the same trustee, such that the trustee was likely to be required to be both claimant and respondent in the same proceedings. 98 Under English law, the statutory test is that the appointment of new trustees is ‘expedient’ and that it is ‘inexpedient, difficult or impracticable’ to make the appointment without the assistance of the court; Trustee Act 1925 (England), s 41(1). Section 41 expressly confers jurisdiction on the court if a trustee lacks capacity, is bankrupt, in liquidation or has been dissolved. See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) para 15-005 (‘Expediency of making appointment’), paras 15-006 to 15-008 (‘Who may be appointed’) and paras 15-009 to 15-010 (‘Number of trustees to be appointed’). 99 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9), chs 15 (‘Appointment of New Trustees by the Court’) and 16 (‘Appointment of New Trustees in Place of Trustees Lacking Mental Capacity) where applicable, and in particular para 15-005 (‘Expediency of making appointment’), paras 15-006 to 15-008 (‘Who may be appointed’) and paras 15-009 to 15-010 (‘Number of trustees to be appointed’).
Appointment and Removal of Trustees by the Court 117
E. Incapacity A trustee does not automatically cease to hold office in the event of mental incapacity.100 It is therefore prudent to ensure that it is possible to remove trustees and appoint replacements pursuant to the terms of the trust. If that is not done, an application to court can be made under the Trusts Law 2007.101 Where the sole remaining trustee is declared incapable by reason of mental disorder, of managing and administering his or her property and affairs by the Royal Court (and so becomes a ‘patient’), the Court has power102 to order the exercise of any powers vested in the patient as trustee. If the Court makes an order for the appointment or removal of trustees, or for retirement from a trust, it may also make any consequential vesting or other orders in relation to the trust property as the case may require, including any orders that could have been made by the Court under the Trusts Law 2007.103 If a trustee carries on any regulated activity (which includes acting as a trustee) from the Bailiwick by way of business,104 it will need to be licensed. Contravention is an offence105 but does not in itself affect the capacity of the trustee to act as such, and the trust will take effect in accordance with its terms. The position may be different if the trustee is a company and its constitutional documents prevent it from acting as a trustee without an appropriate licence, but that will depend on the law governing that company, a full discussion of which is beyond the scope of this book.
F. Insolvency As with incapacity, it is prudent to ensure that changes of trustees can be made pursuant to the terms of the trust; but if that is not possible, the liquidator (whether a liquidator of a Guernsey company or of a foreign company) of the last remaining trustee will normally have power to appoint new trustees.106 However, where there is no one who has the power to appoint and remove trustees in that situation, it is better not to include a standard provision, still often seen, that a trustee automatically vacates office on becoming subject to insolvency proceedings, as that will necessitate applications to court in each case rather than the passing of powers to the liquidator. On a liquidation of a Guernsey company, the liquidator is able to exercise all the powers that the directors otherwise could
100 ibid
para 16-001 (‘Effect of lack of mental capacity on trusteeship’). Trusts Law 2007, s 69(1); see section VIII. 102 Mental Health (Guernsey) Law 2010, Third Schedule, para 3(1)(k). 103 Mental Health (Guernsey) Law 2010, Third Schedule, para 3(2). 104 See ch 16 of this volume. 105 See ch 16, section IV. 106 Trusts Law 2007, s 18(1)(iii). 101 Under
118 Trustees have exercised,107 so that as long as the trust company remains as trustee, the liquidator can carry out the administration of the trust (albeit, in practice, it will usually seek to appoint a new trustee immediately).
IX. Trustee Remuneration A. General Position A trustee cannot charge a fee for its services, unless authorised by (a) the terms of the trust; (b) the consent in writing of every beneficiary; or (c) an order of the Court.108 In order for (b) to apply, all of the beneficiaries would need to be ascertainable, which is not possible if there is any chance that the class of beneficiaries is not closed, which is often the case with discretionary trusts.109 If any of the b eneficiaries are minors or are not of full capacity, the consent of the Court should be obtained, as a matter of prudence. It has been held that the following clause authorising trustee remuneration only authorised ‘reasonable, proper and proportionate fees or remuneration, for work shown to have been done, and charged in accordance with either an actual fee/remuneration agreement, or with usual practice, dependent on evidence’, and that the burden of proving entitlement to any such fees fell on the trustee: Any Trustee being a person engaged in any profession or business shall be entitled to … charge and be paid all usual professional and other charges for business transacted time spent and acts done by him or his firm in connection with the administration of the trusts hereof including acts which a trustee not being in any profession or business could have done personally …110
B. Court’s Power to Approve Trustee Remuneration Under section 69(1)(a)(ii) of the Trusts Law 2007 the Court has jurisdiction to make an order in respect of ‘a trustee, i ncluding … the appointment, remuneration or conduct of a trustee’. In a 2004 case,111 a trust was created in 1969 that, although it provided for the appointment of new trustees, contained a clause that clearly meant that only 107 Companies (Guernsey) Law, 2008, ss 395 and 397. 108 Trusts Law 2007, s 35(1); confirmed in Artemis Trustees Limited and another v Martin John Sandle and Rodney Gray Denton (Royal Court, 29 June 2016) (Judgment 28/2016) para 32. 109 As to the meaning of ‘beneficiary’, see ch 9, section I. 110 Artemis Trustees Limited (n 108) paras 35–36, although the Lt Bailiff expressly did not make any decision on construction of the charging clause at a ‘detailed level, merely as a matter of general approach’. 111 In the Matter of the H Sossen 1969 Settlement (Royal Court, 28 May 2004) (Judgment 16/2004).
Trustee Remuneration 119 the original trustee could charge for its services. In 1971, the group of companies of which the original trustee was a member reorganised and a new trustee was appointed. In 1973, the settlor gave an indemnity in favour of the successor trustee, to the effect that if the successor trustee charged its fees to the trust fund, the settlor would indemnify the successor trustee. The successor trustee acted on the basis of the indemnity and paid its own fees out of the trust fund, with the settlor’s knowledge and approval, up to the date of the settlor’s death in 1992. After the settlor’s death, the remuneration was paid to the successor trustee with the tacit approval of the beneficiaries. When it was proposed to transfer the trusteeship in 2003, it became apparent that the proposed new trustee would not be able to charge for its services. Therefore, an application to Court was made: (a) to approve the remuneration taken by the successor trustee, whilst it had been in office; and (b) to replace the existing remuneration clause in the trust instrument with one that would allow any trustee to be remunerated. The application was first brought to Court by the successor trustee, and a separate advocate was appointed to make enquiries of the secondary beneficiaries. The support of some of the primary beneficiaries had been put before the Court already. A pragmatic view was taken by the Court, to the effect that regard should be had to the letters of wishes made by the settlor. These made clear which of the beneficiaries could expect to benefit under the trust, and only those beneficiaries were consulted. The Deputy Bailiff stated: In Guernsey and in other jurisdictions, professional trustees ordinarily undertake business only on the basis of reasonable remuneration usually on the basis of their standard terms and conditions which incorporate remuneration clauses. It would be [a] wholly exceptional case for a professional trustee not to be remunerated and in such a case there would inevitably be features particular to that case. There would appear to have been no special relationship in this case. This case has the hallmark of a normal professional arm’s length business relationship as the remuneration clause for the benefit of the Original Trustee indicates.112
It was argued that Guernsey customary law had recognised that those who managed the property of others were entitled to remuneration.113 In addition, English law had developed to the extent that: (a) the English court has an inherent jurisdiction to approve trustee remuneration; (b) this could be for past work, and could also be used to increase the remuneration that might be authorised by a trust deed; and (c) it is in the interests of the beneficiaries that a trust should be well administered, and often this will mean that the trustee is remunerated appropriately.114 112 ibid, para 15. 113 J. Gallienne, Traité de la Renonciation par Loi Outrée et de la Garantie (1845) 244. 114 In Re Duke of Norfolk’s Settlement Trusts [1982] 1 Ch 61; Foster v Spencer [1996] 2 All ER 672; and Perotti v Watson and others [2001] EWCA Civ 116.
120 Trustees The Royal Court concluded that: (a) it has both an inherent jurisdiction and a statutory power115 to approve remuneration (including past remuneration) for a trustee; (b) the arrangement between the successor trustee and the settlor in the particular case had worked well for over 30 years; (c) the original trustee was entitled to remuneration, and the trust instrument provided for successor trustees but was silent as to whether they should be remunerated; (d) the successor trustee wished to resolve the issue in order to facilitate the appointment of a new trustee and to avoid any future allegation of a breach of trust; (e) the ‘primary’ beneficiaries (that is, those most likely to benefit, in accordance with the letters of wishes) supported the application, and there was no reason to suppose that future beneficiaries or the other unrepresented beneficiaries of the trust would take a different view. That part of the application dealing with the replacement of the trust’s limited remuneration clause with a ‘standard provision’ was brought under variation of trusts jurisdiction in section 52(1) of the 1989 Trusts Law.116 That provision allows the Court to vary ‘the powers of management or administration of any trustees’, where such arrangement is for the benefit of those who have not been born or cannot consent for themselves. In that case, it was proposed to appoint a new trustee, and it was noted that any professional trustee would act only on the basis that it could be properly remunerated. In approving the application on this point, the Deputy Bailiff said: [I]t is a benefit to all Beneficiaries that any professional trustee with the relevant skill and expertise can undertake the trusteeship. Not to approve it would mean that a new Trustee would have to apply to the Court perhaps at regular intervals. It is so exceedingly unlikely that any professional trust company would agree to take on the trust under such conditions.117
C. Re Kleinwort Benson Trustees (Guernsey) Limited In Kleinwort Benson Trustees (Guernsey) Limited,118 an application was made in respect of an English law trust over which the Guernsey Court had jurisdiction, as the trustee was resident in Guernsey.119 The trust had been set up in 1966 and
115 Trusts Law 1989, s 30(1), now Trusts Law 2007, s 35(1)(c). 116 Trusts Law 1989, s 52(1); now Trusts Law 2007, s.57(1); see further under ch 14, section IV. 117 In the Matter of the H Sossen 1969 Settlement (n 111) para 29. 118 Kleinwort Benson (Guernsey) Trustees Limited, Gilligan and Robins (Royal Court, 12 March 1998). 119 Pursuant to the Trusts Law 1989, s 4(b)(i); now the Trusts Law 2007, s 4(1)(b)(i); see ch 6, section III.
Trustee Remuneration 121 provided that trust corporations (as defined under English law) or professional persons, acting as trustees, could charge fees. The trust was due to come to an end in 2000. Two of the beneficiaries risked incurring substantial fiscal disadvantages if they took outright shares of the trust fund in 2000. Therefore, the trustees wished to re-settle approximately one half of the trust fund due to those beneficiaries. Those beneficiaries, their minor children and their professional advisers supported this proposal. The trustees were able to carry out this proposal under the terms of the trust instrument, without the consent of the Court. However, Kleinwort Benson (Guernsey) Trustees Limited wished to have a clause authorising its remuneration, as it did not fall within the definition of ‘trust corporation’ within the trust instrument, and therefore it fell outside the terms of the existing remuneration clause. The Court accepted that the Guernsey trust company had built up a good relationship with the beneficiaries and that, if it had been operating in England, there was little doubt that it would have had the status of a trust corporation. On that basis, having regard to English authority120 and to the fact that the beneficiaries could return to court if they became discontented, permission was granted to insert a clause into the trust instrument authorising general trustee remuneration.
D. Trustee Fees after Ceasing to be Trustees The Royal Court has held that trustees are not entitled to any fees after they have been validly removed.121 In another case, the trustees being removed remained as trustees following their removal as trustees, as the trust deed expressly provided that they did not cease to be trustees until such time as reasonable security had been provided. In principle, they were therefore entitled to receive remuneration after their ‘removal’.122 But as the successor trustees had been validly appointed, they were co-trustees with the removed trustees, so the removed trustees would only be entitled to remuneration for work done ‘with the authorisation, approval or consent of the [successor trustees]’.123
E. Termination Fees It has been held in a recent Cayman Islands case that a termination fee must be ‘reasonable’.124 A reasonable fee is ‘one which is in proportion to the amount of
120 In Re Duke of Norfolk’s Settlement Trusts [1982] 1 Ch 61. 121 Virani v Guernsey International Trustees Ltd (Royal Court, 1 August 2003) (Judgment 36/2003) para 37. 122 Artemis Trustees Limited (n 108) para 56. 123 ibid para 60. 124 Scotiabank & Trust (Cayman) Ltd v David Axelrod & others (FSD 97/13; Grand Court, 1 June 2015).
122 Trustees time spent on non-routine services and the level of skill, training and experience required of those performing the services’.125 The 1 per cent termination fee had been agreed by the protectors in accordance with the terms of the trust instrument, and the court heard evidence that a percentage termination fee was usual in the industry. But it held that while an industry standard provides some evidence of reasonableness where there is a free market, it is not conclusive. On the facts, much of the time spent by the trustee was due to its own ‘disorganisation’ (eg it spent an ‘inordinate’ length of time trying to track down the fee agreement) and, as such, it could not justify that level of fee. It is worth noting that Henderson J also said that this was not a claim in contract, so the contractual cases on penalties would not seem to be directly relevant. The basis for this decision is not clear, as there are no reasons given why an agreed fee freely entered into should be unenforceable. It may be that there is a possible public policy issue, but in the absence of any discussion on the point, the decision must be regarded with some caution. It is submitted that this case would not in normal circumstances be followed in the Guernsey courts.
X. Trustees’ Expenses Trustees have a statutory right to pay or to reimburse themselves from the trust property for all expenses and liabilities properly incurred in connection with the trust.126 This is in very similar terms to the right under English law, so the Guernsey courts will have regard to English law127 to the extent it is relevant with regard to the trustee’s indemnity provision, in the absence of Guernsey authority. The Guernsey courts have applied the English legal principles in relation to a Jersey law trust,128 and the Jersey statutory provision129 is also in very similar terms. However, subject to the terms of the trust, the cost of purchasing and maintaining professional indemnity insurance is a proper expense for this purpose, except to the extent that it covers the trustee’s own fraud, wilful misconduct or gross negligence.130 This reverses the English common law rule that trustees may not normally pay for indemnity insurance from the trust fund as it is a benefit to the
125 ibid para 15. 126 Trusts Law 2007, s 35(2). 127 Trustee Act 2000 (England) s 31(1); Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) ch 21 (‘Indemnity of Trustees’). 128 The Tchenguiz Discretionary Trust (Royal Court, 27 November 2015) (Judgment 54/2015) para 7; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 21-003 et seq (‘Indemnity out of trust property in respect of administration expenses – the general principles’). 129 Trusts (Jersey) Law 1984, Art 26(2). 130 Trusts Law 2007, s 35(3).
Trustees’ Expenses 123 trustees, not the trust.131 There is no reason in principle why the terms of the trust could not permit the purchase of insurance to cover gross negligence. It has been held that the sole test of whether the trustee has a right to pay or reimburse a liability from the trust fund is whether it was properly incurred, not whether it was properly allowed to continue.132 Where the liability has been properly incurred but improper conduct by the trustee leaves it in place rather than discharging it, that will be a breach of trust: But the measure of the loss thereby caused to the beneficiaries will by no means usually be equivalent to the amount of the liability. Generally speaking, liabilities are not discharged without any cost to the person liable.133
It is still an open question as to whether an exoneration provision that excludes the trustee’s liability for negligence permits the trustee to pay out of the trust fund liabilities incurred as a result of its own negligence, in the absence of an enlarged indemnity provision.134
A. Rights of Former Trustees to Indemnity from the Trust Fund The general principle is that former trustees are entitled to reimbursement of expenses incurred for the benefit of the trust but not for those incurred for the benefit of the trustee personally.135 With regard to an outgoing trustee’s lien, or the right under a trust deed to have ‘reasonable security’, work done or expense incurred (a) to ascertain the position with regard to whether an outgoing trustee was in law and fact, entitled to such benefits and, once it was ascertained that he was, (b) to identify the nature or extent of any dispute as to such entitlement, would properly be regarded as a trust administration expense in principle. This is because the acceptance of a lien, or, where it is expressly provided in the trust deed, the provision of reasonable security for liabilities, is an obligation of the trust, which would have to be performed in the course of the due and proper administration of the trust. However, once matters progress further and such work or expense becomes identifiable as being for the objective of fighting the trustee’s own corner either against
131 See, eg, Kemble v Hicks [1999] PLR 287. 132 Investec v Glenalla [2018] UKPC 7 [106]–[116]; while this concerned an appeal from the Guernsey Court of Appeal, it was in respect of the equivalent Jersey law provision in the Trusts (Jersey) Law 1984, Art 26(2), which refers to liabilities ‘reasonably’ rather than ‘properly’ incurred. It is not thought that there is any substantive difference. 133 Investec v Glenalla [2018] UKPC 7 [112]. 134 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) para 21-008 (‘Excluding, restricting or enhancing the statutory right of indemnity’). 135 Virani v Guernsey International Trustees Ltd (n 121); Thommessen v Butterfield Trust (Guernsey) Ltd [2009–10] GLR 102; Artemis Trustees Limited (n 108) paras 43 and 47.
124 Trustees the trust, or separately from the interests of the trust, that work or expense would clearly fall on the ‘wrong’ side of the line.136
Items are to be excluded ‘not because they are of a benefit to the Trustee, but because they are of not sufficient benefit to the trust’.137 In applying the test, the Lt Bailiff noted certain general points: (a) the level of charge may be relevant, so that a piece of work carried out at a low cost may be reasonable while the same piece of work or expense at a high cost would not be;138 (b) withholding legal advice from incoming trustees prevents the outgoing trustees’ arguing that the advice was taken to any extent for the benefit of the trust;139 (c) the actual fee still needs to be justified as appropriate, that is, as reasonable and proportionate, on general principles.140 Trustees who had been removed were not entitled to recover the fees of their legal advisers from the trust fund after that date, for resisting their removal, as there was no ‘tenable argument to the effect that the former trustees had not been lawfully removed as trustees’.141 Conversely, where the outgoing trustees have acted properly and reasonably in retaining the assets so as to enable them to enforce their lien, they are still acting in a fiduciary capacity in relation to those assets and are entitled to an implied equitable indemnity in relation to their expenses in the discharge of those functions.142
XI. Trustees de Son Tort A trustee de son tort is a constructive trustee.143 This can arise where someone assumes the character of a trustee without being validly appointed. The Jersey courts have applied English legal principles,144 and it is thought that the Guernsey courts will do the same.145
136 Artemis Trustees Limited (n 108) para 64. 137 ibid para 68. 138 ibid para 70. 139 ibid para 71. 140 ibid 72; the specific claims for the outgoing trustees’ fees and expenses were dealt with in Artemis Trustees Limited and another v Martin John Sandle and Rodney Gray Denton (Royal Court, 2 June 2017) (Judgment 7/2018). 141 Artemis Trustees Limited (Judgment 7/2018) (n 140) para 21. 142 The Tchenguiz Discretionary Trust (n 128) para 19. 143 As to the distinction between the two different types of constructive trustee, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 7-010 to 7-026. 144 Cunningham v Cunningham [2009] JLR 227. 145 As to the position under English law, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 9) paras 42–101 to 42–125 (‘Trustees de son tort’).
Dealings with Third Parties 125 Where the appointment of trustees was invalid but the trustees had been unaware of the problem, the trustees may apply to the Court in Guernsey to have the steps they have taken as trustee ratified. However, there are limits on the powers of the Court to ratify past actions of the trustees. Ratification can be broken down into three different categories: (a) confirmation by perfection of an imperfect act or transaction; (b) confirmation by replacement of a tainted or doubtful transaction by an effective one with a similar effect; and (c) confirmation by non-intervention in acts or omissions which were not or may not have been authorised but have nevertheless actually been acted upon, so that these acts or omissions remain undisturbed.146 Category (a) (for example, where a principal ratifies the unauthorised acts of an agent) takes effect retrospectively, but it is thought that it is not normally available to trustees and the Court has no general jurisdiction to validate invalid exercises of powers by trustees de son tort and thereby change the trusts on which the trust fund is actually held.147 If the trust instrument does not already confer the necessary power on the trustees, the Court has a statutory power to do so, under its jurisdiction to approve a variation (as to which, see chapter 14, section IV). A category (b) confirmation is not retrospective, so if a distribution is confirmed in that way, it is likely to be treated as taking place on the date of the Court order, which may have different tax or other consequences from a retrospective ratification. Where a trustee de son tort has distributed trust property to a beneficiary in breach of trust (i.e. where the purported trustee has exercised a dispositive rather than an administrative power), it is doubtful that the Court could ratify that distribution in the sense of category (a) above. However, the Court can direct the trustee de son tort not to seek to recover that distribution and such an order will permit the trustee to administer the trust going forward on the footing that the distribution was validly made.148
XII. Dealings with Third Parties It is trite law that a trust is not a legal person, and that a trustee acts as principal and not as agent for the trust. A trustee incurs personal liabilities subject to a right of reimbursement from the trust fund if those liabilities have been
146 In the matter of the Z Trust [2016] JRC 048 para 64; effectively reversing In the Matter of the Representation of BB [2011] JLR 672 (also known as Re D Retirement Trust) with regard to the power of the Court to effect a retrospective ratification (ie under category (a)). 147 Ibid [71]. 148 Ibid [80]; see also In the matter of the C Trust [2019] SC (Bda) 44 App (22 July 2019) para 25.
126 Trustees properly incurred. This often causes problems for trustees and third parties when they enter into commercial transactions.149 That position has been modified by statute in Guernsey so that (i) the trustee does not incur any personal liability and (ii) the third party’s claim extends only to the trust property, provided the trustee has informed the third party, or the third party is otherwise aware that it is acting as trustee.150 If the trustee fails to inform the third party that it is acting as trustee and the third party is not aware of that fact, the trustee incurs personal liability subject to a right of indemnity against the trust property, unless it has acted in breach of trust.151 This provision does not prejudice any breach of trust claim against the trustee, nor any claim for breach of warranty of authority,152 and applies whatever the law governing the transaction, but of course that other law may not apply the same rules.
A. The Meaning and Effect of Section 42 The equivalent, though not identical, Jersey provisions153 were considered in some detail by the Privy Council, on appeal from the Guernsey Court of Appeal.154 This case concerned a Jersey trust (the Tchenguiz Discretionary Trust) with a Guernsey trustee, where the former trustees had entered into loans with a number of BVI companies connected with the trust. The trustee owed large sums to trust-owned BVI companies, which owed large sums to Kaupthing Bank. The bank called in the loans and the BVI companies defaulted and were placed into liquidation. The liquidators then brought proceedings on behalf of the companies against the trustee for recovery of the sums owed by it. The trust lacked the assets to make repayment to the BVI companies of the sums owed by the trustee – thus the trust was ‘insolvent’. The question therefore arose as to whether the trustee was personally liable to repay the loans. It was held that the effect of section 42 was to abrogate the rule of English law that the law looks no further than the legal entity which has assumed the liability. It deals with the status of the trustee against whom the claim is made, introducing a legal distinction between his two capacities, personal and fiduciary. It provides that he may be treated as incurring liabilities not personally but ‘as trustee’, and therefore without recourse to his personal estate …155
149 For a discussion of the issues that arise, see R Grasby, A di Iorio, N Porteous and T Pursall, ‘Trustees & commercial transactions: why the BVI is a trust jurisdiction of choice’ (24 March 2015), available at www.lexology.com. 150 Trusts Law 2007, s 42(1). 151 Trusts Law 2007, s 42(2). 152 Trusts Law 2007, s 42(3). 153 Trusts (Jersey) Law, Art 32. 154 Investec v Glenalla [2018] UKPC 7. 155 ibid [61].
Dealings with Third Parties 127 However, the article does not affect the pre-existing law in any other way. A creditor can therefore still ‘access the trust assets only by way of the trustee’s right of indemnity and subject to the limits on that right imposed by the trust deed or the general law’.156 That was based in part on Article 54 of the Trusts (Jersey) Law, which confirms that creditors’ rights against the trust fund are only by way of subrogation to the trustee’s rights, and there is no exception where Article 32(1)(a) applies. There is a similar provision in section 74 of the Trusts Law 2007: Where a trustee becomes bankrupt, or upon his property becoming liable to arrest, saisie or similar process of law, his creditors have no recourse against the trust property except to the extent that the trustee himself has a claim against it or a beneficial interest in it.
It does not therefore give the third party direct recourse against the trust property. The second Court of Appeal hearing in the Investec case157 noted that the equivalent provisions under Guernsey158 law ‘are to the same effect’.159
B. Drafting Issues There is a good chance that the English courts and others that apply similar conflict rules on this point will reach the same conclusion, but of course there no guarantee that they will do so. For example, it was noted in the Investec case that the fact that Guernsey has very similar legislation meant that ‘there is no issue as to public policy in Guernsey being offended by such a result’.160 The same policy consideration would clearly apply in the BVI161 and, of course, in Jersey, but the same does not apply in England, the Cayman Islands or in most other trust jurisdictions. There is therefore still no substitute for express provisions in the relevant contract, limiting liability in the appropriate way, but it may also be prudent to refer to section 42 of the Trusts Law 2007 expressly in the contract itself, so that it is incorporated into the contract. In that way, it may be more likely that it will be upheld by the courts of the jurisdiction of the proper law of the contract.162
156 ibid [62]. 157 Investec v Glenalla (CA, 29 October 2014) (Judgment 41/2014). 158 Trusts Law 2007, s 42. 159 Investec v Glenalla (n 156) para 110. 160 Investec Trust (Guernsey) Limited et al v Glenalla Properties Limited et al (CA, 27 June 2014) (Judgment 28/2014) para 106. 161 See Grasby et al, ‘Trustees & commercial transactions: why the BVI is a trust jurisdiction of choice’ (n 148). 162 For a more detailed discussion of some of the issues arising from the Investec decision, see T Pursall, ‘Limited Liability for Trustees? Part II: Practical Implications of Investec v Glenalla for Trustees and Third Parties’ [2019] 5 PCB 132.
128 Trustees
C. Protection of Persons Dealing with Trustees Section 75(1) of the Trusts Law 2007 does provides some protection for third parties dealing with trustees: A bona fide purchaser for value without notice of a breach of trust – (a) may deal with a trustee in relation to trust property as if the trustee were the beneficial owner thereof, and (b) is not affected by the trusts on which the property is held.
The protection this gives a third party depends on ‘notice’, and it is thought that this is intended as a statutory enactment of the common law rules, without making any substantive changes to them. Does it mean that a third party should ensure that it does not see the trust instrument so it will not be on notice of the trustee’s lack of power or failure to comply with trust requirements? It is thought not, as that approach only works if the doctrine of constructive notice163 does not apply, and while the extent of the doctrine in this situation may not be entirely settled, it is reasonably clear that a modified form of the doctrine does apply: The test is whether a reasonable person in the recipient’s position should either have appreciated that it was receiving money subject to another’s proprietary right, or should have made inquiries or sought advice which would have revealed the probable existence of the right. The court would take into account the past experience of the recipient; any expert advice available to it; any routine procedures followed in transactions of the kind in question; and whether on the facts known to the defendant a reasonable professional in his position would have serious cause to question the propriety of the transaction. Unless and until the recipient is put on inquiry as to wrongdoing, he is entitled to assume that he is dealing with honest people.164
It means that the third party does not need to make any further enquiries about the exercise of the trustee’s powers to ascertain if the trustee might be acting in breach of trust, provided it is not on actual notice of a potential breach. Indeed, this suggests that the third party should make reasonable enquiries to satisfy itself that the trustee has power to enter into the transaction and has complied with any formal requirements under the terms of the trust. Provided the third party has no actual notice of a breach, after making such enquiries, it is thought that it is not liable and can rely on section 42.
163 That is, being deemed to be on notice of matters that would have been ascertained if reasonable enquiries had been made. Contrast the position under Jersey law, where only ‘actual notice’ is sufficient: Trusts (Jersey) Law 1984, Art 55(1). 164 J McGhee QC (ed), Snell’s Equity, 33rd edn (with 4th supplement) (Sweet & Maxwell, 2018) para 4-035 (‘Constructive notice –Commercial transactions not involving land’).
Insolvent Trusts 129
D. Persons Paying or Advancing Money to Trustees There is statutory protection for persons paying or advancing money to trustees: A person paying or advancing money to a trustee is not concerned to see – (a) that the money is wanted, (b) that no more than is wanted is raised, or (c) that the transaction or the application of the money is proper.165
This appears to have been based on section 17 of the English Trustee Act 1925, although that provision is limited to the protection of purchasers and mortgagees.
XIII. Insolvent Trusts A. What is an Insolvent Trust? The term ‘insolvent trust’ is, strictly, a misnomer as a trust is not a legal entity, but we use it here as useful shorthand to refer to a situation in which the trustee is unable to pay the trust liabilities from trust assets as they fall due. It has been held in the Jersey Royal Court that the relevant test for these purposes is a cash-flow test.166 In those circumstances, as the trustee’s liabilities are normally limited to the value of the trust fund,167 there needs to be a means of regulating the way in which trust assets are to be realised and applied, and how costs are to be dealt with. Until recently, there had been very little authority on these points, but that has changed with a recent case in Jersey that has resolved a number of those issues, and it is thought that the Guernsey courts would follow the same approach.168
B. Appointment of an Insolvency Practitioner Once there is an insolvency or probable insolvency, the trustee and all those holding fiduciary powers in relation to the trust can only exercise those powers in the interests of the creditors. The trustee or fiduciary of such a trust would be wise therefore to exercise his, her or its powers either with the consent
165 Trusts
Law 2007, s 75(2). the Matter of the Z II Trust [2015] (2) JLR 108, paras 28–29. 167 See section XII.A. 168 Although, at the time of writing, the decision is currently the subject of an appeal. 166 In
130 Trustees of all of the creditors or under directions given by the court. A trust being administered on the basis that it is insolvent, is administered for the benefit of the creditors as a class and not for the majority of them, however large that majority may be, in the same way that a liquidator of a company in a creditors’ winding up owes his or her duties to the creditors of the company as a class, not to individual creditors.169
The Court has the power to appoint an insolvency practitioner to wind up an insolvent trust,170 but it would usually be more appropriate for the trustees to carry out the winding up: Where, however, as here, there are professional trustees in office with no unmanageable conflict, it would ordinarily be much more cost effective, and therefore in the interest of the creditors, for those trustees to remain in office and to conduct the winding up process under the supervision of the Court.171
On the other hand, if there were lay trustees who were ill-equipped to conduct the winding up, or the professional trustee had a real conflict that made it impractical for it to conduct the winding up, it may be in the interest of the creditors to appoint a receiver: in this regard, the views of the creditors would ‘carry great weight’.172
C. Priority of Creditors In Re Z,173 Equity Trust (the former trustee) retired in favour of Volaw on 11 October 2006, and Volaw retired in favour of Rawlinson & Hunter (the current trustee) in October 2015. In December 2015, the former trustee settled a claim (the Angelmist proceedings), which had commenced in 2012, for over £18m out of its own funds, and claimed reimbursement from the trust fund. The difficulty was that the trust fund was insolvent, as the only asset was a loan due from a related trust, the Z III Trust, which was for £186m but valued at around £6m, and the liabilities (excluding the former trustee’s claim) amounted to around £211m, representing unsecured loans to connected parties. The former trustee argued it had priority over the claims of other creditors, by virtue of being first in time, in which case it would recover the full £6m. On the other hand, if its claim ranked pari passu, it would only recover some £330,000. The case was determined on the following assumptions: (a) The former trustee was and remained entitled to be indemnified from the assets of the Z II Trust in relation to all and any liabilities and costs arising from or in relation to the Angelmist proceedings. 169 In the Matter of the Z II Trust (n 166) paras 32–33. 170 In the Matter of the Z III Trust [2015] (2) JLR 175, para 29; this is based on the statutory jurisdiction in Jersey under Art 51 of the Trusts (Jersey) Law 1984; the equivalent jurisdiction in Guernsey (s 69(1) – see ch 12, section III.B) is, if anything, wider. 171 In the Matter of the Z III Trust (n 169) para 31. 172 ibid para 30. 173 In the Matter of the Z Trusts [2019] JCA 106.
Insolvent Trusts 131 (b) The former trustee did not enjoy the protection of Article 32(1)(a)174 of the Trusts (Jersey) Law in relation to the Angelmist proceedings. (c) All of the other unsecured creditors of the Z II Trust were Article 32(1)(a) creditors (ie they had known the trustee was acting as trustee, so the trustee’s liability to them extended only to the trust property). Two separate questions of priority arose for determination by the Court. It was held (reversing the first instance decision175) that the principle of first in time should apply, so that a former trustee’s lien ranks in priority to that of a successor trustee: I am satisfied that the right of lien of a former trustee is an equitable right which ranks in priority of time ahead of the right of lien of a successor trustee, and it does so in accordance with the basic rule which applies to the ranking of equitable securities. That ranking in priority exists both so long as a trust remains solvent and if it becomes insolvent.176
Logan Martin JA went on to say: The establishment of the appropriate ranking should be straightforward in any particular case because it will depend solely upon the date when a trustee took up appointment as a trustee.177
For the purposes of establishing the relevant date for the purposes of ranking priorities, it does not therefore matter when any particular liabilities had been incurred, or indeed whether the trustee had incurred any liabilities at all: [T]hese rights continue to exist even if there are no actual liabilities to be secured against at one time or another during the administration of the trust.178
The second question was in relation to the priority between the former trustee (claiming through its right of indemnity and associated equitable lien in respect of its personal Article 32(1)(b) liability179) and its own Article 32(1)(a) trust creditors (ie those BVI companies with regard to whom the former trustee had entered into loan obligations). This point was not the subject of detailed submissions in the Court of Appeal (as there were no such creditors), but Logan Martin JA did express the view, obiter, that the first instance decision180 was wrong and that the former trustee did have priority over its own creditors: I cannot see any reason why the advantage being given deliberately to trustees should not apply equally to the situation where there are claims by both the trustee 174 The equivalent of the Trusts Law 2007, s 42(1); as to which, see section XII.A. 175 In the Matter of the Z Trusts [2018] JRC 119, para 143. 176 In the Matter of the Z Trusts (n 173) para 176. 177 ibid para 177. 178 ibid. 179 That is liability in respect of which the trustee incurs unlimited personal liability, subject to a right of indemnity against the trust property; the equivalent of the Trusts Law 2007, s 42(2). 180 That they ranked pari passu: In the Matter of the Z Trusts (n 174) paras 118, 121.
132 Trustees itself and its Article 32(1)(a) creditors against the assets of a trust which has become insolvent.181
Re Z would clearly be persuasive before the Guernsey courts but would not necessarily be followed, as there is some force in the reasoning given in the decision of the Royal Court, not least the argument that it is more likely to be ‘conducive to the good administration of trusts’.182
D. Creditors’ Costs of Proving their Claims The Court of Appeal also reversed the Royal Court’s decision on this point in Re Z II Trusts, and held that a creditor’s costs of proving its claim are recoverable from the insolvent trust fund. There were two grounds for this decision. The first was that now that the former trustee’s lien ranked in priority to the claims of the successor trustee, the basis on which the Commissioner had decided the case was unjustified. The second was a more general point that a trustee should be entitled as a matter of principle to its costs from the trust fund in proving a claim it has as trustee, and that is the effect of Article 26(2).183
E. Trustee’s Duties to Former Trustees and Creditors Generally Where a former trustee gives notice to the current trustee of a claim under its right of indemnity, that ‘may well give rise to an obligation on the part of the successor trustee not to take steps that would destroy, diminish or jeopardise the former trustee’s equitable lien’.184 It is arguable that a trustee of a solvent trust has a general duty to creditors where there are limited recourse provisions.185
181 In the Matter of the Z Trusts (n 173) para 233. 182 In the Matter of the Z Trusts (n 175) para 107. 183 The judgment refers to Art 36(2), but this must be a typographical error: Art 26(2) contains the trustee’s right of reimbursement from the trust assets; the Guernsey equivalent is the Trusts Law 2007, s 35(2). 184 In the Matter of the Z Trusts (n 175) para 149, citing Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344, 74 NSWLR 550. 185 There is US authority to that effect: James Stewart & Co v National Shawmut Bank (1934) 69 F2d 694; see also AW Scott, WF Fratcher and ML Ascher (eds), Scott and Ascher on Trusts, vol 4 (5th edn, Wolters Kluwer, 2006) para 26.2.3.
8 Powers, Duties and Liabilities of Trustees I. Duties of Trustees The general duties of trustees of Guernsey trusts are contained in sections 22–29 of the Trusts Law 2007. It is important to bear in mind that this is not intended as a codification of Guernsey trust law, so trustees may have other duties as well: the starting point is the position outlined in Stuart-Hutcheson v Spread Trustees,1 that English trust law principles are to be applied, but they may have to yield to Guernsey customary or statute law.
A. General Fiduciary Duties Section 22 provides that: (1) A trustee shall, in the exercise of his functions, observe the utmost good faith and act en bon père de famille. (2) A trustee shall execute and administer the trust and shall exercise his functions under it – (a) in accordance with the provisions of this Law, and (b) subject to those provisions – (i) in accordance with the terms of the trust, and (ii) only in the interests of the beneficiaries or the advancement of the charitable or non-charitable purpose, as the case may be.
It is unclear what the duty to observe ‘utmost good faith’2 adds in this context. It is used in the context of insurance contracts to impose a duty on parties to a commercial contract to act honestly towards each other, not to mislead and to disclose all relevant information. It is difficult to see how that adds anything to the general duties of a trustee.
1 Stuart-Hutcheson v Spread Trustee Co (2002) 5 ITELR 140; [2009–10] GLR 403; confirmed in the Privy Council: see n 12. See ch 1, section X.A and ch 1, n 48. 2 Also known as uberrimae fidei.
134 Powers, Duties and Liabilities of Trustees In Jersey, in construing their equivalent legislation, ‘interests’ has been widely construed to equate with the wide meaning of ‘benefit’ in the variation of trusts jurisdiction.3 It therefore extends beyond purely financial interests of beneficiaries and includes, for example, the discharge of a moral obligation.4 This appears to be in contrast with the position under English law, under which the duty to act in the ‘best interest’ of the beneficiaries has been held to mean acting in their best financial interests.5 The point has not yet been decided by the Guernsey court, but it is submitted that the Jersey approach is the better one. It may be that the English cases should be confined to their particular facts, and indeed they have come in for some criticism, and the precise ambit of the duty is not entirely clear.6 It is likely to mean different things in different circumstances. Given the wide meaning in relation to the exercise of dispositive powers, there seems no good reason to limit it in the context of administrative and investment powers. Section 22 is considered further in the context of the trustees’ duties in relation to trust investments.7
B. Duty to Act en Bon Père de Famille The term en bon père de famille derives from French customary law, which appears to have developed from the Roman concept of bonus paterfamilias. As far as Guernsey law is concerned, it is the standard that applies in relation to tutelle (the guardianship of children) and curatelle (incapable adults),8 as well as as regards saisie9 and usufruit.10 It was also recognised as the standard applicable to trustees before the enactment of the 1989 Trusts Law. In the Bailiff ’s summing up in Lloyd v Lloyd,11 he said: Now we have been forced, to a certain extent, to accept some sort of equivalent jurisdiction in regard to trusts. We have no law on the subject (except that we have to act ‘en bon père de famille’) … 3 U Limited v B and others [2011] JLR 452, in the context of disclosure of information to the UK court in divorce proceedings; the duty also applies in the context of a bare trust: In the Matter of the Representation of Publicis Graphics Group Holdings SA [2011] JLR Note 18. 4 In the Matter of the T Settlement [2002] JLR 204; see also ch 14 of this volume, in particular ch 14, section IV.K.i. 5 Cowan v Scargill [1985] Ch.270; followed in Harries v Church Commissioners for England [1993] 2 All ER 300, but see also the discussion in G Thomas, Thomas on Powers, 2nd edn (OUP, 2012) paras 10.158–10.175 (‘Duty to act in the best interests of the beneficiaries’). 6 See Thomas on Powers (n 5) paras 10.158–10.175 (‘Duty to act in the best interests of the beneficiaries’). 7 See ch 11, section I.B. 8 Count Lothair Blücher von Wahlstatt (1928) XVIII Plaids de Meubles 421. 9 See ch 2, section III. 10 Article 24 of ‘Rapport sur le Droit coutumier à l’égard de L’Usufruit établi sur les Immeubles’ (1854) III Recueil d’Ordonnances 309. 11 Lloyd v Lloyd (Royal Court, 20 October 1956).
Duties of Trustees 135 In Spread v Hutcheson,12 the Privy Council accepted the Guernsey Court of Appeal’s finding that the duty to act en bon père de famille was a duty to act as a prudent man of business. It so held on the basis that no doubt the obligation so to act implies a standard of care similar to that required of trustees in England, citing Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] 1 Ch 515. In short the duty is to act as a reasonable and prudent trustee would act, that is with reasonable care and skill.13
So it is now clear that the relevant English legal principles apply in relation to trustees and that the term en bon père de famille does not import any additional duties or higher standards of care.14 A trustee’s general duties were discussed in relation to the question of whether it had a duty to bring legal proceedings against a third party in the Zaleski case, although the judgment does not contain any detailed guidance on the point.15 The heading to section 22 (‘General fiduciary duties’) suggests that the duty to act en bon père de famille might be a fiduciary one, and therefore that the duty to act with reasonable care and skill and the duty of adequate deliberations are similarly fiduciary. It is submitted that the better view is that they are not fiduciary duties, but the issue has yet to be determined by the Guernsey courts.16
C. Duty to Get in and Preserve Trust Property Section 23 provides: A trustee shall, subject to the terms of the trust and to the provisions of this Law – (a) ensure that the trust property is held by or vested in him or is otherwise under his control, and (b) preserve and enhance, so far as is reasonable, the value of the trust property.
Trustees may need to consider obtaining specialist legal advice to ensure that they have complied with this duty, for example in relation to a Swiss law fiduciary contract that governed the relationship with a custodian holding shares, which formed part of the trust fund.17
12 Spread Trustee Company Limited v Hutcheson [2012] 2 AC 194. 13 ibid [20]. 14 As to the application of the duty in the investment management context, see ch 11, section I.B. 15 Romain Zaleski v GM Trustees Limited (Royal Court, 1 September 2015) (Judgment 42/2015). 16 This issue was discussed but not decided in M v St Anne’s Trustees Limited, Re Richmond Retirement Plan (Royal Court, 12 January 2018) (Judgment 1/2018); see ch 15, section V.D. 17 Zaleski v GM Trustees Limited (n 15).
136 Powers, Duties and Liabilities of Trustees
D. Duty Not to Profit from Trusteeship Section 24 provides that: A trustee shall not – (a) derive, directly or indirectly, any profit from his trusteeship, (b) cause or permit any other person to so derive any such profit, or (c) on his own account enter into any transaction with his co-trustees, or relating to the trust property, which may result in any such profit, except – (i) with the approval of the Royal Court, (ii) as permitted by the provisions of this Law, or (iii) as expressly provided by the terms of the trust.
Similar principles apply to enforcers of non-charitable purpose trusts, by statute18 and to other fiduciary office holders, on general equitable principles.
E. General Rule Regarding Unauthorised Profits and Conflicts of Interest These are two closely related duties. The classic formulation of the general duty is that a person in a fiduciary position … is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule.19
It is clear that the usual incidents of fiduciary duties are intended to apply to trustees of Guernsey trusts by virtue of section 22, so the general rule also applies, except so far as it has been amended by the Trusts Law. So, while the statutory provision is in slightly narrower terms than the general formulation of the rule under English law, it is not thought that it affects the general rule in any way. Another aspect of the general rule is that trustees are not entitled to charge for their services unless expressly permitted, which is discussed in chapter 7.20 In a modern context, conflicts are most likely to arise in respect of a corporate trustee. A typical example is where a trustee of a trust is part of the same group of companies as includes a company that provides services, typically investment
18 As
to which, see ch 2, section VI.I. v Ford [1896] AC 44, 51–52, per Lord Herschell. 20 See ch 7, section IX. 19 Bray
Duties of Trustees 137 advice, to that same trust. Even assuming such conflicts are permitted,21 care still needs to be taken in that situation.22 There are three exceptions to the general rule: it does not apply if (i) the terms of the trust provide otherwise, (ii) so provided in the Trusts Law 2007, or (iii) authorised by the Court. We shall deal with each in turn.
i. Express Provision in a Trust Instrument The general duty does not apply if the terms of the trust expressly provide otherwise.23 It is sometimes said that such clauses should be strictly construed, but it is submitted that they should be construed fairly and naturally according to their terms, like any other clause.24
ii. Statutory Authorisation Section 41(1) of the Trusts Law 2007 provides an exception to the rule requiring trustees not to put themselves into a position of conflict of interest, as follows: A trustee is not, in the absence of fraud, affected by notice of any instrument, matter, fact or thing in relation to a trust if he obtained notice of it by reason of his acting or having acted for the purposes of another trust.
A trustee normally owes a duty to use any information that it has in the interests of the trust of which it acts as trustee. Clearly, if a trustee is trustee of more than one trust, it may come across information with regard to one trust that affects another. Section 41(1) provides that a trustee of one trust is not bound to use information gained from another trust for the benefit of the first trust. Nevertheless, trustees still need to tread very carefully in these circumstances and be alive to any actual conflicts that arise. In any situation in which they do have a duty to disclose confidential information to the other trust, it is likely to put them in a position of actual conflict, and it is not thought that this will relieve trustees of liability in that situation. They still need to consider taking action – that might be to resign from one or other trusteeship or, if there is real doubt as to whether they can continue as trustee, to apply to the court for directions. But if the conflict is obvious, they may be criticised for incurring the costs of an application to court.25
21 See section I.E.i of this chapter. 22 See ch 11, section III.B. 23 As to the issues that arise in the drafting of such clauses, see J Kessler QC and P Matthams, Drafting Trusts and Will Trusts in the Channel Islands, 2nd edn (Sweet & Maxwell, 2013) para 5.5 (‘Conflicts of Interest’). 24 ibid; that was the approach taken in the English Court of Appeal in Sergeant v National Westminster Bank (1990) 61 P&CR 518. 25 In the Matter of the E, L, O and R Trusts [2008] JLR 360; see also ch 7, section VIII.C.
138 Powers, Duties and Liabilities of Trustees
iii. Authorisation by the Court In HSBC (HK) Limited v Secretary for Justice,26 the Court approved the addition of a provision in the trust, allowing HSBC to appoint affiliated companies to manage the trust assets.27
iv. Court Approval of Proposed Course of Action Where there is a potential conflict, a trustee may seek the guidance of the Court. When asked to approve a course of action proposed by trustees, the Court should consider the matter in accordance with the principles in the 1999 English case of Public Trustee v Cooper.28
v. Approval of Proposed Compromise between Trustees Who are Part of the Same Group In the 2004 case of Re Triangle Loans Trust,29 trusts had been set up to benefit employees of the failed Bank of Credit and Commerce International. After former employees commenced litigation for compensation for their lost benefits, two trusts were created, using funds from the BCCI liquidators and others. One trust was set up in the Cayman Islands (the Hexagon Trust) and the other in Guernsey (the Triangle Loans Trust). Litigation had been brought by some of the former employees in relation to the trust in Cayman. The Cayman trustees settled the litigation and then sought a contribution from the Guernsey trust towards the settlement amount payable and the related costs. The corporate trustees for the Hexagon Trust and the Triangle Loans Trust were both owned by the same accounting firm and were thus ‘group’ companies. Because of the potential conflict between these two trust companies, the blessing of the Court was sought for the action the trustees had resolved to take. The Bailiff stated: There can be other situations, as there are here, where the Court, without accepting a surrender of the discretion of the trustees, can reasonably be asked to say to the trustees that in the light of potential conflict of interests, it approves the way in which the trustees proposed to deal with a matter.
In such a case, the beneficiaries of the Guernsey trust should be convened to the application to enable their views to be heard by the Court.30 26 HSBC (HK) Limited v Secretary for Justice (2001) 3 ITELR 763. See also Re Yates [1994] JLR 221. 27 This case is discussed in more detail in ch 11, section III.B. 28 Public Trustee v Cooper [2001] WTLR 901 (this is dealt with in more detail in ch 12: see ch 12, section V). 29 In re Triangle Loans Trust – Rysaffe Trustee Company (CI) Limited v Hexagon Trust Company (CI) Limited (Royal Court, 2 November 2004) (Judgment 52/2004). 30 See ch 12, section V.
Duties of Trustees 139
vi. Consent of Beneficiaries Provided a trust’s beneficiaries are adult and are fully informed of a conflict of interest, they can waive it,31 in the same way as they may relieve a trustee of liability for breach of trust.32
F. Disclosure of Interests to Co-trustees In accordance with section 41(2): A trustee of a trust shall disclose to his co-trustees any interest which he has as trustee of another trust if any transaction in relation to the first mentioned trust is to be entered into with the trustees of the other trust.
This deals with the situation in which there are two transacting trusts that have a trustee in common. That trustee has conflicting duties, as its duty is to get the best deal for both trusts. The trustee must disclose its interest to its co-trustees of both trusts. Indeed, on general principles, the trustee should also disclose any interests it has in the transaction in any other capacity.33 It does not follow that the trustee can then participate in the decision-making process. The trustee may participate in the decision-making process if the trust permits it in that situation.34 If it does not, the question becomes one of whether the transaction is voidable and may be set aside by a beneficiary,35 or whether it can be upheld if it can be shown to be proper and reasonable to the trust.36 Given that uncertainty, it would normally be unwise for the trustee to take any part in the transaction. If the remaining trustees are able to make a quorate decision without any involvement of the conflicted trustee at all, that is in discussions and meetings as well as the vote itself, that may well be sufficient in many cases. If not, the only safe courses of action are either for the conflicted trustee to resign from both offices, or for both sets of trustees to apply to the court for directions. It may be possible for the resignation to be a temporary one until the transaction has been completed, but much will depend on the particular circumstances. As court applications necessarily take time, it is important for trustees to identify and address potential conflicts as early as possible, otherwise they may find themselves in a difficult position. 31 Clark Boyce v Mouat [1994] 1 AC 428, 435–36. 32 Trusts Law 2007, s 40; see also ch 9, section IX. 33 Although a less rigid approach may be taken to the self-dealing rule, depending on the circumstances: see L Tucker, N Le Poidevin C and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 20-125 (‘Interest of trustee in sale of trust property but not as purchaser’). 34 See section I.E.i of this chapter. 35 Under the self-dealing rule, where it applies with its full severity; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 20-105 to 20-121 (‘The self-dealing rule’). 36 ibid paras 20-105 to 20-121 (‘The self-dealing rule’) and 20-122 to 20-123 (‘Trustee purchasing in fiduciary capacity’).
140 Powers, Duties and Liabilities of Trustees Where the trustee is a company, its directors may also have obligations under the relevant company law and constitutional documents to disclose any interests at the relevant board meeting.
G. Duty to Keep Accounts and Records A trustee has a duty to ‘keep accurate accounts and records of his trusteeship’.37
i. Meaning of ‘Accounts’ In the context of a right to disclosure of information in Jersey,38 the term ‘accounts of the trust’ has been held to include all accounts, vouchers, coupons, documents and correspondence relating to the administration of the trust property or otherwise to the execution of the trust, including a full inventory of the trust assets and all dealings relating to any real property …39
In a case in the Bahamas,40 it was held that the trustee had acted properly in the circumstances in employing trust accounting principles for an underlying company, and had kept a fair balance between those interested in income and those interested in capital. That seems to have been on the basis that, where the trustee has incorporated a company to manage the investments, the trustee should procure distribution of any income receipts at company level and should not distribute any capital receipts at company level, as the interposition of the company should not affect the beneficial interests.41
ii. Maintenance of Records The Code of Practice42 requires that Trust Service Providers (TSPs) keep and preserve (so far as appropriate for the TSP’s functions and for at least the periods required by any applicable law) appropriate records of trust business including accounts, tax records and minutes of meetings.
37 Trusts Law 2007, s 25; see also ch 9, section XI. 38 Art 29 of the Trusts (Jersey) Law, 1984. 39 West v Lazard Brothers & Co (Jersey) Ltd [1987–88] JLR 414, 420, which was applied by the Jersey Court in Re The Den Haag Trust (1997–98) 1 OFLR 495 (Jersey) and Bhander v Barclays Bank & Trust Co Ltd (1997–98) 1 OFLR 494 (Jersey). The Jersey Court in these cases has been critical of trustees’ failure to disclose. 40 JW v Morgan Trust Company of the Bahamas Ltd (2000) 4 ITELR 541. 41 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 25-055 to 25-058 (‘Trustees controlling company’). 42 Code of Practice for Trust Service Providers, para 5, available at www.gov.gg.
Duties of Trustees 141 The applicable guidance note in the Code of Practice states: The staff and procedures which a TSP needs to comply with this principle will depend upon the nature and scale of its business. The Commission [ie the GFSC] will in each case consider the TSP’s resources and systems as a whole but, for example, it may wish to see evidence of the following in addition to the specific points set out in this principle: … up to date records of all trusts which the TSP administers or of which it is a trustee, including details of trust property and of the TSP’s arrangements for preserving it and keeping it separate from the property of other trusts and of the TSP itself …
iii. Period for Which Records Must be Kept Anti-money laundering legislation requires transaction documents, customer due diligence information and business risk assessments to be kept for at least a period of five years starting from the date, ‘where the customer has established a business relationship … that relationship ceased’.43 The five-year period will typically start to run from the date on which the relationship ended due to the trust terminating or the trustee retiring as trustee, but only once all relevant activities have been completed, including the transfer of the trust property to the new trustee or the beneficiaries, and preparation and approval of final accounts, as required.
H. Duty to Give Information This duty is discussed in chapter 9 of this book.44
I. Duty to Keep Trust Property Separate Section 27 provides: A trustee shall keep trust property separate from his own property and separately identifiable from any other property of which he is trustee.
This reflects the duty under English law.
43 Criminal 44 See
Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, sch 3, para 14. ch 9, section XI.
142 Powers, Duties and Liabilities of Trustees
J. Duty of Co-trustees to Act Together Trustees must act unanimously, unless the terms of the trust provide otherwise.45 A trustee who dissents from a decision of the majority may require his or her dissent to be recorded in writing.46 The Public Trustee will normally only act as sole trustee.47
K. Impartiality of Trustees Section 29 provides: (1) Where a trust has – (a) more than one beneficiary or charitable or non-charitable purpose, or (b) a beneficiary and a charitable or non-charitable purpose,
the trustees, subject to the terms of the trust and to subsection (2), shall be impartial and shall not execute the trust for the advantage of one at the expense of another.
(2) Subsection (1) does not prejudice the exercise of a discretion conferred on a trustee by the terms of the trust.48
It is thought that the effect of the duty to be impartial is to import the duty to act impartially, or to treat objects even-handedly.49 Where there is a dispositive discretion, the duty is excluded, as provided by section 29(2). That is the English law position.50 However, there is some uncertainty as to its operation.51 Does the duty not to ‘execute the trust for the advantage of one [object] at the expense of another’ exclude the power to disadvantage one object in favour of another? Does the ‘discretion’ in section 29(2) include administrative powers, including those over investment? As a result of these concerns, this provision is often excluded by drafters of Guernsey trusts, although the effect of such an exclusion is not always clear: unless the common law duty to act impartially is preserved, which seems unlikely given the statutory codification, an exclusion also appears to exclude the duty to act impartially generally, which would not normally accord with a typical settlor’s wishes.
45 Trusts Law 2007, s 28(1)–(3). 46 Trusts Law 2007, s 28(4). 47 See ch 17, section X. 48 See also ch 11, section I.F. 49 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) para 29-181 (‘Duty (3) – To act impartially’). 50 Edge v Pensions Ombudsman [1998] Ch 512, confirmed in the Court of Appeal in [2000] Ch 602. 51 A Doyle and M Carn, ‘Purpose Trusts’ in The Hon Mr Justice D Hayton (ed), The International Trust (Jordans, 2011) ch 5, para 5.295.
Powers of Trustees 143
L. Duty on Termination On termination, the trustees must distribute the trust property to those entitled within a reasonable time,52 subject to a right to be provided with reasonable security for liabilities before doing so.53 It is thought that the cases dealing with the duties of an outgoing trustee54 and the meaning of ‘reasonable security’55 also apply on termination by analogy, although care should be taken in applying those principles as the circumstances are not identical.
II. Powers of Trustees The statutory powers of trustees are set out in sections 30–38 of the Trusts Law 2007. We shall discuss each of them in turn.
A. Powers of Trustees in Relation to Property Section 30 provides: Subject to the provisions of this Law and to the terms of the trust, a trustee has, in relation to the trust property, all the powers of a beneficial owner.
The effect of this clause is to confer on the trustee power to effect any transaction that might otherwise be outside the scope of the trustee’s authority.56 There is no need to repeat this power in the trust instrument.
B. Power to Sue and Compromise Section 31 provides: (1) A trustee may sue and be sued as trustee. (2) A trustee may without the sanction of the Royal Court compromise or settle any action or claim brought by or against the trustee or in any way relating to the trust or the trust property.
Section 31(1) confirms that a trustee may sue and be sued in its own name. Section 31(2) gives the trustee a power to compromise. This is not restricted to 52 Trusts Law 2007, s 53(1). 53 Trusts Law 2007, s 53(2). 54 See ch 7, section VII. 55 See ch 7, sections VII.C and VII.D. 56 Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] 1 Ch 515; Kessler and Matthams, Drafting Trusts & Will Trusts in the Channel Islands (n 23) para 15.6 (‘Trustee exemption clauses – construction of exemption clauses’) and para 15.9 (‘General power of management and disposition’).
144 Powers, Duties and Liabilities of Trustees two or more trustees acting together, as is the case in some jurisdictions.57 An express power to compromise claims is therefore not necessary.
C. Professional Advice Section 32(1) provides: A trustee may, at the expense of the trust property, consult professional persons in relation to the affairs of the trust.
Of course the expense must still be properly incurred, and the level of fees must be reasonable. In the authors’ experience, it is more likely for trustees not to seek external legal (or other professional) advice where it is justified58 than to do so unnecessarily, but the contrary can sometimes be a problem. Trustees must of course also take steps to review the level of fees to satisfy themselves that they are reasonable for the work done.59 Trustees must not blindly follow professional advice: they must exercise independent judgement; and if the advice is obviously wrong, they should not follow it.60 Consideration should also be given to including provisions allowing the trustees to rely on counsel’s advice in connection with litigation, so as to minimise the need for expensive Beddoe applications.61
D. Duties to Consult or Obtain Consent Section 32(2) and (3) expressly permit the trust to impose obligations on the trustee to consult other persons or to obtain consents before exercising powers.62
E. Delegation by Trustees Under English law, the general position is that trustees must exercise their powers personally and not delegate them, unless authorised to do so.63 Before the Trusts 57 J Kessler QC and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) para 18.52 (‘Power to compromise claims’). 58 Note the Court’s criticism in In the Matter of Caversham Trustees Limited [2008] JRC 065, of the trustee’s amending its standard form document on a change of trustees without obtaining external legal advice: see, eg, ch 7, section VII.D. 59 As to the general principles regarding the trustee’s right of indemnity, see ch 7, section X. 60 Kessler and Matthams, Drafting Trusts and Will Trusts in the Channel Islands (n 23) para 5.13 (‘Relying on professional advice’). 61 ibid; as to Beddoe applications generally, see ch 12, section VI. 62 See ch 10, sections V and XIX with regard to protectors. 63 See, eg, Pilkington v IRC [1964] AC 612, although there are now statutory exceptions to that rule in English law; see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) para 29-095.
Powers of Trustees 145 Law 1989 was passed, there was no indication to suggest that Guernsey law was any different.64 Section 33(1) retains the general rule against delegation: A trustee shall not delegate his functions unless permitted to do so – (a) by the provisions of this Law or by the terms of the trust, or (b) in the case of the Public Trustee, by the provisions of the Public Trustee (Bailiwick of Guernsey) Law, 2002.65
Delegation of investment management is considered in chapter 11 of this book.66 Care should be taken in drafting delegation provisions. It is not uncommon to see provisions that exclude liability for the acts of delegates, provided the trustee took reasonable care in their selection and supervision. Where there is a wide exoneration provision excluding liability for negligence (other than gross negligence), this imposes a greater standard of care in relation to the power of delegation than any other power, which cannot have been the intention of a clause presumably intended to ensure the trustee was not strictly liable for the acts and omission of delegates.67
F. Employment of Professional Persons Trustees may appoint professional persons to act in relation to the affairs of the trust.68 There is no definition of ‘professional persons’, although the comparable Jersey section provides that a trustee may employ accountants, advocates, attorneys, bankers, brokers, custodians, investment advisers, nominees, property agents, solicitors and other professional agents or persons …69
It is thought that the Guernsey courts would have regard to the Jersey definition.
64 L Carey, Essai sur les Institutions, Lois et Coûtumes de L’île de Guernesey (1889) 171–78: he discusses tuteurs of minors and curateurs of adults who were incapable of managing their own affairs, but he does not assert or imply that delegation of the powers of tuteurs and curateurs may be possible. While Pothier does not address the point specifically, he does envisage the possibility of a Contrat de Mandat by a tuteur in certain circumstances, and thus delegation may have applied, at least, to guardians of children: RJ Pothier, Oeuvres Complètes de Pothier (1821), vol IX: Traité du Contrat de Mandat, ch I, sec I, Art 11. 65 See ch 17, section XI. 66 See ch 11, section III. 67 As to a possible clause, see Kessler and Maxwell, Drafting Trusts and Will Trusts in the Channel Islands (n 23) para 15.21 (‘Delegation’). 68 Trusts Law 2007, s 33(2)(b). 69 Trusts (Jersey) Law, 1984, Art 25(2)(b).
146 Powers, Duties and Liabilities of Trustees
i. Scope of the Power to Employ Professionals Note that this is distinct from the section 32 power,70 which concerns professional advice. This provision covers the appointment of professionals to carry out ‘acts’. It is thought that it is limited to ministerial acts (as was the case under the English Trustee Act 1925), where the trustees have already made the relevant decision as to what acts should be done. It does not extend to the whole of the trustee’s functions, so clearly implies a narrower meaning, as does the separate procedure for delegating any function by power of attorney under section 34,71 and the power to delegate one type of administrative discretion, namely investment management in section 33(2).72 The trustees may appoint professional persons to ‘hold trust property’,73 which would normally permit the appointment of nominees and custodians, but it is usual to include an express power in trust instruments to ensure the trustees have a comprehensive power.74
G. General Duties Applicable to Delegation Section 33(3) provides: A trustee who, without any breach on his part of section 22(1), makes or permits the continuation of a delegation or appointment under subsection (2), is not liable for any loss to the trust arising from the delegation or appointment.
This excludes strict vicarious liability for the acts and omissions of the delegate, but means that a trustee must observe the utmost good faith and act en bon père de famille when delegating or appointing agents (as indeed it must in the exercise of all other powers).75
H. Powers of Attorney A trustee (the donor) may delegate to an attorney (a donee), for not more than three years, the performance of any trust or function vested in him or her (alone or jointly) as a trustee.76 Note this applies to delegation by individual trustees as
70 See section II.C of this chapter. 71 See section II.H of this chapter. 72 See ch 11, section III. 73 Trusts Law 2007, s 33(2)(b). 74 For a suggested clause, see Kessler and Matthams, Drafting Trusts and Will Trusts in the Channel Islands (n 23) para 15.22 (‘Nominees and custodians’). 75 See section I.B of this chapter. 76 Trusts Law 2007, s 34(1), (2).
Powers of Trustees 147 opposed to delegation by the trustees as a whole,77 so each trustee must execute a separate power if the intention is for the trustees as a whole to delegate under this power. Anyone can be a donee, including a corporate co-trustee, but not (unless a corporate trustee) the only other co-trustee of the donor.78 A power of attorney must be in writing, and: (a) if the donor is an individual, be signed by him, or by his direction and in his presence, in the presence of a witness, who also signs; or (b) if the donor is a corporate trustee, the power of attorney should be executed by the donor in accordance with that company’s articles of association.79
Within seven days of the appointment, the donor must give written notice to: (a) every person who, according to the trust, has the power to appoint a new trustee; and (b) every co-trustee.80
The notice must state the date of commencement and the duration of the power of attorney, the name and the address of the donee, the reason for giving the power of attorney and the trust or function delegated.81 A failure to comply with the notice provisions does not, in itself, in favour of a person dealing with the donee, invalidate anything done by the donee.82 It may, however, render the trustee liable for a breach of trust, if any such non-compliance leads to loss to the trust fund in question. A donor is bound by and liable for the acts and defaults of the donee done or purportedly done under the power of attorney as if they were his or her own acts or defaults.83 This is an important reason for only granting a power of attorney in exceptional circumstances and for specific, as opposed to general, purposes being stated in a power of attorney. Any function conferred on a trustee by law or by a trust instrument may be made subject to a power of attorney, other than the power to give powers of attorney under section 38.84 The three-year period does not apply to powers given as part of an arrangement for the subordination of debts or to confer security over trust property. For these purposes, security is defined widely, to include ‘any mortgage, charge, hypothèque, lien or other security, including a security interest within the meaning of the Security Interests (Guernsey) Law, 1993’.85 77 In contrast to the power to employ professionals, which is a power given to the trustees as a body: see section I.F of this chapter. 78 Trusts Law 2007, s 34(3). 79 Trusts Law 2007, s 34(4). 80 Trusts Law 2007, s 34(5). 81 Trusts Law 2007, s.34(6). 82 Trusts Law 2007, s.34(7). 83 Trusts Law 2007, s 34(8). 84 Trusts Law 2007, s 34(9). 85 Trusts Law 2007, s 34(10).
148 Powers, Duties and Liabilities of Trustees The power can be excluded entirely by the terms of the trust,86 but it is thought that the restrictions cannot be, and therefore that delegation by a trustee must be made by power of attorney unless it falls within section 33(2) (delegation of the management of the trust property). Consideration would need to be given to the most appropriate governing law for the power of attorney, bearing in mind the only connection the trust may have to Guernsey is the proper law of the settlement. For a corporate trustee incorporated outside of Guernsey, the most appropriate governing law is likely to be the jurisdiction of incorporation, and that power would normally be recognised as valid in Guernsey if valid under its governing law. In practice, delegation of their functions by trustees by power of attorney is very rare on account of the potential liability for the donor that may be occasioned by the acts of the donee.
I. Additional Formalities Where the power of attorney is governed by Guernsey law, it must be either executed or sworn before an advocate of five or more years’ standing,87 or as follows: (a) (b) (c) (d) (e)
anywhere in the Bailiwick, before a notary public; in Guernsey, Herm or Jethou, before a Jurat of the Royal Court of Guernsey; in Alderney, before a Jurat of the Court of Alderney; in Sark, before the Sénéschal; in a place outside the Bailiwick – (i) before a person empowered to administer oaths or take sworn declarations in that place; or (ii) in accordance with the rules in force in that place governing the execution or swearing of powers of attorney, affidavits or (as the case may be) documents of that class or description.88
A power of attorney governed by a foreign law will normally be recognised under Guernsey law if valid under its governing law.89
J. Remuneration and Expenses of Trustees Trustee remuneration and indemnity are both considered in chapter 7 of this work.90
86 The power applies ‘[u]nless the terms of the trust provide to the contrary’: Trusts Law 2007, s 34(1). 87 The
Affidavits (Execution before Advocates) Rules, 1999 (ORC 3/1999) s 1. of Attorney and Affidavits (Bailiwick of Guernsey) Law, 1995, s 1. 89 Greenwood v Natwest Offshore Limited (Royal Court, 4 February 2000). 90 See ch 7, sections IX and X. 88 Powers
Powers of Trustees 149
K. Power to Appropriate Section 36 provides: Subject to the terms of the trust, a trustee may, without the consent of any beneficiary, appropriate trust property in or towards satisfaction of the interest of a beneficiary in such manner and in accordance with such valuation as he thinks fit.
This is modelled closely on the equivalent English statutory provision that applies to personal representatives,91 and English case law will therefore be persuasive in its interpretation.92 It is nevertheless helpful to have an express clause to make it clear that the power may be exercised in favour of a class of persons as well as an individual beneficiary, so applies to a settled share.93
L. Corporate Trustee May Act by Resolution Section 37 provides: A corporate trustee may – (a) act in connection with a trust by a resolution of the corporate trustee or of its board of directors or other governing body, or (b) by such a resolution appoint an officer or employee, or a committee of officers or employees or both, to act on its behalf in connection with the trust.
The effect of this provision is not clear – these are matters of company law in the relevant jurisdiction, not matters of Guernsey trust law. That can be seen by asking two questions. First, what would the position be without section 37? Clearly, corporate trustees could act by resolution of the trustee (presumably a shareholder or member resolution), or by a board resolution or resolution of its governing body, provided of course that those resolutions were passed in accordance with the law and procedures governing the company in question. Second, can this provision override the law governing the corporate trustee, that is, are resolutions passed in accordance with this statutory provision effective if they do not comply with the provisions of the relevant company law or corporate procedure? The answer to that question must be ‘no’ on general conflict of laws principles, as matters concerning the constitution of a corporation are governed by the law of the place of incorporation.94
91 Trustee Act 1925 (England), s 41. 92 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 36-077 to 36-078 (‘Appropriation by personal representatives’). 93 Kessler and Matthams, Drafting Trusts and Will Trusts in the Channel Islands (n 23) para 15.25 (‘Power of appropriation’). 94 See, eg, Lord Collins, Dicey, Morris & Collins on the Conflict of Laws, 15th edn (Sweet & Maxwell, 2016) rule 175(2) and para 30-028 (‘Internal management’).
150 Powers, Duties and Liabilities of Trustees The Schroder cases in Cayman and Jersey95 illustrate the difficulties that can arise when one jurisdiction purports to apply its own rules to determine matters that are more appropriately governed by the laws of another jurisdiction. In those cases, the question concerned the validity of an appointment from a Cayman trust to a Jersey trust. Prior to the Trusts (Amendment No 5 Law) (Jersey) Law 2012, that would have fallen to be determined solely under Jersey law. The problem would have been more stark if the transferring entity had been, say, a Liechtenstein foundation, as it is difficult to see how one would apply rules of domestic Jersey law to the question of whether the distribution from the foundation had been valid. It is considered unnecessary to include such provisions in a trust governed by Cayman Islands96 or British Virgin Islands law.97
M. Non-disclosure of Deliberations or Letters of Wishes This is considered in chapter 9 of this book.98
N. Power to Accumulate Income A trust may provide for duties or powers to accumulate income, and there is no restriction on the period for which income may be accumulated.99 Subject to the terms of the trust, any income that is not distributed is accumulated.100 If there is a trust for a class of beneficiaries with no current members, the trustees must accumulate the income until a member of the class exists, unless the terms of the trust provide otherwise.101
O. Powers of Maintenance and Advancement Subject to the terms of the trust and any prior charge or interest affecting the trust property, the trustee may:
95 Schroder Cayman Bank and Trust Company Ltd v Schroder Trust AG FSD 122/2014 (Cayman Grand Court); Schroder Cayman Bank Trust Company Ltd v Schroder Trust AG [2015] JRC 125 (Jersey Royal Court, 10 June 2015). 96 Kessler and Pursall, Drafting Cayman Islands Trusts (n 57) para 18.11 (‘Power of corporate trustee to act by its proper officers’). 97 J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts, 1st edn (Sweet & Maxwell, 2014) para 18.11 (‘Power of corporate trustee to act by its proper officers’). 98 See ch 9, section XI.H. 99 Trusts Law 2007, s 48(1). 100 Trusts Law 2007, s 48(2). 101 Trusts Law 2007, s 46; see also ch 9, section VIII.
Powers of Trustees 151 (a) where a beneficiary is a minor (whether or not his interest is vested), apply the income attributable to his interest, or any part of that income, to or for his maintenance, education or other benefit, (b) advance or apply for the benefit of a beneficiary part of the trust property prior to the happening of the event on which he is to become absolutely entitled thereto.102
While the reference is to ‘part’ of the beneficiary’s interest, it is clear103 that it extends to the whole of the beneficiary’s interest. Subject to the terms of the trust, any trust property applied or advanced must be brought into account against the beneficiary’s interest and is limited to the beneficiary’s vested, presumptive or contingent share.104 The receipt of the guardian of a beneficiary who is a minor or under a legal disability is a sufficient discharge to the trustees.105 A ‘minor’ is defined as, subject to the terms of the trust, a person under the age of 18 years, and a ‘guardian’ includes a parent.106 This could create difficulties for beneficiaries in jurisdictions where the age of majority is not 18. For example, if a beneficiary is able to give a valid receipt at a younger age,107 he or she could normally object to a distribution to a guardian, or to the trustee’s retaining the property. The definition of ‘minor’ suggests that a beneficiary who is absolutely entitled to trust property, and who is of full age and capacity, can be deemed to be unable to give a valid receipt. It is not clear whether that is possible but, given the uncertainty, it is better to include express receipt clauses in the trust.108
P. Power of Appointment Under section 49: The terms of a trust may confer on the settlor, trustees or any other person power to appoint or assign all or any of the trust property or any interest in it to, or for the benefit of, any person (whether or not a beneficiary of the trust immediately prior to the appointment or assignment).
Given that a ‘beneficiary’ includes anyone ‘in whose favour a power to distribute trust property may be exercised’,109 it is difficult to see what the wording in 102 Trusts Law 2007, s 48(3). 103 Trusts Law 2007, s 48(4)(b), ‘no part of the trust property so advanced or applied shall exceed the beneficiary’s … share in the trust property’. 104 Trusts Law 2007, s 48(4). 105 Trusts Law 2007, s 48(5). 106 Trusts Law 2007, s 80(1). 107 The general principle is that the law of the beneficiary’s domicile determines his or her capacity to give a valid receipt; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 18-267 to 18-268 (‘Foreign rules as to minority’). 108 See, eg, Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 97) paras 18.56 (‘Provisions relating to minors’) and 9.43 (‘Definition of minor’). 109 Trusts Law 2007, s 80(1).
152 Powers, Duties and Liabilities of Trustees brackets achieves. On the assumption that ‘distribute’ must include an application that does not involve an outright distribution, anyone in whose favour the power is exercised is, by definition, a beneficiary. It may be that it is only intended to make it clear that an object of a power of appointment need not be within a defined class of ‘Beneficiaries’, but as that would clearly be unnecessary, that is not certain.
Q. Power of Revocation A trust or power may be revocable (in whole or in part) or capable of variation, but without prejudice to anything lawfully done by a trustee before it receives notice of the revocation or variation.110 Where a trust is revoked, in whole or in part, the trustees hold the trust property or the relevant part for the settlor or, if he or she is dead, his or her personal representatives.111
R. Imputed Exercise of Powers An intention to exercise a power will be imputed to a trustee, unless it can be inferred that there is an intention not to exercise the power.112
III. Other Duties Applicable to the Exercise of Trustee Discretions Other than those discussed elsewhere in this chapter or other chapters,113 the general duties that apply under English law also apply in the same way to powers under Guernsey trusts. These include those concerning fraud on a power,114 not to fetter the trustees’ discretions115 and the duties in relation to considering the trustees’ powers.116 However, many of these have not yet been considered by the Guernsey courts, so there remains the possibility that customary law principles or different public 110 Trusts Law 2007, s 50(1), (2). As to the reservation of powers of revocation and variation by the settlor, see ch 5, section VII.C. 111 Trusts Law 2007, s 50(3). 112 In Re C (Royal Court, 21 March 2013) (Judgment 17/2013) paras 25 and 28; see also Davis v Richards & Wallington Industries Ltd [1990] 1 WLR 1511. 113 As to the duty to consider relevant factors and not to consider irrelevant factors, see ch 15, section V. 114 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 29-289 to 29-315 (‘Fraud on a power – ulterior purposes’). 115 ibid paras 29-227 to 29-232 (‘Fettering the exercise of a power’). 116 ibid paras 29-152 to 29-157 (‘Duty to act responsibly and in good faith’); see also ibid paras 29-121 to 29-148 (‘Duties of donees – preliminary matters’).
Liability for Breach of Trust 153 policy considerations might lead to Guernsey law’s being developed differently from English law.
IV. Letters of Wishes Other than in relation to disclosure,117 the English legal principles will apply to letters of wishes, and in particular it is thought that the trustees are bound to take them into account in exercising their discretions, although the weight to be given to the wishes will vary according to the circumstances.118 The Royal Court has recognised that where a trustee wishes to terminate a trust and distribute the trust fund in accordance with a letter of wishes, he or she should not be criticised for following a letter of wishes in the absence of a tangible reason to do otherwise.119 It is also clear that trustees need not necessarily follow letters of wishes. In Bank of Nova Scotia Trust Co (Bahamas) Limited v De Barletta and Others,120 the trustees wished to depart from a letter of wishes in order to sell shares in various companies. The Supreme Court of Bahamas noted that if it was intended by the settlors that the letter of wishes should bind the trustees then there was nothing to prevent a suitable provision’s being included in the trust instrument. Alternatively, a settlor could be appointed trustee, if he wished to see his wishes carried out, but if not, then ‘in relation to the exercise of the discretion by the trustees, his wishes though naturally deserving of respectful consultation, lack that compulsive quality of being enforceable on the trustees in the exercise of their powers’.121
V. Liability for Breach of Trust A breach of trust is a ‘breach of any duty imposed on a trustee by the [Trusts Law 2007] or by the terms of the trust’.122 Subject to the Trusts Law and the terms of the trust, a trustee who commits or concurs in a breach of trust is liable for: (a) any loss or depreciation in value of the trust property resulting from the breach, and (b) any profit which would have accrued to the trust had there been no breach.123 117 See ch 9, section XI.H. 118 Tucker, Le Poidevin and Brightwell, Lewin on Trusts (n 33) para 23-055 (‘The settlor’s letter of wishes’). 119 A (as trustee of the trust) v R1, R2, R3, R4 and R5 (Royal Court, 22 April 2016) (Judgment 25/2016) para 23. 120 G Clarke (ed), Butterworths Offshore Cases and Materials, vol 1 (Butterworths, 1996) 5; now available as part of B Spitz and G Clark, Offshore Services (Lexis Nexis). 121 ibid 9. 122 Trusts Law 2007, s 80(1). As to the prescription and limitation periods applicable to breach of trust claims, see ch 12, section VIII. 123 Trusts Law 2007, s 39(1).
154 Powers, Duties and Liabilities of Trustees The general rule under English law is that the trustee must restore or pay to the trust estate either the assets that have been lost, or sufficient compensation for such loss to put the trust in the position it would have been if the breach had not been committed – that is, the restitutionary basis.124 The trustee is liable for all loss, without reference to the common law rules in relation to causation, foreseeability and remoteness. It has been confirmed125 that the effect of this statutory definition is simply to codify the English rule concerning restitutionary loss for breaches of trust and that the common law rules in relation to damages do not apply.
A. Compensation for Breach of Non-fiduciary Duties Where the trustee is in breach of its duty of skill and care, there is English authority to the effect that that is not a breach of trust,126 so while the claim is for equitable compensation, in this instance the common law rules in relation to damages do apply: Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case.127
The definition of breach of trust in section 39 is clearly wide enough to catch the trustee’s duty of skill and care. It is therefore thought to have altered the law regarding the measure of compensation, such that equitable compensation for a breach of trust is payable on the restitutionary basis for all claims of breach of duty by a trustee, including a breach of the duty of skill and care, but this has not yet been determined by the Guernsey Court.
B. Reflective Loss Where trustees are in breach of their duty to supervise and intervene in the management of underlying companies, the measure of loss is prima facie the reduction in the value of the shares in that company owned by the trust. However, there is a question as to whether the rule against recovery of reflective loss128 applies to prevent the recovery of that loss, where the company also has a claim and the loss 124 Target Holdings v Redferns [1996] AC 42; see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) para 39-010 (‘The basic rule’) and paras 39-011 to 39-016 (‘What loss is recoverable?’). 125 Zaleski v GM Trustees Limited (n 15); See also the Jersey Court of Appeal decision in West v Lazard [1993] JLR 165. 126 Bristol and West Building Society v Mothew [1998] Ch 1, 16–22, per Millett LJ. 127 ibid 17, per Millett LJ. 128 Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1.
Liability for Breach of Trust 155 is reflected in the reduction in the value of the shares. The scope of the rule is not yet entirely clear under English law.129 It has been doubted in one case before the Royal Court130 whether the principle applies under Guernsey law at all, the Lieutenant Bailiff saying that the arguments against its application in Jersey131 were ‘very attractive and persuasive’,132 although no finding to that effect was made. In any event, it was held that if the doctrine applied at all, it was a policy rule not a legal principle, so it did not apply in c ircumstances in which the two policy reasons did not apply. The two policy reasons are that: (i) it may lead to double recovery; and (ii) it may prejudice creditors of the company.
C. Power to Relieve Trustees from Personal Liability The Court has a power to relieve a trustee of liability for breach of trust, wholly or partly, where it appears to the Court that the trustee: (a) has acted honestly and reasonably, and (b) ought fairly to be excused – (i) for the breach of trust, (ii) for omitting to obtain the directions of the court in the matter in which the breach arose.133
The jurisdiction applies to breaches committed before or after the commencement of the Trusts Law 2007. Unsurprisingly, in circumstances where it was held that the trustee had been grossly negligent, it was found to be ‘impossible to find that the trustee acted reasonably’ for the purposes of section 55.134 Relief has been granted under this section in circumstances where the breaches of trust were of a ‘purely technical nature’.135 In that case, the trustee had appointed assets to itself in its capacity as trustee of another trust for onward payment to others where it was an ‘Excluded Person’ so could not benefit (seemingly even in a fiduciary capacity). Those payments to others could all have been made directly from the original trust if those individuals had been added as beneficiaries of it.
129 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 39-038 to 39-044 (‘Breach of duty in relation to companies in which the trust has an interest – reflective loss’). 130 Jefcoate v Spread Trustee Company Limited (Royal Court, 31 October 2014) (Judgment 42/2014). 131 Freeman v Ansbacher Trustees (Jersey) Ltd [2009] JRC 03. 132 Jefcoate v Spread Trustee Company (n 130), para 383. 133 Trusts Law 2007, s 55. 134 Jefcoate v Spread Trustee Company Limited (n 130) para 349. 135 In Re Mischa Trust & Butterfield Trust (Guernsey) Limited v Thomessen (Royal Court, 18th March 2010) (Judgment 15/2010) para 69.
156 Powers, Duties and Liabilities of Trustees
D. Setting off Profits against Losses A trustee may not set off a profit accruing from one breach of trust against a loss resulting from another.136 It seems that the English law rule is that trustees may not set off profits from an unconnected breach but may do so if the breaches are connected,137 although, as Brightman LJ said in Bartlett v Barclays Bank, the cases are ‘not altogether easy to reconcile’.138 The statutory provision makes no distinction between connected and unconnected breaches, so it may mean that no set off is possible for any breaches, whether connected or not. But it is submitted that the better view is that it is simply intended as a codification, on the basis that the circumstances in which set off has been allowed are where the breaches can effectively be categorised as part of the same transaction or a single ongoing transaction.139
E. Liability for Acts and Defaults of Co-trustees A trustee is not liable for breaches committed by co-trustees unless: (a) he becomes or ought to have become aware of the breach or of the intention of his co-trustee to commit the breach, and (b) he actively conceals the breach or intention, or fails within a reasonable time to take proper steps to protect or restore the trust property or to prevent the breach.140
The general principle that trustees are not liable, in the absence of wilful default, for the acts or defaults of their co-trustees is a long-established principle of English trust law.141 In this context, a person is not guilty of wilful neglect or default unless he is conscious that, in doing the act which is complained of or in omitting to do the act which it is said he ought to have done, he is committing a breach of his duty, or is recklessly careless whether it is a breach of his duty or not.142
Thus a trustee who knows of a breach of trust by a co-trustee and either conceals it143 or takes no active measures to protect the beneficiaries,144 is guilty of wilful default and so liable for the co-trustee’s breach. 136 Trusts Law 2007, s 39(2). 137 Fletcher v Green (1864) 3 Bevan 426. 138 Bartlett v Barclays Bank (n 56), 538C. 139 ibid 538D–E. 140 Trusts Law 2007, s 39(4). 141 Townley v Sherborne (1633) Bridg 35. 142 Re Vickery [1931] 1 Ch 572, 583, applying the test in the Court of Appeal decision in Re City Equitable Fire Insurance Co Ltd [1905] Ch 407 in the trust context. 143 Boardman v Mosman (1799) 1 Bro CC 68; see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 33) paras 39-099 to 39-101 (‘Knowledge of breach of trust by co-trustee’). 144 Brice v Stokes (1805) 11 Ves Jr 319.
Liability for Breach of Trust 157 The statutory provision appears to have this test in mind, but it alters it to include constructive notice, so that it applies not only if the trustee knew of the breach, but also if the trustee ‘ought to have become aware of the breach’. On the face of it, that seems to go further than the English cases and fix trustees with liability for breaches by co-trustees even if they have no knowledge of the breach. Clearly, if the trustees do not know about the breach, the second limb of the test becomes irrelevant, as they cannot conceal a breach about which they know nothing, and it is inevitable that they will fail to take active measures in that situation. However, it is thought that the cases in which a trustee has been found liable for the acts of a co-trustee are better explained as part of a wider principle that the trustee is liable for losses resulting from a co-trustee’s breach that he or she might reasonably have anticipated,145 in which case there seems no substantive difference between these tests.
F. Breaches by Previous Trustees A trustee is not liable for a breach committed by another person before his or her appointment,146 but a trustee who becomes aware of a breach has a duty to ‘take all reasonable steps to have the breach remedied’.147 It is thought that this simply codifies the English law rules, that a trustee is entitled to assume that the previous trustee has performed his or her duties properly.148 If a trustee does discover a breach has been committed, it must consider taking proceedings to recover the loss, although it should not bring proceedings if it would be useless or otherwise not in the interests of the trust to do so.149
G. Joint and Several Liability Where two or more trustees are liable for a breach, they are liable jointly and severally.150
H. Limitation of Liability The terms of a trust may not relieve a trustee or indemnify a trustee from trust property of any liability for breach of trust arising from his or her ‘own fraud, 145 J McGhee QC, Snell’s Equity, 33rd edn (Sweet & Maxwell, 2014) para 30-006 (‘Independent liability for acts of co-trustees’). 146 Trusts Law 2007, s 39(3); in principle, this also applies to co-trustees. 147 Trusts Law 2007, s 39(6). 148 Re Strahan (1856) 8 De GM & G 291. 149 Hobday v Peters (1860) 28 Beav. 603; see also Zaleski v GM Trustees Limited (n 15) and section I.B of this chapter regarding suing third parties – similar considerations should apply when considering whether to bring proceedings against former trustees. 150 Trusts Law 2007, s 39(5).
158 Powers, Duties and Liabilities of Trustees wilful misconduct or gross negligence’.151 A term of a trust is invalid to the extent that it purports to do so.152 This restriction applies to all trusts, whenever they were created,153 but not to a breach of trust that occurred before 19 February 1991, when the precursor to section 39 came into force.154 Between 22 April 1989 and 18 February 1991, exclusion of liability for gross negligence was permitted, but exclusion of liability for wilful misconduct – in the form of deliberate (or reckless) but honest breaches of trust – was prohibited. Prior to 22 April 1989, it is thought that it was possible to exclude liability for any breach other than fraud, following Armitage v Nurse,155 which was expressly approved in the Privy Council in Spread v Hutcheson.156 The Board in the latter case seems to suggest at times in the judgment that, under the customary law, it was possible to exclude liability for everything except ‘fraud and wilful misconduct’, suggesting that it was not possible to exclude liability for wilful misconduct. But that must be read in the context solely of a determination of whether the exclusion of liability for gross negligence was permitted before then. Assuming that is correct, it was therefore possible to exclude liability for wilful misconduct, provided it was not dishonest.157 An act is dishonest if: (i) the trustee does not honestly believe it to be, or is recklessly indifferent as to whether it is, in the interests of the beneficiaries;158 or (ii) it is an act that no reasonable trustee could have thought proper.159 So liability for a deliberate (or reckless) but honest breach, that is where the trustee knew (or was recklessly indifferent as to whether) it was a breach of trust but honestly thought it was in the interests of the beneficiaries, was permitted.
I. Indemnity In addition to the prohibition of provisions that exclude liability for fraud, wilful misconduct and gross negligence, the terms of a trust may not grant a trustee any indemnity against the trust property in respect of such liability.160 Again, this applies to all trusts, whenever they were created, and any term of a trust is invalid to the extent that it purports to do so.161 151 Trusts Law 2007, s 39(7); as to the meaning of fraud, see section V.K. 152 Trusts Law 2007, s 39(8)(b). 153 Trusts Law 2007, s 39(8)(a). 154 Trusts (Amendment) (Guernsey) Law 1990; Spread Trustee Company Limited v Sarah Ann Hutcheson (n 12); Trusts Law 2007, s 84(1)(d). 155 Armitage v Nurse [1998] Ch 241. 156 Spread Trustee Company Limited v Sarah Ann Hutcheson (n 12). 157 Armitage v Nurse (n 155). 158 ibid. 159 Walker v Stones [2001] QB 902. It is not clear whether this category is limited to professional trustees. 160 Trusts Law 2007, s 39(7)(b). 161 Trusts Law 2007, s 39(8).
Liability for Breach of Trust 159 It is thought that this provision is only included for the avoidance of doubt, and that indemnity provisions were effectively prohibited to the same extent and at the same times as exoneration provisions. If that were not the case, it would have been very easy to defeat the purpose of the legislation.
J. Meaning of ‘Gross Negligence’ The approach in Armitage v Nurse was approved by the Privy Council in Spread v Hutcheson, which noted that negligence and gross negligence ‘differ only in the degree of seriousness of the want of care they describe’.162 Gross negligence has also been described as a ‘serious or flagrant degree of negligence’.163 It has been suggested that a working test is whether, ‘as a matter of impression, the degree of negligence excites astonishment’.164
K. Meaning of ‘Fraud’ It seems clear that ‘fraud’ is wider than ‘actual fraud’ (ie dishonesty as defined in Armitage v Nurse and refined in Walker v Stones).165 That is consistent with Armitage v Nurse, in which it was held that: ‘Actual fraud’ means what it says. It does not mean ‘constructive fraud’ or ‘equitable fraud.’ The word ‘actual’ is deliberately chosen to exclude them.166
In the Jersey Royal Court, with regard to the equivalent statutory provisions, it has been held to include dol or civil fraud. In one case,167 the Court suggested that it was appropriate to incorporate English equitable concepts on the assumption that the Trusts (Jersey) Law implicitly incorporated the equitable jurisdiction into Jersey law. It also appeared to equate the customary law concept of dol with the English law concept of equitable fraud, and the Court quoted the English Court of Appeal, describing equitable fraud, with approval: ‘[fraud covers] conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for one to do towards the other’.168
162 Spread Trustee Company Limited v Hutcheson (n 12). 163 Midland Bank (Jersey) Ltd v Federated Pension Services Ltd [1995] JLR 352, 393. 164 Jefcoate v Spread Trustee Company Limited (n 130) para 328 (emphasis original). 165 As to the meaning of dishonesty, see section V.I. 166 Armitage v Nurse (n 155) 250. 167 West v Lazard (n 125). 168 Kitchen v Royal Air Force Association and Others [1958] 1 WLR 563, 573, per Lord Evershed, in the context of the meaning of ‘fraud’ in the Limitation Act 1939 (England).
160 Powers, Duties and Liabilities of Trustees A subsequent case169 confirmed that fraud included dol, or civil fraud; but while dol was similar, it was not identical to the English legal concept of equitable fraud.170 It is submitted that the West v Lazard approach is now to be preferred in Guernsey, following confirmation171 that English trust law concepts should be applied, save where incompatible with statute or customary law. While the contrary is arguable, on the basis that there is an applicable customary law concept, the argument for consistency of approach over different areas of law carries less weight here than in other areas,172 as the concept of fraud is more obviously contextspecific. In other words, dishonesty, which determines whether a trustee is guilty of actual fraud, is defined by reference to whether the trustee honestly believes he or she is acting in the interests of the beneficiaries.
VI. Duties of Prospective Trustees A. Duties of Prospective Trustees in Relation to Exoneration Provisions It has been in held in Jersey that a prospective trustee has a duty to explain the effect of an exoneration clause to a settlor, at least where it is providing its own standard form trust instrument: [I]t is the fault of Lazard [the trustee] that it took down a shelf trust without attempting to give Mr West [the settlor] an explanation of the terms of it and (as trustee) to ensure that it conformed with his wishes. What if Lazard had taken Mr West through its standard trust and explained (as it was, in our view, bound to do) the full import of cl 9(f)?173 It might well have been that he would have totally ignored the import and allowed it to continue. What is important is that he was never given the opportunity to make any decision.174
As the trustee had failed to explain the effect of the exoneration clause to the settlor, the clause was held to be invalid. It is thought that the position is the same under Guernsey law. 169 Midland Bank Trust Company (Jersey) Limited v Federated Pension Services [1994] JLR 276. 170 ‘Equitable fraud covers breach of fiduciary duty, undue influence, abuse of confidence, unconscionable bargains and frauds on powers. With the sole exception of the last, which is a technical doctrine in which the word “fraud” merely connotes excess of vires, it involves some dealing by the fiduciary with his principal and the risk that the fiduciary may have exploited his position to his own advantage.’ Armitage v Nurse (n 155) 252–53, per Millett LJ. 171 Spread Trustee Company Limited v Hutcheson (n 12); see ch 1, section XIV. 172 Contrast the position with the parol evidence rule: 5.6 (‘Admissibility of extrinsic evidence’). 173 Clause 9(f) provided that: ‘The trustees shall not be liable in respect of any purported exercise of any duties or powers under this trust save only that if they acted fraudulently they shall not be entitled to the protection conferred hereby.’ 174 West v Lazard (n 125) 289, per Hamon, Commr (emphasis added).
Duties of Prospective Trustees 161 It is also likely to raise questions of professional conduct. STEP members175 who prepare a trust instrument, or who are aware of being named as an original trustee in a trust instrument in which they are entitled to remuneration, have a duty to: use [their] reasonable endeavours to ensure: (i) that [they] or another shall have notified the Settlor of the … provisions in the Instrument … the effect of which limit or exclude the liability of a trustee … for negligence; and (ii) that [they have] reasonable grounds for believing that the Settlor has given full and informed acceptance of such provisions prior to his execution or approval of the Instrument.176
B. Does a Prospective Trustee have a Duty to Explain the Terms of the Trust Instrument to the Settlor? West v Lazard seems to suggest that the duty of a prospective trustee, at least one that proposes the use of a ‘shelf ’ trust instrument, goes further and includes a duty of ‘explanation of the terms of it and … to ensure that it conformed with [the settlor’s] wishes’.177 However, it is not clear authority on that point, and even if it were, it is only obiter; but there is a risk in that situation that the settlor may be able to establish that the trustee owed him or her a duty of care.178 That would seem to be more of a risk if the trustee uses a standard form document. If the trustee does have or assumes that duty, it is clearly at risk of liability if it fails to explain the effect of the trust adequately, or fails to ensure that that the trust achieves the settlor’s objectives. The safer course of action is to ensure that the settlor receives independent legal advice. The STEP requirement to bring the settlor’s attention to an exoneration clause does not apply if the settlor is independently advised. The Code of Practice for Guernsey licensed fiduciaries does appear to impose a higher duty on them, in that prospective trustees should, ‘when establishing a trust, use their best endeavours to ensure that settlors receive any necessary professional advice and that the trust is suitable for their needs’.179
175 Strictly speaking, it only applies to trust instruments governed by the laws of England and Wales, but it would clearly be prudent for STEP members practising Guernsey law to comply with it. It does not apply if the settlor receives independent legal advice. 176 The rule is available publicly as Appendix G of the Law Commission Report No 301, ‘Trustee Exemption Clauses’ (2006), and to STEP members at www.step.org. 177 West v Lazard (n 125) 289, per Hamon, Commr. 178 For a discussion on this point in the context of VISTA trusts, see Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 97) para 17.21 (‘Mis-selling by Trustees?’). 179 Code of Practice – Trust Service Providers (1 August 2009) (para 5 – Competence and effective management), available at www.gfsc.gg.
162 Powers, Duties and Liabilities of Trustees The obligation to use ‘best endeavours’ is an onerous one. It requires the obligor to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable [obligee], acting in his own interests and desiring to achieve that result, would take.180
It is difficult to see how that can be achieved without ensuring that the settlor obtains his or her own independent expert legal advice on the terms of the trust.
VII. Liability of Directors of Corporate Trustees Prior to 17 March 2008,181 directors were deemed to be guarantors of any damages and costs awarded against a Guernsey corporate trustee by the Court in respect of breaches of trust.182 That only applies to proceedings commenced before 17 March 2008,183 so is likely to be of historical interest only.
180 IBM
United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335. date on which the Trusts Law 2007 came into force. 182 Trusts Law 1989, s 70(1). 183 Trusts Law 2007, s 83(3). 181 The
9 Beneficiaries I. Definition of ‘Beneficiary’ For the purposes of the Trusts Law 2007, a beneficiary is ‘a person entitled to benefit under a trust, or in whose favour a power to distribute trust property may be exercised’, so includes the object of a discretionary power.1 It does not include the object of a power to add to the class of beneficiaries,2 but care needs to be taken in relation to so-called Red Cross or ‘blind’ trusts, where there is initially only a default charitable beneficiary – often the International Red Cross, hence the name – with a power to add other beneficiaries. There are a number of good reasons to avoid these types of trusts,3 but if the real intention from the outset is to benefit the beneficiaries to be added (who are often named in a separate letter of wishes), they may in fact be beneficiaries with all the rights that entails. That would be the case if the trust were found to be a sham,4 and if the settlor’s true intention was to establish a discretionary trust for the benefit of the beneficiaries who were to be added subsequently. But it is arguable, assuming there is no sham, if there is a real possibility of the objects of the power to add receiving benefits from the trust in the future, that those objects are beneficiaries.5 Indeed, it was held in the Bathurst case that the term was ‘defined so widely as to include a person in Lady Bathurst’s p osition’.6 While Lady Bathurst had been excluded as a beneficiary, that was because the 1 Trusts Law 2007, s 80(1). 2 Rusnano Capital AG v Molard and Pullborough [2019] GRC 011; that is also the position under Jersey law: Re Exeter [2010] JLR 169. 3 See, eg, P Matthews, ‘In the land of the blind the one-eyed salesman is king’ (1998) 2 Jersey Law Review 143. Indeed, the risk of the trust’s being void is one of those reasons, if there is no genuine intention to benefit the named charity. At the time Paul Matthews wrote that article, his view, in common with many other practitioners, was that the effect of there being no default beneficiary was a resulting trust to the settlor, but with a valid power to add beneficiaries. However, In Re Exeter [2010] JR 170 it was held that the trust failed entirely and the power to add could not be exercised. While it is possible that the Guernsey courts might take a different view (and there are reasonable arguments for that, which were put forward in Re Exeter), there is clearly a significant risk of such a trust’s failing entirely. 4 As to which, see ch 13, section II. 5 Schmidt v Rosewood Trust Ltd [2003] UKPC 26; see also L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 23-076 (‘Discretionary objects’); see also ibid para 23-082 (‘Beneficiaries with existing but remote interests’), regarding providing information to the named charity. 6 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd [2007] WTLR 959, para 127.
164 Beneficiaries court found that ‘she would … also have been a candidate after her exclusion on 25 October 2001 for any possible addition to the class of beneficiaries in the future’.7 The definition is relevant to a number of other provisions throughout the statute, including determining who has standing to apply to the Court8 and rights to receive information from the trustees, under the statutory duty to give information.9
II. Addition and Removal of Beneficiaries A trust instrument may provide for the addition or removal of beneficiaries, or for the exclusion of a beneficiary from benefit, revocably or irrevocably.10 The construction of a deed of exclusion of beneficiaries was considered in Re C.11 In addition to confirming that the general principles of construction of trust documents under English law also applied under Guernsey law,12 it confirmed the English rule that a document executed at or about the same time as the document being construed and forming part of the same transaction could be used as an aid to construction.13
III. Requirements for Beneficiaries A beneficiary of a Guernsey trust must be: (a) identifiable by name, or (b) ascertainable by reference to – (i) a class, or (ii) a relationship to another person, whether or not living at the time of the creation of the trust or at the time by reference to which, under the terms of the trust, members of a class are to be determined.14
This sets out the test for certainty of objects (if and to the extent that the objects are beneficiaries).15 A trust may impose an obligation on a beneficiary as a condition of benefit.16 7 ibid para 138. 8 See ch 12, section III.A; Trusts Law 2007, s 69(2). 9 Trusts Law 2007, s 26(1); see section XI.G. 10 Trusts Law 2007, s 8(2). 11 In the matter of the C Trust (Royal Court, 21 March 2013) (Judgment 17/2013). 12 See ch 5, section II but see also ch 5, section II.B as to latent and patent ambiguities. 13 In the matter of the C Trust (n 11) para 24. 14 Trusts Law 2007, s 8(1). See Rothschild Trust Guernsey limited v Adamantios (Diamantis) Pateras & Katigko-Kalliopi (Royal Court, 3 May 2011) (Judgment 15/2011). 15 See also ch 5, section I.C; ch 5, section VI.F; ch 2, section V.G; and ch 2, section VI.C. 16 Trusts Law 2007, s 8(3).
Nature of Beneficiary’s Interest 165
IV. Disclaimer A beneficiary may disclaim his or her interest in a trust or any part of it, whether or not he or she has received any interest in it.17 This is subject to the terms of the trust, so a beneficiary may be prevented from disclaiming part only or from disclaiming once he or she has received any interest in it. It is thought that the terms of the trust cannot, however, prevent a beneficiary disclaiming his or her interest in a trust entirely, as it is always possible to disclaim a gift,18 and the terms of the trust are only relevant if the beneficiary has already accepted an interest.
V. Nature of Beneficiary’s Interest A beneficiary’s interest in a trust is personal property, and may be dealt with or charged accordingly.19 Of course, the conflict of laws rules of another jurisdiction may reach a different conclusion. For example, under English law, if a beneficial interest in a trust amounts to equitable ownership,20 it is situated where the underlying assets are; if that is England, English law therefore determines whether that interest is movable or immovable.21 In theory, this might create problems, but in practice it rarely does and certainly need not. First, it only applies if the interest amounts to equitable ownership, which is not the case for a typical discretionary trust, where the interest is situated where it can be enforced, as a matter of English law.22 That is where the trustees are resident; and where that is Guernsey, as is typically the case with a Guernsey trust, there will be no conflict. Where there is equitable ownership, or a trustee resident elsewhere, the issue can normally be resolved by converting the situs of the underlying assets by transferring them to a Guernsey holding company in return for shares (or debt), thus converting the situs to Guernsey (and incidentally the assets to movable property) even on the English rules. Advice would of course need to be taken in the relevant jurisdiction. There are clear advantages to the simplicity and certainty of the Guernsey approach, as the English rules can lead to difficulties given that it is not clear what the position is if there are different assets in different jurisdictions or trustees resident in a number of different jurisdictions.
17 Trusts Law 2007, s 9(1); contrast the position under English law, under which it is not normally possible to disclaim part of a gift: see, eg, Guthrie v Walrond (1883) 22 ChD 573. 18 See, eg, Townson v Tickell (1819) 106 ER 575. 19 Trusts Law 2007, s 10. 20 Philipson-Stow v IRC [1961] AC 727, 762. 21 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 11–176 (‘Supplementary – assets in England and Wales’). 22 ibid para 11–175 (‘Beneficial interest in trusts and unadministered estates’).
166 Beneficiaries
VI. Assignment of a Beneficial Interest A transfer of an equitable interest under a trust can be effected by a direction to the trustee to hold on new trusts.23 That may be oral as well as in writing, and operates as a declaration of trust by the beneficiary, not by way of an assignment of an existing equitable interest.24 There are three additional ways in which a beneficiary can transfer his or her interest under a trust: (i) by declaring a sub-trust of it; (ii) by lawfully assigning it to the transferee; and (iii) by lawfully assigning it to a trustee for the transferee. A legal assignment of an equitable interest may be effected in writing under the hand of the assignor (or by any person authorised by the assignor), of which express written notice has been given to the trustee.25
VII. Protective Trusts and Spendthrift Provisions A trust instrument may provide that a beneficiary’s interest is: (a) liable to termination; (b) subject to a restriction on alienation or dealing; or (c) subject to diminution or termination in the event of the beneficiary becoming bankrupt or any of his property becoming liable to arrest, saisie, or similar process of law.26
This permits protective trusts, as understood by English law, where a beneficiary’s interest comes to an end on a bankruptcy event. It also permits US-style spendthrift provisions,27 which prevent a beneficiary’s interest being available to creditors on bankruptcy, as well as preventing any assignment, charging or other dealing with the interest, none of which would be permitted under English legal principles,28 although in principle the English courts will enforce restrictions that are valid under the governing law of the trust.29 On the face of it, Guernsey law goes further than Delaware law, in that there are no restrictions on the circumstances in which the spendthrift provisions can apply. There are restrictions in the US. For example, Delaware law expressly provides that a settlor’s creditors are not prevented from satisfying their claims against the settlor’s beneficial interest in the trust to the extent that such interest is attributable to the settlor’s contribution to the trust.30 It is submitted that this is right in 23 Hitchins, Levy & Hitchins v Hill and Lloyds TSB Offshore Trust Company Limited (Royal Court, 23 February 2011) (Judgment 32/2011) para 29. 24 Following the English House of Lords decision in Grey v IRC [1960] AC 1. 25 Law of Property (Miscellaneous Provisions) Law 1979, s 2(2). 26 Trusts Law 2007, s 45. 27 For example, under Delaware law: 12 Del Code §3536. 28 L Tucker, N Le Poidevin and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 5–179 (‘Conditions against alienation’). 29 ibid para 33-004 (‘Restrictions on alienation’). 30 Delaware Code (n 27) § 3536, para (c).
Consent to Breach of Trust 167 principle, and a similar approach is likely to be taken by the Guernsey courts on the ground that a trust to defeat creditors is contrary to public policy,31 but that the trust will only be found to be invalid (and so held on trust for the settlor or, in the case of bankruptcy, his or her creditors) to the extent necessary to satisfy the public policy requirement.32 It remains to be seen whether the Guernsey courts limit these provisions in any other ways; for example, the Delaware courts have held that assets in self-settled trusts may be available for the support of a spouse.33
VIII. Class Interests Where there are trusts in favour of a class of persons, three statutory rules apply. These are: (a) the class closes when it is no longer possible for any other person to become a member of the class, (b) a woman over the age of 60 years shall be deemed to be no longer capable of bearing a child, and (c) where the interest of the class relates to income, and no member of the class exists, the income shall be accumulated and, subject to section 16(2),34 retained until a member of the class exists or the class closes.35
The rules are all subject to the terms of the trust. Rule (b) may affect whether the beneficiaries are ascertained and thus able to terminate the trust,36 but it does not of course prevent a child’s being adopted, where adopted children are within the relevant class.
IX. Consent to Breach of Trust A beneficiary may relieve a trustee from or indemnify it in relation to liability for breach of trust to that beneficiary, unless he or she: (a) is a minor or a person under legal disability, (b) does not have a full knowledge of all material facts, or (c) is improperly induced by the trustee to [do so].37
Where a beneficiary has not provided express consent to an action by the trustee, the trustee cannot rely on section 40.38 However, the common law rules will 31 See ch 5, section VI.D; Re Esteem Settlement [2004] JLR 188. 32 See ch 5, section VI.H. 33 Garreston v Garreston 306 A 2d 737 (Del 1973). 34 Section 16(2) deals with the maximum duration of trusts established before 17 March 2008 see ch 5, section V. 35 Trusts Law, s.46; as to accumulation of income generally, see ch 8, section II.N. 36 As to which, see ch 5, section VIII. 37 Trusts Law 2007, s 40. 38 Romain Zaleski v GM Trustees Limited (Royal Court, 1 September 2015) (Judgment 42/2015).
168 Beneficiaries still apply,39 so that a beneficiary who has acquiesced at a time when he or she was adequately informed cannot sue the trustee for breach of trust.40 Subject to the terms of the trust, a ‘minor’ is a person under the age of 18.41 Does this reverse – for these purposes – the rule that capacity is determined by the law of the person’s domicile? If a beneficiary does not have capacity under the law of his or her domicile, he or she will be under a legal disability (as that term normally includes disability on the ground of minority), so it is submitted that the better view is that a beneficiary must be over 18 (or whatever age is specified for this purpose in the trust deed) and have capacity under the usual conflict of laws rules in order to be able to consent under this provision.
X. Power to make Beneficiaries Indemnify Where the beneficiary has instigated or requested a breach of trust, or even if it has merely been done with the beneficiary’s concurrence, the Royal Court may impound any or all of the beneficiary’s interest under the trust by way of indemnity.42 That jurisdiction applies even where the beneficiary is a minor or subject to a legal disability.43 While this provision has not been considered by the Guernsey courts, it has been held in a Jersey case44 that it would not apply where the beneficiary had not asked the trustees to commit their fraudulent acts.
XI. Disclosure of Information to Beneficiaries This section considers the principles that apply to disclosure under the Court’s supervisory jurisdiction over trusts, which is distinct from disclosure in ordinary litigation.45
A. General Principles The English common law principles apply, except as otherwise modified by s tatute: in particular, the statutory duties on trustees to give information46 are in addition to the duties under the rules that existed before the enactment of the Trusts 39 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 39–106 (Defence of Concurrence Acquiescence or Release and Confirmation by a Beneficiary – General) to 39–107 (Concurrence). 40 Zaleski v GM Trustees Limited (n 38) paras 172–76. 41 Trusts Law 2007, s 80(1). 42 Trusts Law 2007, s 56. 43 ibid. 44 West v Lazard Brothers [1993] JLR 165. 45 See, eg, In Re the R and RA Trusts (Court of Appeal, 11 April 2014 and 20 May 2014) (Judgment 25/2014) paras 110–115. 46 As to which, see section XI.G of this chapter.
Disclosure of Information to Beneficiaries 169 Law 1989.47 That means that the principles set out in Schmidt v Rosewood,48 which has superseded the previous proprietary basis,49 are the starting point:50 Their Lordships consider that the more principled and correct approach is to regard the right to seek disclosure of trust documents as one aspect of the court’s inherent jurisdiction to supervise, and if necessary to intervene in, the administration of trusts. The right to seek the court’s intervention does not depend on entitlement to a fixed and transmissible beneficial interest. The object of a discretion (including a mere power) may also be entitled to protection from a court of equity, although the circumstances in which he may seek protection, and the nature of the protection he may expect to obtain, will depend on the court’s discretion …51
Thus, there is no beneficiaries’ absolute ‘right’ to information. In deciding whether or not they should receive such information, the Privy Council in Schmidt stated: There are three such areas in which the court may have to form a discretionary judgment: whether a discretionary object (or some other object with only a remote or wholly defeasible interest) shall be granted relief at all; what classes of document should be disclosed, either completely or in a redacted form; and what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed under the order of the court.52
B. Documents that must Normally be Disclosed The following documents must normally53 be disclosed: (a) accounts and information about the state of the trust;54 (b) trust instruments and supplemental instruments;55 47 Spread Trustee Company Limited v Hutcheson [2011] UKPC 13; Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6). 48 Schmidt v Rosewood [2003] UKPC 26. 49 In other words, that beneficiaries effectively own the trust documents; founded in large part on Lord Wrenbury’s speech in O’Rourke v Darbishire [1920] AC 581, 626–27. As to the pre-Schmidt v Rosewood position and some of the difficulties associated with it, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 23-015 to 23–107 (‘The general approach before Schmidt v Rosewood Trust Ltd’); E Campbell and J Hilliard, ‘Disclosure of Information by Trustees’ in The Hon Mr Justice D Hayton (ed), The International Trust, 3rd edn (Jordans, 2011) ch 9, paras 9.1–9.15. 50 For a more detailed summary of the general principles arising from Schmidt v Rosewood, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 23-018 to 23-021 (‘Schmidt v Rosewood – the general principles’). 51 Schmidt v Rosewood (n 48) [51]. 52 ibid [54]. 53 As to the circumstances in which disclosure may be declined, see section XI.E of this chapter. 54 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 23-024 to 23-032 (‘Accounts and information about the state of the trust’), but note that the position has been altered by Guernsey statute, although the statutory provisions do not apply to all Guernsey trusts – see section XI.G of this chapter. 55 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) at paras 23-033 to 23-039 (‘Trust instruments and supplemental instruments’).
170 Beneficiaries (c) legal advice and communications with lawyers;56 (d) documents relating to underlying companies.57
C. Documents that do not Normally Need to be Disclosed The following documents do not normally need to be disclosed: (a) documents relating to the reasons for the exercise of powers by trustees;58 (b) internal trust correspondence and records during administration;59 (c) letters of wishes.60
D. Who is Entitled to the Information? Objects of discretionary trusts and fiduciary powers may seek disclosure, but the likelihood of their receiving any benefit from the trust will be a significant factor in determining whether disclosure should be made and, if so, the extent of disclosure.61 Former beneficiaries may also seek disclosure, and the jurisdiction also applies where the trust has terminated.62 The English common law position is that settlors are not normally entitled to disclosure solely because they are settlors.63 That has been modified for Guernsey trusts established after 17 April 1989, so that settlors of those trusts are entitled to information, unless the trust excludes that right.64 56 ibid paras 23-048 to 23-052 (‘Legal advice and communication with lawyers’). 57 The extent of disclosure will depend on the circumstances, see ibid paras 23-067 to 23-071 (Company Documents). Where the company is wholly owned by the trustee and the trustee provides directors to it, the documents of the underlying company (including minutes and resolutions of directors and members) should normally be disclosed: Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6); Spread Trustee Company Limited v Hutcheson (n 47) (where the company in question was owned 50:50 by the same trustee as trustee of two different trusts). 58 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 23-040 to 23-044 (‘Documents relating to the reasons for the exercise of powers by trustees’); but see section XI.H of this chapter. 59 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 23-045 to 23-046 (‘Internal trust correspondence and records etc during administration’). 60 ibid paras 23-055 to 23-066 (‘The settlor’s letters of wishes’), but note that the position has been modified by statute to clarify the position; see section XI.H of this chapter. The statute reverses the previous position under Guernsey law that letters of wishes were prima facie disclosable and did not come within the Re Londonderry exception: Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6). The change applies to trusts established before the Law came into force, by virtue of the Trusts Law 2007, s 78, but that does not affect the validity of anything done before 17 March 2008; Trusts Law 2007, s 84(1)(c). 61 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 23-075 to 23-077 (‘Discretionary objects’). 62 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6); although it has been suggested that this jurisdiction should be limited in normal cases: Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23-087 (‘Former beneficiaries’). 63 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23–112 (‘Disclosure by trustees to settlor’). 64 See section XI.G of this chapter.
Disclosure of Information to Beneficiaries 171 The position regarding disclosure to and from protectors is discussed in chapter 10 of this volume.65
E. Circumstances in which Disclosure May be Refused or Restricted There are a number of circumstances in which disclosure may be refused or restricted, although outright refusal where a beneficiary would otherwise have a right to see trust documents will be rare, at least if conditions can be attached that will address any concerns, such as undertakings as to confidentiality or that the documents should not be used to attack the validity of the trusts in foreign proceedings,66 or arrangements made for professional inspection only.67 In most cases, it is a question of balancing the interests of the beneficiary requesting disclosure with the interests of the beneficiaries as a whole, although there may be other considerations, such as duties of confidentiality to third parties. The circumstances in which disclosure might not be ordered include the following: (a) where the beneficiaries are seeking information in order to facilitate a challenge to the validity of the trust in foreign proceedings, in circumstances in which such a challenge was unlikely to succeed under the proper law of the trust;68 (b) confidentiality to third parties;69 (c) confidentiality owed to the beneficiaries as a whole, if it is in the interests of the trust as a whole, although normally confidentiality undertakings will be sufficient;70 (d) commercial sensitivity.71
F. Modification of Information Rights While a blanket exclusion of beneficiaries’ rights to information is invalid, it is possible that some restriction may be permitted.72 It is also clear that whatever 65 See ch 10, section XII. 66 Lemos v Coutts & Co (Cayman) Limited [1992-3] CILR 460. 67 In Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6), the letters of wishes were only shown to Countess Bathurst’s lawyers, who could not show them to her. 68 Lemos v Coutts & Co (Cayman) Limited (n 66). The challenge was based on forced heirship grounds, which, it was said, was unlikely to succeed before the Cayman Grand Court as the foreign element law prohibited the recognition and enforcement of foreign court orders based on forced h eirship rules. 69 Foreman v Kingstone [2005] WTLR 823; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23-054 (‘Confidentiality of strangers to the trust in the administration of the trust’). 70 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23-053 (‘Confidentiality of trustees in the administration of the trust’). 71 Re Ojjeh Trust [1992–93] CILR 348. 72 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23-089 (‘Modification of rights’).
172 Beneficiaries restrictions or information control mechanisms are put in place, the terms of the trust cannot oust the court’s jurisdiction to order disclosure,73 but the extent to which, if at all, valid restrictions can be placed on information rights is not clear and has not been considered by the Guernsey courts. In an Australian case,74 it was held that an actuarial valuation need not be disclosed to a beneficiary of a superannuation scheme, primarily on Re Londonderry principles,75 on the basis that it formed material on which a trustee decision was based; but the court also appears to have been influenced by the fact that there was a clause that (i) obliged the trustee to ‘observe strict secrecy with regard to the affairs, accounts and transactions of the Plan’76 but (ii) permitted disclosure of information to all participants. The second part of the clause was held to mean that disclosure was confined to a right to disclose to all participants but did not permit one participant to inspect documents. It is thought that Tierney v King does not represent the law in Guernsey,77 as valuations would not normally come within the Londonderry principle.78 That seems right in principle, as valuations form part of the information as to the state and amount of the trust property to which the beneficiaries are entitled. Furthermore, the rationale for excluding trustee deliberations from disclosure – that it would make the lives of trustees intolerable through their having to disclose sensitive information, such as personal information about beneficiaries – would not normally apply. If valuations do not come within Londonderry, it is thought that a provision in the trust providing that they need not be disclosed would not be effective, as this forms part of the trustee’s fundamental duty to account to beneficiaries, without which there can be no trust. In a Bermuda Court of Appeal case,79 it was held that a power to veto disclosure given to a protector (who was also a beneficiary) was valid in principle. However, while the protector did not owe any fiduciary duties,80 she did have a duty to act ‘in the interests of the Trust and of its beneficiaries’,81 and could not withhold consent where a protector who was not a beneficiary would not be justified in doing so. It seems, therefore, although it was not stated in quite this way in the judgment, 73 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6). 74 Tierney v King [1983] 2 Qd R 580. 75 See section XI.H of this chapter. 76 Tierney v King (n 74) 582. 77 It was also subject to a strong dissenting judgment by Kirby P, the presiding member of the New South Wales Court of Appeal in Hartigan Nominees Pty Ltd v Rydge 29 NSWLR 405 (18 December 1992). 78 Re Londonderry’s Settlement [1964] 3 All ER 855; for example, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23-041 (‘Categories of documents within the Londonderry exception’). 79 In the matter of information about a trust [2013] CA (Bda) 8 Civ. 80 This was not stated expressly in the judgment, but presumably this was construed to mean only those duties that are strictly fiduciary duties – the key duties being the duties not to put oneself in a position of conflict of interest, not to profit and of undivided loyalty – as opposed to all the duties normally imposed on fiduciaries. 81 In the matter of information about a trust (n 79) para 45(e).
Disclosure of Information to Beneficiaries 173 that anyone with a disclosure veto power is subject to the same considerations as a t rustee in deciding whether to consent to the disclosure of information. It is submitted that that is the better view in accordance with principle. Given the uncertainty, it is normally better not to include any restrictions in the trust. If a prospective settlor wishes to have certainty over information flow, one option is to use a Guernsey foundation.82 An alternative is to choose a governing law that expressly provides a regime for it, such as STAR Trusts under Cayman Islands law.83
G. Statutory Duty to Provide Information A trustee has a statutory duty, in relation to trusts established after 18 April 1989, at all reasonable times, at the written request of – (a) any enforcer, or (b) subject to the terms of the trust – (i) any beneficiary (including any charity named in the trust), (ii) the settlor, or (iii) any trust official,
[to] provide full and accurate information as to the state and amount of the trust property.84
This is in addition to the general duty of disclosure outlined in sections XI.A–X.F85 ‘Information’ includes ‘documents’.86 This differs from the general duty in a number of important ways: (a) The duty to provide information is not discretionary: if it applies, the trustee is bound to provide the information. (b) The duty only applies on the written request of a beneficiary, although note that the definition of ‘beneficiary’ is a wide one.87
82 The Foundations (Guernsey) Law, 2012 permits beneficiaries to be ‘disenfranchised’, in which case they have no rights to documents and information about the foundation and no standing to apply to the Court to enforce the duties of the council, although a guardian must be appointed in those circumstances to protect the interests of the disenfranchised beneficiaries. A full discussion of foundations is outside the scope of this book. 83 See J Kessler QC and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) ch 17 (‘STAR Trusts’); A Duckworth, STAR Trusts: the Special Trusts (Alternative Regime) Law 1997: Cayman Islands –2nd Generation of Purpose Trusts and More (Gostick Hall Publications, 1998). 84 Trusts Law 2007, s 26(1). 85 Spread Trustee Company Limited v Hutcheson (n 47); Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6). ‘Nothing in this Law derogates from the powers of the court which exist independently of this Law … in respect of trusts, trustees or trust property’: Trusts Law 2007, s 84(2). 86 Spread Trustee Company Limited v Hutcheson (n 6). 87 See section I of this chapter.
174 Beneficiaries (c) It confers rights on the settlor, who would not normally have any such rights in the absence of some other basis (such as being a beneficiary or trust official).88 (d) It is subject to the terms of the trust, so that it may be excluded or restricted. Where the right is excluded or restricted by the terms of the trust, ‘a trustee, beneficiary, trust official or settlor may apply to the Royal Court for an order authorising or requiring the provision of the information’.89 In the event of such an application: The person applying to the Royal Court for an order under subsection (2) must show that the provision of the information is necessary or expedient – (a) for the proper disposal of any matter before the court, (b) for the protection of the interests of any beneficiary, or (c) for the proper administration or enforcement of the trust.90
i. Pre-18 April 1989 Trusts In relation to trusts arising from documents or dispositions executed or taking effect before 18 April 1989, the statutory duty to provide information only applies to beneficiaries who had a vested interest in the trust property before that date.91 This does not restrict the beneficiaries’ rights under the general law92 or conferred by the terms of the trust.93
H. Non-disclosure of Deliberations and Letters of Wishes Subject to the terms of the trust and to any order of the Royal Court, a trustee need not disclose: (a) documents which reveal: (i) his deliberations as to how he should exercise his functions as trustee, (ii) the reasons for any decision made in the exercise of those functions, (iii) any material upon which such a decision was or might have been based, (b) any letter of wishes.94
88 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 23–112 (‘Disclosure by trustees to settlor’). 89 Trusts Law 2007, s 26(2). 90 Trusts Law 2007, s 26(3). 91 Trusts Law 2007, s 26(4). 92 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6); Spread Trustee Company Limited v Hutcheson (n 47). 93 Trusts Law 2007, s 26(4). 94 Trusts Law 2007, s 38(1).
Disclosure of Information to Beneficiaries 175 For these purposes, a ‘letter of wishes’ ‘is a letter or other document intimating how the settlor or beneficiary wishes the trustees to exercise any of their functions’.95 Section 38(1)(a) codifies the principles from the well-known case of Re Londonderry’s Settlement, where Salmon LJ stated: So long as the trustees exercise this power [of making discretionary appointments] … bona fide with no improper motive, their exercise of the power cannot be challenged in the courts – and their reasons for acting as they did are accordingly immaterial. This is one of the grounds for the rule that trustees are not obliged to disclose to beneficiaries their reasons for exercising a discretionary power. Another ground for this rule is that it would not be for the good of the beneficiaries as a whole, and yet another that it might make the lives of trustees intolerable should such an obligation rest on them …96
Section 38(1)(b) reverses the decision in the Bathurst case,97 which had held that letters of wishes were not covered by the Londonderry principle and so were prima facie disclosable, subject to confidentiality issues.
i. Application to Court for Disclosure On an application for disclosure of any of these documents, the same principles apply as for applications under section 26,98 in that the applicant must show that disclosure is necessary or expedient: (a) for the proper disposal of any matter before the court, (b) for the protection of the interests of any beneficiary, or (c) for the proper administration or enforcement of the trust.99
I. Regulatory Requirements in Relation to Disclosure In addition to the legal obligations outlined so far, licensed fiduciaries in Guernsey100 are subject to certain regulatory obligations. The Code of Practice101 for trustee service providers (‘TSPs’)102 should ‘provide promptly to clients, information to which they are entitled about a trust’. A ‘client’ is ‘a person with whom a TSP has entered an agreement to provide services constituting trust business or who has received or might reasonably be 95 Trusts Law 2007, s 38(2). 96 Re Londonderry’s Settlement (n 78) 862. 97 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd (n 6). 98 See section XI.G of this chapter. 99 Trusts Law 2007, s 38(3). 100 See ch 16. 101 Code of Practice – Trust Service Providers (1 August 2009) para 4 (‘Beneficiaries’ best interests’), available at www.gfsc.gg. 102 See ch 16, section III.
176 Beneficiaries expected to receive the benefit of such services’.103 The definition is clearly wide enough to encompass settlors as well as beneficiaries, but the obligation only covers information to which they are entitled, so follows the law, subject to an additional obligation, if it did not already exist, to provide any such information ‘promptly’. The guidance note to paragraph 4 of the Code accepts that trusts can restrict such rights, at least in relation to pension funds, but: Where a TSP advises on the formation, or acts as trustee, of a pension scheme, the Commission [ie the GFSC] acknowledges that the terms of the trust are ultimately a question for the settlor or sponsoring employer. However, the Commission would expect a TSP to be able to justify any involvement in restricting the rights of beneficiaries who contribute to the fund to receive information about it.
XII. Data Protection Law A. General Provisions Trustees (and other data processors and controllers) ‘established in the Bailiwick’104 must also comply with the Data Protection Law, ‘regardless of where the processing takes place’.105 A data controller has a duty to ensure that all processing of personal data is in compliance with the data protection principles of Lawfulness, Fairness and Transparency, Purpose Limitation, Minimisation, Accuracy, Storage Limitation and Integrity and Confidentiality.106
B. Privacy Notices Where the personal data have been collected from the data subject, the data controller must give certain information either before or at the time the personal
103 Code of Practice (n 101), para 1. 104 Data Protection Law, 2017, s 2(3)(a). The Law came into force on 25 May 2018 (in accordance with the Data Protection (Commencement, Amendment and Transitional) (Bailiwick of Guernsey) Ordinance, 2018, s 1), but a number of the key provisions are subject to transitional provisions, so did not come into force until 25 May 2019 (the ‘transition date’: the Data Protection (Commencement, Amendment and Transitional) (Bailiwick of Guernsey) Ordinance, 2018, s 25(1)). 105 Data Protection Law, 2017, s 3. 106 Data Protection Law, 2017, s 6; see also s 7 (‘Lawfulness of processing’). The duties are more onerous for special category data, which are defined as (a) personal data revealing an individual’s: (i) racial or ethnic origin; (ii) political opinion; (iii) religious or philosophical belief; or (iv) trade union membership; (b) genetic data; (c) biometric data; (d) health data; (e) personal data concerning an individual’s sex life or sexual orientation; or (f) criminal data (Data Protection Law, 2017, s 111(1)).
Data Protection Law 177 data are collected from the data subject.107 This is typically done by way of a standard document sent out by data controllers, informing data subjects of their rights (normally known as a ‘privacy notice’). That information (the ‘Prescribed Information’) comprises: 1. The identity and contact details of the controller and, where applicable, any controller’s representative. 2. The contact details of the data protection officer, where applicable. 3. Whether any of the personal data is special category data.108 4. If any of the personal data has not been collected from the data subject by either of the controller or a processor acting on the controller’s behalf – (a) the source of the personal data, and (b) if applicable, whether the personal data was obtained from a publicly available source. 5. 6. 7. 8.
The purposes and the legal basis of the processing. Where the lawfulness of processing is based on the processing being necessary for the legitimate interests of the controller or a third party, the legitimate interests concerned. The recipients or categories of recipients of the personal data, if any. If the controller intends to transfer the personal data to a recipient in an authorised jurisdiction, other than [the Bailiwick or] a Member State of the European Union, a statement of which of the following applies to that authorised jurisdiction – (a) an adequacy decision is in force in respect of the authorised jurisdiction, or (b) the authorised jurisdiction is a designated jurisdiction.
9.
10. 11. 12.
13. 14.
If the controller intends to transfer the personal data to a recipient in an unauthorised jurisdiction, reference to the appropriate or suitable safeguards applying to the transfer and the means to obtain a copy of them or where they have been published or otherwise made available. The period for which the personal data is expected to be stored, or if that is not possible, the criteria used to determine that period. The data subject rights under sections 14 to 24. Where the lawfulness of processing is based on the consent (explicit or otherwise) of the data subject, the existence of the right to withdraw consent at any time (without affecting the lawfulness of processing based on consent before its withdrawal). The right to complain to the Authority under section 67 … Whether any decision would be made based on automated processing of the personal data, and in those cases, meaningful information about the logic involved, as well as the significance and the envisaged consequences of such processing for the data subject.109
107 Data Protection Law, 2017, s 12(2) and (3). These obligations are subject to any applicable exemptions (as to which, see section XII.C of this chapter. 108 See n 106 for the meaning of ‘special category data’. 109 Data Protection Law 2017, s 12(2)(a), sch 3.
178 Beneficiaries A statement is also required as to: (i) whether the provision of the personal data by the data subject is a statutory or contractual requirement, or a requirement necessary to be met in order to enter into a contract, and (ii) whether the data subject is obliged to provide the personal data, and the possible consequences of failure to provide that personal data.110
Where the data controller intends to process that information for a purpose other than that for which it was collected, it must also inform the data subject of that other purpose, as well as of any further relevant information specified in schedule 3.111 Unless an exemption applies,112 where the data were not collected from the data subject, the data subject must be given the Prescribed Information: (a) within a reasonable period of that personal data being so processed, having regard to the specific circumstances in which the personal data is so processed, and (b) in any case, before or at the earliest occurrence of any of the following times – (i) if the personal data is used for communication with the data subject, the time of the first communication with the data subject, (ii) if the personal data is disclosed to another recipient, the time when the personal data is first disclosed to any recipient, and (iii) the expiry of one month following the processing of the personal data.113
This creates potential issues where a trustee (or another data controller, such as the trustee’s legal adviser) has personal data on beneficiaries who are not aware of the existence of the trust, which we consider in the next section.
C. Exemptions from Data Subject Rights There are exemptions from the data subject rights and corresponding data controller obligations for both Guernsey and foreign law trusts. The exemption for Guernsey trusts applies to information (i) that may be withheld under section 38 of the Trusts Law 2007; or (ii) the disclosure of which would be contrary to any prohibition or restriction under any rule of law, whether statutory or customary.114 This means that the trustee does not need to serve a privacy notice in relation to any data collected to assist with the trustee’s deliberations in the exercise of his or her discretions, or any data contained in a letter of wishes.115 Section 38 only applies to trustees, so would not, for example, apply to the trustee’s 110 Data Protection Law 2017, s 12(2)(b). 111 Data Protection Law, 2017, s 12(3A). 112 See section XII.C of this chapter. 113 Data Protection Law, 2017, s 13(2). 114 Data Protection Law, 2017, sch 8, para 16B(a) (as inserted by the Data Protection (General Provisions) (Bailiwick of Guernsey) Regulations, 2018 (SI 21/2018), reg 13. 115 As to s 38 generally, see section XI.H of this chapter.
Data Protection Law 179 legal advisers. But lawyers advising the trustee will normally be able to rely on the legal professional privilege exemption in circumstances where the trustee exemption applies.116 With respect to foreign trusts, the exemption applies if the data consist of information the withholding of which is authorised by or under the relevant foreign law, or the disclosure of which would be contrary to a prohibition or restriction under the law of that jurisdiction.117 In most cases, similar rules will apply under trust laws of other jurisdictions as under Guernsey law, but there may be differences, so advice should be taken, as appropriate. It also means that Guernsey law will recognise that foreign laws may place greater restrictions on disclosure in certain circumstances. So, for example, where a Cayman Islands STAR trust118 is administered by a trustee in Guernsey and a beneficiary does not have a right to disclosure of information, the trustee will have no obligation to serve a privacy notice on that beneficiary in relation to any data it holds, nor will it have an obligation to notify the beneficiary in respect of that data if the beneficiary requests it. The duty to notify data subjects does not apply to data collected before 25 May 2018 until 25 May 2019.119 There are a number of general exemptions that might also apply in a trust context, the most likely being the following: (a) the provision of the information is likely to prejudice the objectives of that processing;120 (b) the information or the personal data must be kept confidential or secret in order to perform or comply with any duty imposed by law on the controller;121 (c) the collection of the personal data in the context of the controller, or the disclosure of the personal data to the controller, is required or authorised by the provisions of an enactment other than the Data Protection Law.122 It is thought that (b) does not provide a valid exemption in normal circumstances: while a trustee has a duty to keep data confidential, that is a duty owed to the beneficiaries (in respect of most relevant data) and would not permit the data to be kept confidential from those beneficiaries.
116 Data Protection Law 2017 sch 8, para 5 (exemption) and s 111(1) (definition of ‘privileged items’); see also Dawson-Damer and others v Taylor Wessing LLP and others [2019] EWHC 1258, [152]–[156] as to the principles applicable to the privilege exemption. 117 Data Protection Law, 2017 sch 8, para 16B(c). 118 See, eg, Kessler and Pursall, Drafting Cayman Islands Trusts (n 83), ch 17 (‘STAR Trusts’); Duckworth, STAR Trusts (n 83). 119 The Data Protection (Commencement, Amendment and Transitional) (Bailiwick of Guernsey) Ordinance, 2018, s 2(1), but the data controller must provide the information if requested by the data subject: s 2(2). 120 Data Protection Law, 2017, s 13(4)(c). 121 Data Protection Law, 2017, s 13(4)(d). 122 Data Protection Law, 2017, s 13(4)(e).
180 Beneficiaries If the data have been obtained to comply with a specific anti-money laundering customer due diligence requirement, it is thought that would come within the exemption at (c) above, so there would be no need to serve a privacy notice on the beneficiary. That would apply either (i) where a beneficiary has a vested interest in the trust fund or is the object of a discretionary power, prior to a distribution;123 or (ii) if the matter has been assessed as high risk.124 The exemption would only apply to those data required for anti-money laundering purposes, so if the trustee’s policy is to obtain additional information, that would not be exempt under this head. Where information has been obtained for the proper administration of the trust, the exemption at (a) above might apply if disclosure would hamper that administration, although in most cases that would come within either the anti-money laundering exemption or the general trust exemption.
XIII. Disclosure to Third Parties A. Disclosure Pursuant to Anti-money Laundering Legislation In A Limited and B Limited,125 HM Procureur had issued notices against the trustee of a trust and a bank requiring disclosure of information under the provisions of the Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law, 1991. This Law requires disclosure of information when it appears to HM Procureur, on reasonable grounds, that a serious or complex fraud has been committed anywhere.126 There is also a ‘tipping-off ’ offence. The trustee wished to know whether it should inform the beneficiaries and, if it failed to do so, whether the beneficiaries of the relevant trust would have a right of action against it. The trustee argued that as the notice came to it by virtue of its being trustee of the trust, it was a ‘trust document’ that the beneficiaries might have a right to see. The Guernsey Court of Appeal applied the principles set out in Schmidt and Spread, whilst observing that the statement in Schmidt that ‘no beneficiary (and least of all a discretionary object) has any entitlement as of right to disclosure of anything which can plausibly be described as a trust document’ may, so far as Guernsey is concerned, be too broad in the light of the apparently imperative provisions of section 22127 of the Trusts Law. 123 See, eg, the Handbook for Financial Services Businesses on Countering Financial Crime and Terrorist Financing, para 135, available at www.gfsc.gg/commission/financial-crime/handbook-andregulations-fsbs. 124 ibid 136. 125 A Limited and B Limited v HM Procureur (CA, 15 September 2004) (Judgment 39/2004). 126 As to the disclosure of information in foreign matrimonial proceedings, see ch 13, section IV.E. 127 Now Trusts Law 2007, s 26, as to which see section XI.G of this chapter.
Disclosure to Third Parties 181
The Court stressed that the reason for invoking the jurisdiction was to make the trustee accountable for its execution of the trust. Compliance with the notice did not go to the proper administration of the trust. Counsel for the trustee also argued that if the information was supplied to the foreign authorities, the principal beneficiary might find it more difficult to sort out his criminal and civil liabilities with them, whereas if he was informed of the notice, he could suggest ways in which it could be challenged. This had an indirect effect on the trust, in that if he did not have to pay so much to the foreign authorities, he in turn would require less recourse to the trust (if the trustee acceded to his needs), thereby making more of the trust fund available for the other beneficiaries. This led Clarke JA to state: I have grave doubts as to the validity of any such claim. It appears to me to go far beyond the provision of information necessary to secure the due execution of the trust or any previous authority. Further, it does not seem to me to be any part of the Trustee’s obligation as trustee to provide a discretionary beneficiary with information which may assist him in relation to his personal affairs, in order to reduce the likelihood that he may seek to obtain from the Trustee a larger distribution than he otherwise might.128
In the circumstances, the Court would not declare that the beneficiaries should be informed of the notice.
B. Disclosure to Foreign Authorities A trustee has a duty to keep the affairs of the trust confidential, but it is a qualified duty, one qualification being where disclosure is necessary in connection with the proper administration of the trust.129 The exceptions that apply to the duty of confidentiality between a bank and its customer, which are the same in Guernsey law as in English law,130 also apply to the trustee’s duty, although the duties are not identical. These fall under four heads: (a) where disclosure is under compulsion of law; (b) where there is a duty to the public to disclose; (c) where the interests of the bank require disclosure; and (d) where the disclosure is made by the express or implied consent of the customer.131 Thus, the trustee is entitled to disclose information ‘when and to the extent to which it is reasonably necessary, for the protection of the [trustee’s] interest’.132
128 A
Limited and B Limited v HM Procureur (n 125) para 42. B (CA, 11 July 2012) (Judgment 35/2012) para 31. 130 ibid para 39. 131 ibid; Tournier v National Provincial and Union Bank of England [1924] 1 KB 461. 132 Re B (n 129) para 40. 129 Re
182 Beneficiaries In Re B, the trustee had received a summons from the French judge who was dealing with ongoing criminal proceedings in connection with the (now deceased) settlor of the trust. From the summons it was clear that the trustee was now the subject of a criminal investigation alleging that it had assisted the settlor in connection with tax evasion and money-laundering offences. The Court held that there was balancing exercise to be carried out, between the prejudice to the trustee and that to the relevant beneficiaries, involving an ‘evaluation of … the nature, scope, quality and effect of the foreign order’.133 On the facts of the case, it was held that the prejudice to the trustee ‘trumps other considerations’.134
XIV. Disclosure by Beneficiaries In In the matter of the R and RA Trusts135 it was held that the Court’s jurisdiction to ‘make an order in respect of … a beneficiary’136 is an ‘extremely wide’ one and there is, in effect, no ‘jurisdictional limit on the circumstances in which it may make an order which is in connection with the supervision of a trust and apparently falls within the wording of the statute’.137 There is therefore jurisdiction to order a beneficiary to provide information, although it is likely to be ‘extremely rare for a court to order a beneficiary to provide information to a trustee, let alone another beneficiary’.138 In order to justify such an order against a beneficiary, there must be a ‘sufficiently close connection’139 between the position of the beneficiary as a beneficiary of the relevant trust and the relief being sought. In assessing that, regard must be had to the ‘realities of the situation’, and not ‘too much weight [should be given] to form over substance’.140 The trustees had sought information from beneficiaries that they felt they needed in order to reach a fair decision in separating the interests between different beneficiaries, as they were unable to accurately value the trust fund without it, the difference being around US$200 million. The Court agreed that it was information the trustees needed to reach a fair decision, that the information was closely 133 ibid paras 42 and 49. 134 ibid para 70. 135 In the matter of the R and RA Trusts (CA, 20 May 2014) (Judgment 25/2014) para 73(ii). 136 Trusts Law 2007, s 69(1)(a)(iii). 137 In the matter of the R and RA Trusts (n 135) para 73(iii); compare the position under Jersey law, which appears to place a limit on the jurisdiction: Re B, C and D Settlements; RBC Trust Company (Jersey) Limited v E and others [2010] JLR 653, although the Guernsey Court of Appeal suggested that the Jersey Court may only have been pronouncing that, notwithstanding the wide scope of the jurisdiction, the court must exercise it on a ‘sensible and principled basis’: In the matter of the R and RA Trusts, para 75. 138 In the matter of the R and RA Trusts (n 135) para 80. 139 ibid para 78. 140 ibid para 93.
Disclosure by Beneficiaries 183 connected with the beneficiaries’ position as beneficiaries, and that it was in the interests of the beneficiaries as a whole that the trustees were able to make decisions based on full and accurate information. The Court therefore made the orders requested by the trustees against the beneficiaries, but declined to make orders for additional information requested by another beneficiary. That was on the basis that it was not for the Court to tell the trustees in advance what information they needed to make a decision.141
141 ibid
para 102.
10 Protectors I. Introduction There is no statutory definition of ‘protectors’ and the common law principles will apply under Guernsey law, subject to the statutory provisions discussed in this chapter. Protectors are effectively recognised in a number of provisions in the Trusts Law 2007. The first is by the use of the term, ‘trust official’, which means ‘a person having a function or holding an office in respect of the trust other than a settlor, trustee, enforcer or beneficiary’,1 and so includes protectors. The definition of ‘trust official’ encompasses wholly beneficial powers, as a ‘function’ includes ‘rights, powers, discretions, obligations, liabilities and duties’.2 While ‘protector’ is not a term of art, it is generally thought to exclude powers that are solely for the benefit of the holder.3 The term ‘trust official’ is used in section 14(3) (‘Application of Guernsey law to questions of validity’),4 section 15(1)(e) (‘Reservation or grant of certain powers does not invalidate trust’)5 and section 26(1)(b) (‘Duty to give information’).6
II. Powers of Protectors The Trusts Law 2007 confirms that the reservation by the settlor or grant to any person of a list of powers does not invalidate the trust.7
A. Consultation and Consent The 2007 Law confirms that the terms of the trust may require the trustee to consult or obtain the consent of another person.8
1 Trusts
Law 2007, s 80(1). Law 2007, s 80(1). 3 See, eg, M Hubbard, Protectors of Trusts, 1st edn (OUP, 2013) para 2.02. 4 See ch 6, section IV.D. 5 See ch 5, section VII.G. 6 See section XII of this chapter. 7 Trusts Law 2007, s 15(1); see ch 5, section VII.G. 8 Trusts Law 2007, s 32(2). 2 Trusts
Nature of Protector’s Powers 185 The person whose consent is required or whom the trustees must consult is not a trustee9 and need not have fiduciary duties, if the trust so provides.10
III. Regulation of Protectors Protectors are regulated in Guernsey. Both ‘acting as … protector’ and ‘the provision of … protectors’ are regulated activities, which constitute ‘trust business’ for the purposes of the Fiduciaries Law, 2000.11 For these purposes, ‘protector’, means ‘a person other than a trustee who, as the holder of an office created by the terms of the trust, is authorised or required to participate in the administration of the trust’. Given the reference to an ‘office’, it is thought that only an office holder with fiduciary or other duties is caught, which accords with the generally accepted definition. In determining the nature of a protector’s powers, it is more likely that they are fiduciary if the protector is appointed to hold an office.12
IV. Protector not a Trustee On general principles, a protector is not a trustee, as he or she does not hold any trust property.13 That is confirmed by section 15(2)(a) of the Trusts Law 2007, which provides that the reservation, grant or exercise of any of the powers listed in section 15(1) does not constitute the power-holder a trustee.
V. Nature of Protector’s Powers The Trusts Law 2007 provides that the reservation, grant or exercise of any of the section 15(1) powers does not, ‘subject to the terms of the trust, impose any fiduciary duty on the holder’.14 There may be a tension between this provision, which implies that powers are not fiduciary unless the trust provides otherwise, and section 32 (consultation and consent powers), which seems to suggest that they are fiduciary unless the
9 Trusts Law 2007, s 32(3). This would be the position under general law: see, eg, Hubbard, Protectors of Trusts (n 3) para 2.24 (‘Distinction between a protector and a trustee’); see also the definition of a trust in ch 5, section I. 10 Trusts Law 2007, s 32(3); this also confirms the common law position. 11 Fiduciaries Law, 2000, ss 1(1), 2(1); see ch 16, section III. 12 Re Osiris Trustees (1999–2000) 2 ITELR 404; Re Papadimitriou [2004] WTLR 1141. 13 Bridge Trustees Limited v Noel Penny (Turbines) Limited [2008] EWHC 2054 (Ch); Hubbard, Protectors of Trusts (n 3) paras 2.24–2.27 (‘Distinction between a protector and a trustee’). 14 Trusts Law 2007, s 15(2)(b).
186 Protectors trust provides that they are not. This point was raised but not resolved in Re K.15 It is unlikely to be a problem in practice, as Re K also held that the nature of a protector’s powers is a matter of construction in each case, applying the English law rules,16 so the circumstances in which the presumption is material one way or the other are likely to be rare. Indeed, given the apparent tension, it is submitted that the preferred approach is to apply the usual principles of construction without any presumption.
A. Power to Appoint and Remove Trustees The question of whether powers to appoint and remove trustees are fiduciary, and the duties, if any, that attach to those powers, is a matter of construction in each case. It is sometimes said that these powers must, by their nature, be fiduciary powers, at least as a matter of English law.17 However, there is some authority that it is always a question of construction,18 and it is submitted that the latter is the better view. Indeed, there seems to be no reason in principle why a power to appoint trustees cannot be a wholly beneficial power, although the courts will doubtless be reluctant to construe it in that way without very clear wording to that effect, as it would be very unusual for that to accord with a typical settlor’s wishes.19 It would mean that the donee could ‘put the office of trustee up for sale, and sell it to the best bidder’ and ‘take … remuneration for making the appointment’.20 A non-fiduciary power to appoint trustees will therefore more often be a limited personal power,21 so must still be exercised for a proper purpose; as such, 15 In the Matter of the K Trust (Royal Court, 14 July 2015) (Judgment 31/2015). 16 The Deputy Bailiff approved the discussion on this point in A Holden, Trust Protectors, 1st edn (Jordans, 2011) at para 2.94; see also In the matter of the Bird Trust [2008] JRC 13. 17 For example, see L Tucker, N LePoidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 14-047 (‘Fiduciary character of power’), although Lewin does note, at para 14-048, that ‘it should not necessarily be assumed that they have the same attributes as other kinds of fiduciary power’. 18 Fitzwood Pty Ltd v Unique Goal Pty Ltd [2001] FCA 1628; see also P v P HC Christchurch CIV-2004-409-1368, 29 October 2004; see also the discussion in Hubbard, Protectors of Trusts (n 3) paras 6.01–6.29 (‘Power to Appoint or Remove the Trustee’): ‘no reason can be identified why an express power to appoint a trustee must be held by a protector in a fiduciary capacity’ (ibid para 6.27). 19 That appears to be the common law position with regard to powers to direct investment. ‘Nothing short of the most direct and express words would, I think, justify a construction which would enable those who exercised the power of direction [of investment] to disregard the interests of the beneficiaries’: Lord Vestey’s Executors v IRC [1949] 1 All ER 1108; it is clear that the question of whether powers to direct investment are fiduciary is matter of construction under Guernsey law: Trusts Law 2007, s 15(1)(d). 20 Re Skeats Settlement (1889) 42 ChD 522, 526. 21 In the terminology used by Mark Hubbard (n 3). That was the finding of the Jersey Royal Court in Re Centre Trustees [2009] JRC 109, where it was held that ‘[the significance of clause 17(b) declaring that the powers vested in the Protector are not held in a fiduciary capacity would simply mean that he is not under an obligation to consider from time to time whether or not to exercise them.’ There was
Appointment and Removal of Protectors 187 the doctrines of excessive execution22 and fraud on a power23 apply. That is consistent with the analysis in Re Skeats24 – often cited as the basis for the proposition that it must always be fiduciary – that the power imposes upon the person who has the power of appointment the duty of selecting honest and good persons who can be trusted with the very difficult, onerous, and often delicate duties which trustees have to perform. He is bound to select to the best of his ability the best people he can find for the purpose.25
In any event, it is clear that it is a matter of construction under Guernsey law, as the list of powers that may be reserved or granted includes ‘a power to appoint or remove any trustee, enforcer, trust official or beneficiary’.26 The reservation or grant of those powers does not, ‘subject to the terms of the trust, impose any fiduciary duty on the holder’.27
B. Power to Direct Investments A protector may be given a power to direct investments.28 This is discussed in more detail in chapter 11 of this volume.
VI. Appointment and Removal of Protectors A. Appointment and Removal of Protectors Out of Court With regard to the appointment and removal of protectors out of court, it is thought that the position is the same as it is under English law, so an express power is needed, its terms must be observed, and whether or not it is a fiduciary power and the duties attaching to it is a matter of construction.29 another provision in the trust instrument, stating that the protector had a duty to exercise his or her powers ‘for the benefit of all or any of the persons actually or prospectively interested under this settlement’. It is also sometimes called a semi-fiduciary power: J Kessler QC and P Matthams, Drafting Trusts and Will Trusts in the Channel Islands, 2nd edn (Sweet & Maxwell, 2013) para 6.16 (‘Nature of powers of consent and appointment’). But care needs to be taken in applying labels in this context: A Duckworth, Protectors: Law and Practice, (2013) 19(1) Trusts & Trustees 98. 22 G Thomas, Thomas on Powers, 2nd edn (OUP, 2012) ch 8 (‘The Excessive Execution of a Power’). 23 ibid, ch 9 (‘Fraud on a Power’). 24 Re Skeats’ Settlement (1889) 42 ChD 522; see also IRC v Schroder [1983] STC 480. 25 Re Skeats’ Settlement (n 24) 526. In the Matter of the Jasmine Trustees Limited [2015] JRC 196 has a useful discussion (at para 48) of the reasons why the appointment of a trustee was invalid due to its unsuitability, which effectively outlines many of the considerations a fiduciary exercising a power to appoint trustees should consider. Those considerations will also normally be of equal relevance to the holder of a limited personal power. See also ch 7, section II.A. 26 Trusts Law 2007, s 15(1)(e). 27 Trusts Law 2007, s 15(2)(b). 28 Trusts Law 2007, s 15(1)(d). 29 For a fuller discussion, see Hubbard, Protectors of Trusts (n 3) para 3.51 (‘Appointment out of court’).
188 Protectors
B. Appointment and Removal of Protectors by the Court The Court has power to make an order in respect of ‘any person connected with a trust’.30 It was held in Re K Trust31 that this is wide enough to cover protectors, and that the Court should apply the same guiding principles32 as are applicable to the removal of trustees. The Court followed the approach taken in Jersey33 in acknowledging that it was ‘not a jurisdiction to be exercised lightly’34 and that it is a ‘significant step to take in relation to a trust and caution is required before making an order’,35 but declined to follow Manx authority,36 suggesting it should only be exercised in ‘exceptional circumstances’.37 It seems clear the statutory power is wide enough to permit the appointment and removal of protectors with non-fiduciary powers. It seems that the Court does not have power under its inherent jurisdiction to do so.38
VII. Protector’s Indemnity A protector with fiduciary duties has an implied right of indemnity from the trust fund in respect of costs ‘reasonably incurred and of a reasonable amount’.39 The Court approved and followed the general principles of protector indemnity set out in the English legal texts.40 While some doubt had been cast on this in the past as a matter of general law,41 it is thought that this matter is now settled law in Guernsey. As to costs incurred in litigation, the general principles applicable to trustrelated litigation will normally apply.42 Costs were awarded against trustees and
30 Trusts Law 2007, s 69(1)(a)(iii). 31 In the matter of the K Trust (n 15); following Jersey authority In the matter of the A Trust [2012] JRC 169A. 32 The leading English case is Letterstedt v Broers (1883) LR 9 App Cas 371. 33 In the matter of the A Trust (n 31). 34 In the matter of the K Trust (n 15), para 39. 35 ibid. 36 Re Papadimitriou [2004] WTLR 114. 37 In the matter of the K Trust (n 15) para 39. 38 ibid para 27: ‘One immediate consequence [of the protector’s powers not being fiduciary] would be that the Applicants could not invoke the jurisdiction on which they relied for removing a fiduciary’; see also Re Park [1932] 1 Ch 580, 582; Hubbard, Protectors of Trusts (n 3) paras 3.63–3.65 (‘Appointment of a protector holding personal powers’). 39 In the matter of the K Trust (n 15). 40 In the Matter of the HHH Employee Trust [2013] JRC 023; Lewin on Trusts (n 17) para 21-041 (‘Third parties with fiduciary functions’). 41 See, eg, Hubbard, Protectors of Trusts (n 3) paras 7.10–7.25 (‘A Protector’s right of indemnity in equity?’). 42 ibid paras 9.56–9.72 (‘Litigation by and against protectors – Costs’); see also ch 12, sections VI and VII.
Retirement 189 in favour of the protector where the trustees had objected to their removal by the protector but had failed ‘to put before the court any cogent or even tenable argument to the effect that [they] had not been lawfully removed as trustees’.43 But protectors may not be entitled to their costs if they bring proceedings that are unrelated to any of the protector’s powers.44
VIII. Remuneration On general equitable principles, a protector is not entitled to be remunerated for his or her services unless the trust instrument expressly provides for it. It is thought that the Court has an inherent jurisdiction to order remuneration for a fiduciary protector in the form of a Berkley Applegate order.45 It also has a statutory jurisdiction46 to make ‘any order’ in respect of protectors, which has been held to be wide enough to cover the removal and appointment of protectors and orders in relation to a protector’s indemnity,47 and which applies whether or not the protector is a fiduciary.48 On that basis, and on the basis that it should be construed widely,49 it is clear that it is wide enough to order remuneration as well.
IX. Retirement A protector with fiduciary powers may not retire unless there is an express power in the trust instrument allowing him or her to do so. It is thought that the holder of a power ‘simply collateral’, that is of a non-fiduciary power, who has no interest in the relevant property, cannot retire or release the power50 unless it is held for the benefit of the holder.51
43 Virani v Guernsey International Trustees Ltd & Bennett (Royal Court, 1 August 2003) (Judgment 36/2003) at para 21 (emphasis original). 44 Re X’s Settlement (1994) 1 BOC 600 (Jersey). 45 A Berkley Applegate order is one that authorises the payment of remuneration to a trustee or another fiduciary under a trust, or which increases the remuneration permitted by the trust instrument: In re Berkley Applegate (Investment Consultants) [1989] Ch 32; see Hubbard, Protectors of Trusts (n 3) para 7.34 (‘Berkley Applegate orders’); Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 17) paras 20-240 to 20-241 (‘The inherent jurisdiction’) and 20-242 to 20-247 (‘Remuneration for work already done’). 46 Trusts Law 2007, s 69(1)(iii). 47 In the matter of the K Trust (n 15). 48 ibid para 36. 49 See section X of this chapter; Trusts Law 2007, s 69(1)(a)(ii); In the matter of the R and RA Trusts (CA, 20 May 2014) (Judgment 25/2014), ‘the jurisdiction in section 69 is in extremely wide terms’; approved in In the matter of the K Trust (n 15). 50 Re Eyre (1883) 49 LT 259. There is no equivalent of the English Law of Property Act 1925, s 156(1). 51 West v Berney (1819) 1 Russ & M 431.
190 Protectors
X. Court’s Jurisdiction in Relation to Protectors The Court has power to make an order in respect of a protector as a ‘person connected with a trust’;52 the Court’s statutory jurisdiction is ‘extremely wide’53 and includes an order in respect of ‘the execution, administration or enforcement of a trust’.54
XI. Exoneration The limitation on trustee exoneration provisions, which prohibit exoneration of trustees for fraud, wilful misconduct or gross negligence,55 does not apply to protectors.56 It is therefore permissible to exclude all liability except for actual fraud.57 The Court’s statutory power to relieve trustees from personal liability for breaches of trust does not apply to protectors, but it is submitted that the Court’s statutory jurisdiction58 is sufficiently wide to enable it to make orders relieving protectors of personal liability in similar circumstances, although this point has not yet come before the Guernsey Court.59
XII. Disclosure of Information Protectors (whether or not they have fiduciary duties) are entitled, on written request and subject to the terms of the trust, to receive from the trustee full and
52 Trusts Law 2007, s 69(1)(a)(iii); In the matter of the K Trust (n 15) para 36. 53 In the matter of the K Trust (n 15) para 36. 54 Trusts Law 2007, s 69(1)(a)(i). 55 Trusts Law 2007, s 39(7); see ch 8, sections V.H to V.K. 56 Bridge Trustees v Noel Penny (Turbines) [2008] EWHC 2054; Hubbard, Protectors of Trusts (n 3) paras 2.28–2.33 (‘Consequences of the distinction in statutory provisions’). 57 Armitage v Nurse [1998] Ch 241; its application to Guernsey law was confirmed in Spread Trustee Company Limited v Hutcheson [2011] UKPC 13; but see the discussion regarding ‘wilful misconduct’ in ch 8, section V.H. For discussion of the construction of different types of trustee exemption clauses, see J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts, 1st edn (Sweet & Maxwell, 2014) paras 5.15–5.19 (‘Trustee exemption clauses’); see also J Kessler QC and P Matthams, D rafting Trusts and Will Trusts in the Channel Islands (n 21) para 5.6 (‘Trustee exemption clauses’), but please note that, with respect to the learned authors, it is thought that the description of ‘wilful default’ and ‘wilful misconduct’ as meaning ‘actual fraud’ is not correct: it is clear from Armitage v Nurse that ‘wilful misconduct’ includes a deliberate or reckless (but honest) breach of trust, whereas ‘actual fraud’ denotes dishonesty. 58 See section X of this chapter. 59 Trusts Law 2007, s 55; see ch 8, section V.C. There may also be a limited inherent equitable jurisdiction to relieve protectors of liability if the breach was necessary or beneficial to the beneficiaries, by analogy to the Court’s inherent jurisdiction in relation to trustees: see Hubbard, Protectors of Trusts (n 3) para 8.79.
Delivery Up of Documents 191 accurate information as to the state and amount of the trust property.60 If this right is restricted or excluded, they may apply to the Court for an order authorising or requiring the provision of that information.61 There is no express provision conferring standing on a protector to enforce a right to information that has not been restricted or excluded, but that must follow by necessary implication. If a protector does not have standing in that situation, leave of the Court is required,62 but it is thought that that will normally be a formality, at least where the protector has fiduciary duties or a power to direct the trustee as to the exercise of any its functions, such as an investment direction power.63 In addition to their statutory rights, it is thought that protectors will have such rights to information as are reasonably required to enable them to carry out their functions as protectors.64 Protectors who are subject to fiduciary duties are subject to the same principles as trustees in relation to the disclosure of information to beneficiaries and enforcers.65 An incoming protector is entitled to inspect and take copies of the previous protector’s papers; and the outgoing protector should offer explanations in response to reasonable enquiries in the same way as a former trustee.66 It is thought that a protector has a duty to disclose information to a trustee to the extent it is reasonably required for the proper administration of the trust, although that will not normally be necessary. Protectors are bound by the same duties of confidentiality as trustees.67
XIII. Delivery Up of Documents The principles that apply under both English68 and Jersey69 law in relation to the delivery up of documents on a change of trustees apply in Guernsey, but different principles apply to a change of protectors, as in most circumstances new protectors
60 Trusts Law 2007, s 26, which confers this right on any ‘trust official’ (see section I of this chapter); see also ch 9, section XI.G. 61 Trusts Law 2007, s 26(2). 62 Trusts Law 2007, s 69(2)(g). 63 As to a protector’s standing generally, see section XVIII of this chapter. 64 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 17) paras 23-114 (‘Disclosure by trustees to protector’) and 23-112(2); this was stated obiter in In the matter of the K Trust (n 15). 65 Bathurst (Countess) v Kleinwort Benson (Channel Islands) Trustees Ltd [2007] WTLR 959, paras 112–113. 66 In the matter of the K Trust (n 15) paras 66–69. 67 ibid para 67; Re B [2011–12] GLR 694. 68 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 17) para 23-105 (‘Transfer of trust papers on change of trusteeship’); Tiger v Barclays Bank [1952] 1 All ER 85. 69 In the matter of the Bird Trusts [2012] JRC 006.
192 Protectors do not need those documents to exercise their functions as protector: the documents can normally be obtained from the trustee. Where the concern is that of protecting confidentiality, there is no need for the documents to be delivered up where the retiring protector understands and accepts his or her duties in that regard and there is no reason to suspect that he or she will not abide by those duties.70
XIV. Exercise of Powers It is thought that the same principles will apply to fiduciary protectors as apply to trustees in relation to the so-called ‘rule in Hastings-Bass’.71 Other than that, the English legal principles will apply.72
XV. Liability The principles governing a protector’s liability for breaches of fiduciary duty, breaches of any duty of skill and care, and the liability to account for profits will follow English law.73 The precise nature and extent of those duties will depend on the terms of the trust instrument. The equitable defences of acquiescence, concurrence and release will apply.74
XVI. Conflicts of Interest Protectors with fiduciary duties have a duty, subject to any contrary provision in the trust instrument, not to put themselves in a position of conflict. There is a potential conflict where a protector is also an adviser to one of the parties to the trust, and the protector should not assume both roles without an express power in the trust permitting that.75 Where there is power for a protector to act notwithstanding a conflict, it may be possible to manage that conflict in practice, but care will need to be taken and the position kept under review – the court is likely to scrutinise the protector’s actions more closely in that situation.
70 In the matter of the K Trust (n 15). 71 As to which, see ch 15, section V. 72 See, eg, Hubbard, Protectors of Trusts (n 3) ch 5 (‘The Valid Exercise of Powers by Protectors’). 73 For a discussion, see Hubbard, Protectors of Trusts (n 3) paras 8.17 (‘Liability for Breach of Fiduciary Duty’) to 8.39 (‘Liability to Account for Profits’). 74 ibid paras 8.49–8.54 (‘Equitable Defences and Limitation’). 75 See, eg, Bathurst v Kleinwort Benson (Channel Islands) Trustees Limited et al [2007] WTLR 959.
Drafting Issues 193
XVII. Prescription Period The period for the expiration of claims under Guernsey law is known as the ‘prescription’ period, which extinguishes the right, whereas a limitation is merely a procedural bar to action. The prescription periods specified in the Trusts Law 200776 only apply to claims against trustees; and protectors are not trustees.77 The Royal Court has confirmed that those periods do not apply to claims against persons who are ‘liable to account as constructive trustees’, such as those guilty of dishonest assistance or knowing receipt, as they are not actually trustees.78 It is therefore thought that the prescription period for personal claims79 applies to claims for breaches of duties by protectors (and others), whether or not those duties are fiduciary. The period is six years.
XVIII. Standing to Apply to Court A protector who has a consent power or a right to be consulted by the trustee (whether or not the powers are held in a fiduciary capacity) has standing to apply to the Court for an order.80
XIX. Drafting Issues Where the protector is a fiduciary, consideration should be given to extending a number of the provisions modifying equitable rules applicable to the trustees so that they also apply to the protector. These include the provisions dealing with trustee remuneration, exemption and indemnity clauses, and conflicts of interest.81
76 Trusts Law 2007, s 76; see ch 12, section VIII. 77 See section IV. 78 Also referred to as ‘Class 2 constructive trust’; Jefcoate and Jefcoate v Spread Trustee Company Limited and others (Royal Court, 17 April 2013) (Judgment 11/2013) paras 80–90. 79 ‘Toutes demandes mobilières et actions personelles’ or ‘personal actions and suits relating to personal property’: La Loi Relative aux Prescriptions 1889, Art 1; for a more detailed discussion of prescription periods, see ch 12, section VIII. 80 Trusts Law 2007, s 69(2)(e); see ch 12, section III.A. As to a protector’s standing to apply to court to enforce his or her information rights, see section XII of this chapter. 81 Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 57) para 16.5 (‘Consequential amendments’), which also includes precedents; Kessler and Matthams, Drafting Trusts and Will Trusts in the Channel Islands (n 21) contains a precedent for a single protector. For a precedent catering for a protector committee, see Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 57) ch 16 (‘Protectors and Reserved Powers Trusts’) or J Kessler QC and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) ch 16 (‘Protectors and Reserved Powers Trusts’).
11 Trust Investments I. Trustee’s Investment Duties A. Scope of Investment Power A trustee ‘has all the powers of a beneficial owner’.1 It is thought that this confers a power on the trustee to invest as if the trustee were the sole beneficial owner of the trust property, in line with the common form of investment clause, but an express power is almost invariably included in the trust instrument to put the position beyond any doubt. The old English cases held that provisions in the trust instrument extending the scope of the trustees’ investment powers should be construed strictly.2 However, even in Re Harari it was held that the words ‘in or upon such investments as to them may seem fit’ should be construed in accordance with their ‘plain meaning’, namely, that the trustees have power to invest in any investments they honestly think are desirable trust investments. It has also been held in England that the construction should not be ‘unduly restrictive’.3 In light of the trend towards giving trustees wide powers, it is thought that investment clauses should now be given their natural and ordinary meaning.4 Even if the old cases remain the law in England, such that they should be construed strictly, it is submitted that they should not now be followed in Guernsey. As to the meaning of ‘invest’, and in particular whether acquiring property for occupation, use or trading and non-income producing property comprises an ‘investment’, it is thought that Guernsey law will follow English law.5
1 Trusts Law 2007, s 30. 2 Re Maryon-Wilson’s Estate [1912] 1 Ch 55; Re Harari’s Settlement Trusts [1949] WN 79. 3 In Re Peczenik’s Settlement Trusts [1964] 1 WLR 720. 4 See also L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) paras 35-014 to 35-0126 (‘Such investment as the trustees think fit’). 5 As to which, see ibid para 35-018 (‘The meaning of “invest” – property for occupation, use or trading and non-income producing property’). See also AD Hicks, ‘The Trustee Act 2000 and the modern meaning of “investment”’ (2001) 15(4) Trust Law International 203.
Trustee’s Investment Duties 195
B. Trustee’s Investment Duties: General Principles A trustee’s general fiduciary duties, including the duty to act en bon père de famille,6 will apply to its investment duties. Subject to that, and to the statutory provisions in relation to delegation of investment management,7 the English common law duties will apply. Trustees must normally seek to obtain the best financial return for the trust,8 although they can take into account ethical considerations in making investment decisions where two investments are equally suitable: the tie-break provision.9 I am not asserting that the benefit of the beneficiaries which a trustee must make his paramount concern inevitably and solely means their financial benefit.10
It has been submitted11 that trustees may take into account the wishes of beneficiaries, at least where it would not cause significant financial detriment. There is some English authority for this: ‘I cannot conceive that trustees have an unqualified duty … simply to invest trust funds in the most profitable investment available.’12 The safest course of action in that situation would be to obtain the Court’s blessing,13 which would enable the interests of minor and unborn beneficiaries to be voiced.
C. Duty to Preserve and Enhance the Value of the Trust Property A trustee has a duty to ‘preserve and enhance, so far as is reasonable, the value of the trust property’.14 This applies ‘subject to the terms of the trust’.15 Some drafters have excluded this provision on the basis that it could be construed as meaning that the words ‘so far as is reasonable’ apply only to the duty to enhance and not to the duty to preserve the value. It is thought that this concern is unfounded, both on the basis of the natural meaning of the words – if it were only intended to apply to the duty to enhance, the words would have been placed before ‘enhance’ – and on principle – if it only applied to the latter, there would be an absolute duty to preserve the value of the trust fund, which is not the case under English trust law principles. Indeed, it is impossible to be certain of complying with such a duty, and attempting to do so is 6 See ch 8, sections I.A and I.B. 7 See section III of this chapter. 8 Harries v Church Commissioners for England [1992] 1 WLR 1241; ch 8, section I.A. 9 Cowan v Scargill [1985] Ch 270. 10 ibid 288. 11 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 4) paras 35-061 to 35-064 (‘Ulterior purposes – Ethical investment considerations’). 12 Martin v City of Edinburgh District Council [1988] SLT 329,334. 13 As to which, see ch 12, section V. 14 Trusts Law 2007, s 23(b). 15 ibid.
196 Trust Investments likely to lead to such an abundance of caution as to be detrimental in most cases to the investment performance and therefore to the interests of the beneficiaries. As Lord Justice Stoughton said: Of course it is not a breach of trust to invest the trust fund in such a manner that its real value is not maintained. At times that will be impossible and at others it will require extraordinary skill or luck.16
It is possible, although the authors are not aware of any authority on this point, that ‘so far as is reasonable’ also admits that non-financial considerations may be relevant.17
D. The Prudent Person of Business Rule It is now clear that the ‘prudent person of business’ rule18 applies under Guernsey law.19 This is the classic statement of that duty: The duty of a trustee is not to take such care only as a prudent man would take if he had only himself to consider; the duty rather is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.20
E. Speculative and Hazardous Investments It has been held that it follows from the ‘prudent person of business’ rule that a trustee should avoid speculative and hazardous investments: Businessmen of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of the trustee to confine himself to the class of investments permitted by the trust, and likewise to avoid all investments of that class which are attended with hazard.21
It is however thought that, depending on the particular circumstances, some high-risk investments may be permitted as part of a balanced portfolio. As Lord Nicholls put it: A large fund with a widely diversified portfolio of securities might justifiably include modest holdings of high-risk securities which would be altogether imprudent and out of place in a smaller fund.22
16 Nestlé v National Westminster Bank plc [1994] 1 All ER 118, 133. 17 See section I.B. 18 See also section I.H. 19 Spread Trustee Company Limited v Sarah Ann Hutcheson [2011] UKPC 13; see also ch 8, section I.B. 20 Re Whiteley (1886) 33 ChD 347, 355. 21 Learoyd and Carter v Whiteley (1887) 12 App Cas 727, 733. 22 Lord Nicholls, ‘Trustees and their broader community: Where duty, morality and ethics converge’ (1995) 9 Trust Law International 71, 76.
Trustee’s Investment Duties 197 It has been held that trustees are ‘to be judged by the standards of modern portfolio theory rather than the risk attaching to each individual investment taken in isolation’.23 It is therefore more accurate to state that the trustees’ duty is to manage risk through the adoption of appropriate portfolio management strategies. That in turn will normally require the trustees to obtain specialist investment advice.
F. The Duty to Act Evenly between Different Classes of Beneficiaries This duty was assumed without argument in a case in the Guernsey Royal Court.24 A will trust was created in 1961 for the testator’s widow, whereby she took a life interest in the testator’s estate. She was also a trustee with another family member. The major holding was in a 3½ per cent War Loan. That had the effect that there was a failure to strike a balance between the interests of the life tenant and those of the remaindermen. Whilst sanctioning a compromise, on the basis that the widow’s estate was liable for breach of trust and should make a payment to the residuary trust beneficiaries, the Bailiff stated: However, before leaving the ‘breach of trust’ part of this application we would wish to reserve the whole question whether liabilities of this kind inferred to Mrs Dawes which are as we have said very much on the line of liabilities that would exist under English law, can in fact be properly imposed in all cases on trustees of Guernsey trusts prior to 1989. Although in this case we are satisfied that it is fair and equitable to sanction a compromise of the kind achieved here we would not wish that to be a precedent for another case. We can think of circumstances where such an approach could be oppressive.25
G. The Duty to Consider the Need for Diversification Under English law, the need to consider diversification of trust assets has been on a statutory footing for some time.26 There is no statutory equivalent in Guernsey law, but it is clear that it forms part of Guernsey law, as it follows from the trustee’s general duties and is not dependent on the statutory provision that, in turn, codified the existing English law position.
23 Nestlé v National Westminster Bank plc (ChD, 29 June 1988) [2000] WTLR 795, per Hoffmann J at first instance; the appeal is reported at [1993] WLR 1260. For a discussion of portfolio investment theory and the issues it may create for trustees, see G Thomas and A Hudson, The Law of Trusts, 2nd edn (OUP, 2010) paras 54.40 et seq (‘Investment in accordance with portfolio investment theory’). 24 In the Matter of Stanley Sidney Dawes Will Trust (Royal Court, 7 December 2000). 25 ibid 3. 26 Trustee Investments Act 1961, s 6(1)(a), now s 4(3)(b) of the Trustee Act 2000, which states that the trustees should from time to time, consider ‘the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust’.
198 Trust Investments In Re Mulligan (Deceased),27 the trustees of a will trust were the testator’s widow (who was entitled to a life interest) and a professional trustee company. The testator’s nephews and nieces were the residuary beneficiaries. The trust fund was invested in fixed interest securities from 1965 until 1990. The professional trustee tried to encourage the widow to diversify but she refused. The professional trustee did not go to court to try to overrule her. Because of inflation, the trust fund was, in 1990, worth a small proportion in real terms of what it had been worth in 1965. The Court considered that a trustee’s duties with regard to the trust assets were those set out in the classic statements in Speight v Gaunt28 and Re Whiteley, and it laid down that the principles were that: (a) one must consider the purpose for which the trust was set up; (b) one must judge past performance by the standards of the time and not with the benefit of hindsight by retrospectively imposing modern standards; (c) the trustee is not an ‘insurer’ of the trust fund, that is, it is not liable merely because the value of the trust fund has gone down – a loss must result from a breach of trust; and (d) the trustee must act impartially between different classes of beneficiary.29 Fatal to the case of the professional trustee was the fact that it had recognised the risk but had done nothing about it. Having heard expert evidence, the Court concluded that ‘by early 1972 prudent trustees had a duty to diversify to the extent of 40 per cent of the then value of the estate capital’.30 Because of this principle of diversification, Guernsey proper law trusts may well have a clause that does not require the trustees to diversify. An example clause is as follows: The Trustees shall not be bound to maintain a balance between income and capital nor shall they be liable or accountable in any matter for any loss caused by failure to diversify the investments in the trust fund.
Trustees should exercise care in relying on these types of clauses. Where the trustee has power to diversify, by selling existing investments and buying new ones, as will normally be the case, it is difficult to see how it can properly carry out its investment duties without considering the need for diversification. If a settlor wants the trustee to retain assets, such as the family business, consideration should be given to the use of a bespoke structure, such as a hybrid trust, which has non-charitable purposes31 but may also benefit beneficiaries, or a
27 Re
Mulligan (Deceased) [1998] 1 NZLR 481. v Gaunt (1884) 9 App Cas 1 29 Re Mulligan (Deceased) (n 27) 500–01. 30 ibid 509. 31 Care should be taken in the drafting, particularly in relation to the purposes: see ch 2, section VI.B. 28 Speight
Trustee’s Investment Duties 199 foundation.32 Alternatively, the use of a VISTA Trust (under British Virgin Islands (BVI) law)33 or a STAR trust (under Cayman Islands law) can be used.34
H. Duty to Monitor and Intervene in Underlying Companies Where trustees have a controlling interest in an underlying company, they have a duty to monitor and, if appropriate, intervene in the business of that company. In Re Lucking’s Will Trusts,35 Cross J considered the steps that would be expected of a trustee holding a majority shareholding in a company: He does not, I think, content himself with such information as to the management of the company’s affairs as he is entitled to as shareholder, but ensures that he is represented on the board. He may be prepared to run the business himself as managing director or, at least, to become a non-executive director while having the business managed by someone else. Alternatively, he may find someone who will act as his nominee on the board and report to him from time to time as to the company’s affairs. In the same way, as it seems to me, trustees holding a controlling interest ought to ensure as far as they can that they have such information as to the progress of the company’s affairs as directors would have. If they sit back and allow the company to be run by the minority shareholder and receive no more information than shareholders are entitled to, they do so at their risk if things go wrong.36
In Bartlett v Barclays Bank Trust Co Ltd,37 a private company held investments. Nearly all of the company’s shares were owned by the trustee of a trust. The trustee did not appoint any of the directors and no director regarded himself as representing the trust. The investment policy was changed by the directors without discussing it with the trustee. One of the new investments was a property speculation that led to a considerable loss. Brightman J considered that this was a speculative investment: The Old Bailey project was a gamble, because it involved buying into the site at prices in excess of the investment values of the properties, with no certainty or probability, with no more of a chance, that planning permission could be obtained for a financially viable redevelopment, that the numerous proprietors would agree to sell out or
32 Beneficiaries of a Guernsey foundation may be ‘disenfranchised’, in which case they will have no rights to information about the foundation and no standing to enforce the duties of the council members: Foundation (Guernsey) Law 2012, s 31(5), 33. In those circumstances, a guardian must be appointed (s 10(1)), who has a duty to the beneficiaries (s 19(2)). A full discussion of foundations is outside the scope of this book. 33 See J Kessler QC, T Pursall and N Chand, Drafting British Virgin Islands Trusts, 1st edn (Sweet & Maxwell, 2014) ch 17 (‘VISTA Trusts’). 34 See J Kessler QC and T Pursall, Drafting Cayman Islands Trusts, 1st edn (Kluwer Law International, 2006) ch 17 (‘STAR Trusts’). 35 Re Lucking’s Will Trusts [1968] 1 WLR 866. 36 ibid 874–75. 37 Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] 1 Ch 515.
200 Trust Investments join in the scheme, that finance would be available upon acceptable terms, and that the development would be completed, or at least become a marketable asset, before the time came to start winding up the trust. However one looks at it, the project was a hazardous speculation upon which no trustee could properly have ventured without explicit authority in the trust instrument.38
What, then, was the duty of the trustee? The bank, as trustee, was bound to act in relation to the shares and to the controlling position which they conferred, in the same manner as a prudent man of business. The prudent man of business will act in such manner as to safeguard his investment. He will do this in two ways. If facts come to his knowledge which tell him that the company’s affairs are not being conducted as they should be, or which put him on inquiry, he will take appropriate action. Appropriate action will no doubt consist in the first instance of inquiry of and consultation with the directors, and in the last but most unlikely resort, the convening of a general meeting to replace one or more directors. What the prudent man of business will not do is content himself with the receipt of such information on the affairs of the company as a shareholder ordinarily receives at annual general meetings. Since he has the power to do so, he will go further and see that he has sufficient information to enable him to make a responsible decision from time to time either to let matters proceed as they are proceeding, or to intervene if he is dissatisfied.39
Brightman J went on to consider the guidance given by Cross J in Re Lucking’s Will Trusts, and said that he was not to be taken as saying that trustees always had to appoint a director from amongst themselves or had to have a nominee who reports to them, because: He was merely outlining convenient methods by which a prudent man of business (as also a trustee) with a controlling interest in a private company, can place himself in a position to make an informed decision whether any action is appropriate to be taken for the protection of his asset. Other methods may be equally satisfactory and convenient, depending upon the circumstances of the individual case. Alternatives which spring to mind are the receipt of copies of the agenda and minutes of board meetings if regularly held, the receipt of monthly management accounts in the case of a trading concern, or quarterly reports. Every case will depend on its own facts. The possibilities are endless. It would be useless, indeed misleading, to seek to lay down a general rule. The purpose to be achieved is not that of monitoring every move of the directors, but of making it reasonably probable, so far as circumstances permit, that the trustees or (as in the Lucking case) one of them will receive an adequate flow of information in time to enable the trustees to make use of their controlling interest should this be necessary for the protection of their trust asset, namely, the shareholding. The obtaining of information is not an end in itself, but merely a means of enabling the trustees to safeguard the interests of their beneficiaries.40
38 ibid
532, per Brightman J.
40 ibid
533–34.
39 ibid.
Trustee’s Investment Duties 201
I. Anti-Bartlett Clauses It is common for Guernsey trust instruments to contain provisions seeking to negate the duties to monitor and intervene in the business of underlying companies.41 While the precise status of these clauses cannot yet be regarded as settled, a number of principles have emerged from the recent (limited) authorities on the topic. It has been held in a recent Hong Kong case42 that an anti-Bartlett clause prohibiting the trustee from intervening unless the trustee has actual knowledge of dishonesty, was valid. It seems unlikely that the Zhang Li case is the last word on the subject: it is the first case to examine anti-Bartlett clauses in any detail,43 and there remain issues to be explored. It is not binding on the Jersey courts (much less the Guernsey courts) and evidence of Jersey law was given by expert witnesses who were not cross-examined on that evidence, seemingly as there was no substantive difference between them. With that background in mind, we have the following preliminary general observations. First, it appears that there was an inconsistency between two of the key provisions in the clause used in Zhang Li. The first clause (simplifying slightly) provided that the trustee had an obligation to leave the conduct of the business of the underlying company to its directors and had no duty to supervise the directors ‘… so long as the Trustees do not have actual knowledge of any dishonesty …’. The second provided that the trustee had an obligation to assume that the conduct of the company’s business was being carried on ‘competently honestly diligently and in the best interests of the Trustees in their capacity as shareholders … until such time as they shall have actual knowledge to the contrary’. Under the former clause, the Trustee could only intervene if it had actual knowledge of dishonesty, whereas it is implicit in the latter that they had a duty to intervene if they had actual knowledge that the business was not being conducted competently, honestly, diligently or in the best interests of the Trustees as shareholders. It is not clear why the beneficiaries did not seek to rely on the latter clause, but that may be an issue to be resolved in a future case, as the authors have seen these types of inconsistencies from time to time.44 In any event, it is important to ensure that there are no inconsistencies in the drafting which would allow that type of attack. Second, the precise terms of the clause are relevant. For example, it has been held that a clause providing that the trustee has no duty to interfere in the
41 See section I.H of this chapter. 42 Zhang Hong Li and others v DBS Bank (Hong Kong) Limited and others [2019] HKCFA 45; the trust was governed by Jersey law. 43 Appleby Corporate Services (BVI) Limited v Citco Trustees (BVI) Limited BVIHC 156/2011, 20 January 2014 did also consider them, albeit briefly. 44 The trust instrument in In the Matter of the KSH No 4 Trust, the KSH No 5 Trust, the KSH No 6 Trust and the GK and the JK Trusts [2017] JRC 214A contained very similar provisions: see para 12.
202 Trust Investments management of the company’s business does not obviate the need to monitor the company’s business, as it does ‘not relieve [the trustee] of the duty to satisfy itself from time to time that nothing untoward was affecting the value of the shares’.45 While the clause was not the subject of detailed analysis in Appleby v Citco, it is thought that it was on the basis that the trustee will in any event still have a power to intervene. As a fiduciary power, it is arguable that it must still consider exercising it from time to time. If that is correct, the only safe way it can ensure it complies with that duty in practice is to comply with its Bartlett monitoring and intervention duties. That is also the view of the Law Commission in England and Wales: In some cases, a trustee will be unable to rely upon duty exclusion clauses as a matter of construction of the particular clause. For example, the terms of a trust may provide that the trustee shall not be obliged to supervise or interfere in the management of any company in which he holds the majority shareholding. This duty exclusion clause does not prevent the trustee from supervising or interfering in the management of the company. It does mean that the trustee who fails to supervise or to interfere is not automatically in breach of trust. But if the failure to supervise amounts to negligence on the part of the trustee, the duty exclusion clause should not save the trustee from liability. A trustee who fails to exercise a power when he or she should do so commits a breach of trust. In this example, liability is incurred by the trustee without any need to strike down the duty exclusion clause. As a matter of construction, the clause does not apply where the trustee has acted negligently.46
Third, part of the reason for conclusion in Zhang Li that there was no high level supervisory duty seems to have been the existence of three provisions47 in the First Schedule to the trust instrument in relation to the trustee’s general investment powers and duties. In short, they provided as follows. (i) The acquisition of speculative investments was authorised. (ii) The Trustee had no duty to diversify investments. (iii) The statutory duty to preserve and enhance the value of the trust fund was excluded. Those types of provisions would not normally permit the trustee to act as it did (assuming no anti-Bartlett clause). The duty not to diversify is thought to be a statement of the general law – it does not absolve the trustee from the duty to consider diversification.48 The power to invest in speculative investments is typically included to make it clear that there is no absolute prohibition on those types of investments, not to suggest that investing the whole of the trust fund in speculative
45 Appleby v Citco (n 43). 46 Law Commission Consultation Paper, LC 171 (2 December 2002) para 4.91, available at www. lawcom.gov.uk/project/trustee-exemption-clauses. 47 Set out in full at para 33. 48 J Kessler QC and P Matthams, Drafting Trusts and Will Trusts in the Channel Islands, 2nd edn (Sweet & Maxwell, 2013), para 15.7 (Power of investment).
Trustee’s Investment Duties 203 investments is appropriate.49 Similarly, the exclusion of the power to preserve and enhance the value of the trust fund would not normally affect the trustees’ usual duties to act prudently.50 In addition, the fact that the company had borrowed to invest had exacerbated the losses – if the trustee’s general investment duties were relevant, there would also have been a question of whether the trustees had power to borrow for investment purposes, as that would not normally be permitted.51 This was not discussed in the discussion in Zhang Li. However, it is not thought that the general investment duties are relevant to the application of the anti-Bartlett clause on these terms, as the provisions specifically exclude the usual investment duties in relation to the management of those investments (even were the trustee to have those duties if the assets were held at trust level). Of course, the position may be different where the trustee does have its usual investment duties and chooses to invest the assets through a company to which the anti-Bartlett clause applies. In that situation, the trustee surely cannot avoid its investment duties so while the anti-Bartlett clause may apply, the original decision to invest in that way is likely to be a breach of trust. If that is correct, the way in which the assets became comprised in the company in the first place may be relevant. Fourth, another possible ground for a challenge might be on the basis that the prospective trustee had a duty to the settlor to explain the effect of the anti-Bartlett clause at the time the trust was established and failed to do so. There is Jersey authority on that point with regard to exoneration provisions52 and there seems no reason in principle why the same principle should not apply to a duty exclusion clause. Assuming that all of the above issues have been addressed, should an antiBartlett clause which prevents trustee interference except in the case of actual knowledge of dishonesty, be upheld? It has been suggested that the trustee’s power to intervene cannot be removed by the terms of the trust on the basis of the ‘irreducible core’ of trusteeship: However, the trustee does have power to obtain information and to interfere (by virtue of its controlling shareholding) so far as necessary to protect beneficiaries’ interests. Moreover, the trustee has an overriding duty to exercise its powers so as to safeguard and further the beneficiaries’ interests as a whole … This duty at the core of the trust cannot be ousted, as it forms part of ‘the duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries.53
49 ‘… [A]lthough wide, the power of investment is restricted by the usual principles applying to fiduciary powers’; ibid. 50 See section C of this chapter. 51 In re Suenson-Taylor’s Settlement Trusts [1974] 1 WLR 1280. 52 See ch 8, section VI.A. 53 The Hon Mr Justice D Hayton, P Matthews and C Mitchell (eds), Underhill and Hayton, Law of Trusts and Trustees, 19th edn with 1st supplement (LexisNexis Butterworths, 2017) at para 48.58.
204 Trust Investments However, with respect to the learned editors of Underhill and Hayton, it is submitted that does not follow from the judgment in Armitage v Nurse,54 as that case was solely concerned with the standard of care to be applied to the trustee’s duties. It did not address the question of whether there are any duties which cannot be excluded expressly by the trust instrument. Others have suggested a differing level of duty that cannot be ousted: It is important not to exclude in an unqualified manner responsibility in relation to the trust-owned company or this could make the clause invalid as an attempt to avoid trustee accountability entirely. It is better to have a clause that makes clear the trustee’s duties will be engaged in certain circumstances, such as where it has actual knowledge of company mismanagement.55
Of course, the clause in Zhang Li went further than that. So are there grounds for finding the type of anti-Bartlett clause used in Zhang Li to be invalid? There are certainly good arguments in favour of upholding an anti-Bartlett clause. In Zhang Li, it was put as follows: To postulate that the parties’ chosen scheme may be overridden by some implied, nonderogable external duty arising in circumstances ‘where no reasonable trustee could refrain from exercising otherwise excluded powers’ would be to introduce an amorphous and ill-defined basis for undermining a legitimate arrangement consciously adopted by the parties, exposing the trustees to unanticipated risks of liability and sowing confusion as to the extent of their duties.56
It has been forcefully argued that it should be upheld.57 It is certainly true that the courts will not lightly interfere with arrangements freely entered into: there would normally have to be strong public policy grounds for doing so. Public policy does not seem to have been raised as a ground for invalidating the clauses in Zhang Li and it seems to be at least arguable that there are such grounds in this situation. The consequences of the clause being valid would be that the trustee cannot intervene in the company’s business, even where they have actual knowledge of wrongdoing by the directors of that company which is causing loss to the trust fund. That wrongdoing may be a breach of the directors’ fiduciary or other duties, including grossly negligent mis-management of the company’s assets, or possibly even a wilful breach of their duties, provided they did so honestly.58 That would be the case even if beneficiaries asked the trustees to intervene. The trustee could presumably apply to the court for directions and if necessary, for a variation of the
54 See also ch 5, section VII.F. 55 A Child and J Hilliard, ‘Disputes over trusts that hold corporate structures’ (2016) 22(9) Trusts & Trustees 1015 at para 15; note this was before the Court of Final Appeal decision in Zhang Li v DBS (n 42). 56 Zhang Li v DBS (n 42) at para 64. 57 R Davern, ‘Trustee Residual Obligation: Is There a Basis for It?’ (2019) 25(3) Trusts & Trustees 285. 58 See ch 8, section V.K.
Trustee’s Investment Duties 205 trust to confer the necessary power to take action.59 Given its fiduciary position, it must at least be arguable that it has an obligation to do so.60 It is thought that a provision that imposes a duty on the trustee not to monitor or intervene, unless it is on notice of circumstances that call for enquiry, is in principle valid. However, it can only be effective if the trustee has no relevant knowledge. If the trustee is a director (or provides directors) to the company, it will have (or be imputed to have) the knowledge those directors have. It is also unlikely to assist where the assets are a portfolio of financial assets (as in the Appleby and Zhang cases). A trustee has a duty to be ready with its accounts, so will have to obtain regular reports and valuations, and in practice it will normally be obvious if there are issues the trustee should investigate. It may be of more assistance where the underlying assets are a complex trading business: [T]he further from the trust and the more boards of directors interposed between the trustee and the company carrying out the business which comes under consideration by a court, the less likely, so it may be thought, that a trustee would be found liable whether or not there was an anti-Bartlett clause.61 … In a group of companies such as the present one, it is not realistic to expect trustees holding the shares in the holding company at the top of the structure to have sufficiently detailed knowledge of the activity of every single company within the group.62
But even in those circumstances, any protection for the trustee is likely to be limited. In addition to its duty to be ready with its accounts, the modern trustee has an ever-increasing array of regulatory and reporting obligations, which mean that it must obtain considerable information about the underlying assets. Once it has that information, the chance of its being able to rely on an anti-Bartlett clause is significantly reduced.63 Given that there is still some uncertainty surrounding anti-Bartlett clauses, the better approach is likely to be the use of a bespoke structure, such as a hybrid trust where the trust has non-charitable purposes64 but may also benefit beneficiaries, or a foundation.65 Alternatively, a VISTA trust (under BVI law)66 or STAR trust (under Cayman Islands law) can be used.67
59 See ch 14, section IV.M. 60 See section IV of this chapter; K F Sin, The Legal Nature of the Unit Trust, 1st edn (OUP, 1997) ch 4, section 3C (Position of the Trustee). 61 In Re the L Trust [2017] JRC 168A, at para 90. 62 Ibid, para 91. 63 For a discussion on this point, see E Buckland ‘Are we living in a post anti-Bartlett clause age?’ (2018) 24(3) Trusts & Trustees 260. 64 Care should be taken in the drafting, particularly in relation to the purposes: see ch 2, section VI.B. 65 Under the Foundation (Guernsey) Law 2012; a full discussion of foundations is outside the scope of this book. 66 As to which, see Kessler, Pursall and Chand, Drafting British Virgin Islands Trusts (n 33) ch 17 (‘VISTA Trusts’). 67 As to which, see Kessler and Pursall, Drafting Cayman Islands Trusts (n 34) ch 18 (‘STAR Trusts’).
206 Trust Investments
J. Errors of Judgment The English courts have never considered that trustees should be liable for mere errors of judgement in the investment field and thus, in Re Chapman,68 Lord Justice Lopes said: A trustee who is honest and reasonably competent is not to be held responsible for a mere error in judgment when the question which he has to consider is whether a security of a class authorised, but depreciated in value, should be retained or realized, provided he acts with reasonable care, prudence, and circumspection.
It is thought that the Guernsey courts would follow the same approach. But a Guernsey court will doubtless hold a trustee to a higher standard, following English69 and Jersey70 authority on the point.
K. Measure of Damages In Nestlé, a will trust was created in 1922 with an initial trust fund of £54,000. Certain annuities and a life interest in a house had to be satisfied. The plaintiff, who was now the sole beneficiary, claimed that if the investments had been regularly reviewed and diversified, the trust fund would have been worth over £1 million rather than its actual value of £269,000. Before 1961 the bank in question had believed, incorrectly and without taking legal advice, that it could only invest in bank or insurance company shares. Whilst from 1922 to 1960 equities in general had increased in value by 659 per cent, the trust’s portfolio of assets had only increased 419 per cent in value. Lord Justice Dillon stated: Trustees should not be reckless with trust money. But what the prudent man should do at any time depends on the economic and financial conditions of that time – not on what judges of the past, however eminent, have held to be the prudent course in the conditions of 50 or 100 years before.71
It was held in Nestlé that no action for breach can be sustained if there is no loss (albeit that ‘loss’ includes a gain that is less than it otherwise would be if the breach had not occurred): The essence of the bank’s duty was to take such steps as a prudent businessman would have taken to maintain and increase the value of the trust fund. Unless it failed to do so, it was not in breach of trust. A breach of duty will not be actionable, and therefore will be immaterial, if it does not cause loss. In this context I would endorse the concession of
68 Re
Chapman [1896] 2 Ch 763, 778. v National Westminster Bank Plc [1993] 1 WLR 1260. 70 Midland Bank Trust Company (Jersey) Limited v Federated Pension Services [1995] JLR 352. 71 Nestlé v National Westminster Bank Plc (n 58) 1268. 69 Nestlé
Regulatory Issues 207 Mr Nugee for the bank that ‘loss’ will be incurred by a trust fund when it makes a gain less than would have been made by a prudent businessman. A claimant will therefore fail who cannot prove a loss in this sense caused by breach of duty. So here in order to make a case for an inquiry, the plaintiff must show that loss was caused by breach of duty on the part of the bank.72
It does not follow that a trustee can happily do nothing, and thus Lord Justice Leggatt said73 that it was accepted that there must be periodic reviews of the trust assets.
II. Regulatory Issues A. Code of Practice As regards trustees that are licensed fiduciaries in Guernsey,74 the Code of Practice for Trust Service Providers (TSPs) sets out the general principles in respect of trustee investment. It provides that TSPs should treat the interests of beneficiaries as paramount subject to their legal obligations to other persons or bodies. In particular, TSPs should: (i) invest, distribute or otherwise manage each trust’s assets in accordance with the law and the trust deed; (ii) manage the investment and custody of trust assets professionally and responsibly …75
The Guernsey Financial Services Commission considers that the obligation to manage the investment and custody of trust assets professionally requires the TSP: (i) to have regard to any different interests of beneficiaries and of classes of beneficiaries (ii) to exercise, so far as required by the duties of trustees in each case, professional oversight of any company owned by the trust, (iii) to consider appointing competent agents and managers, including investment managers; and if investment managers are appointed, to record the agreement, instructions, investment parameters and investment benchmarks and to require and review regular reports (at least quarterly unless that is inappropriate having regard to the nature of the trust assets) on performance, including a valuation (iv) to consult with any other trustees, and (v) to consider and, where appropriate, effect the insurance of trust assets.76
72 ibid 1283, per Leggatt LJ. 73 ibid. 74 See ch 6 (‘Regulation of Fiduciaries’). 75 Code of Practice – Trust Service Providers (1 August 2009), para 4 (‘Beneficiaries’ best interests’); the Code of Practice is available at www.gfsc.gg. 76 ibid, para 4, Guidance Note.
208 Trust Investments
B. Controlled Investment Business Carrying on ‘controlled investment business’ is a regulated activity that requires a licence under the Protection of Investors Law, 1987. This applies to any person carrying on (or holding itself out as carrying on) that business either in or from within the Bailiwick,77 or any Bailiwick body carrying on (or holding itself out as carrying on) such business outside the Bailiwick.78 For these purposes, a person carries on a controlled investment business if he or she engages in a ‘restricted activity’79 in connection with a ‘controlled investment’,80 ‘by way of business’.81 There are two categories of controlled investments: ‘collective investment schemes’82 and ‘general securities and derivatives’.83 ‘Restricted activities’ are widely defined and include ‘dealing’,84 advising,85 and ‘custody’.86 Own account dealing is not considered to be controlled investment business (as a person is not acting ‘by way of business’ for a third party client), and accordingly a trustee would not normally carry out controlled investment business when acting in the ordinary course, even if the trustee charges fees to the trust for what would otherwise be restricted activities.
III. Delegation of Investment Management The general position is that trustees cannot delegate unless authorised to do so.87 However, trustees may: (a) delegate the management of trust property to, and appoint, investment managers whom the trustee reasonably considers to be competent and qualified to manage the investment of the trust property, (b) appoint professional persons to act in relation to the affairs of the trust or to hold any trust property,88 and (c) authorise any such manager or person to retain any commission or other payment usually payable for services of the description rendered.89
77 Protection
of Investors Law, 1987, s 1(1). of Investors Law, 1987, s 1(2). 79 A list of restricted activities is set out in sch 2 to the Protection of Investors Law, 1987. 80 A list of ‘controlled investments’ is set out in sch 1 to the Protection of Investors Law, 1987. 81 Protection of Investors Law, 1987, s 1(3). This phrase is not separately defined in that Law. 82 Protection of Investors Law, 1987, sch 1, category 1. 83 Protection of Investors Law, 1987, sch 1, category 2. 84 Protection of Investors Law, 1987, sch 2, para 4. 85 Protection of Investors Law, 1987, sch 2, para 7. 86 Protection of Investors Law, 1987, sch 2, para 8. 87 See ch 8, section II.E. 88 As to the appointment of professional persons generally, see ch 8, section II.F. 89 Trusts Law 2007, s 33(2). 78 Protection
Delegation of Investment Management 209 These powers are subject to the terms of the trust, so may be excluded or, more likely, made subject to conditions. It is important to note that a trustee must ‘reasonably’ consider that manager to be ‘competent and qualified to manage the investment of the trust property’. If a settlor wanted a non-professional to perform this role, whether the settlor himself or herself or some other person, then such a person would not be covered by this power, except in the unlikely event that the settlor qualified under that test. The test in such a situation is to ask whether the proposed appointee would be a candidate for appointment as an investment adviser to a trust with which he or she is not associated. Even in that situation, such an appointment might be looked at more carefully by the courts if it were challenged by a beneficiary. If that is the settlor’s intention, consideration should be given to the reservation of investment powers in the trust instrument.90 Equally, if a settlor or beneficiaries want a particular investment manager, the trustee should still consider that choice and compare it with other comparable investment managers. Note that the trustees need to be satisfied as to the competence and qualifications to manage the investment of ‘the trust property’ in question. An investment manager suitable to manage a £1 million portfolio may not be suitable to manage a £100 million portfolio. Indeed, an investment manager that is familiar with a routine portfolio of blue chip shares and bonds may not be competent to manage commodities or emerging markets stocks or private equity.
A. General Duties Section 33(3) of the Trusts Law 2007 provides that: A trustee who, without any breach on his part of section 22(1),91 makes or permits the continuation of a delegation or appointment under subsection (2), is not liable for any loss to the trust arising from the delegation or appointment.
This does not absolve the trustee of its duties to supervise the performance of the investment manager. It was confirmed in Appleby v Citco that the trustee has a duty not only to respond to information giving cause for concern about the management of the Company’s assets, but also to inform itself at appropriate intervals on the state of the Company’s portfolio and the manner in which it was being managed.92
90 See 91 As
section IV of this chapter. to which, see ch 8, sections I.A and I.B. v Citco (n 43) para 32.
92 Appleby
210 Trust Investments
B. Appointment of Affiliated Companies as Investment Managers In HSBC (HK) Limited v Secretary for Justice,93 HSBC (HK) Limited (‘the Trustee’) acted as trustee of a charitable trust. The Trustee applied to the Court to approve an arrangement granting it more extensive investment powers, including the appointment of a company related to the Trustee to act as the manager of the charity’s assets. It was also proposed that various conditions be imposed, so that, amongst other things, where the Trustee used the power to delegate the management of the trust assets, the fund’s charitable status would be safeguarded. The Hong Kong Secretary for Justice objected, arguing that if the Trustee were able to appoint a group member as the trust’s investment manager, fees earned by the HSBC manager from the Trustee would boost group revenues. As such, the Trustee would indirectly profit from the trusteeship, which was a breach of a fundamental rule of equity not to put itself in a positon of conflict.94 The Secretary did not object to the Trustee’s having wider powers to delegate investment management, but wanted a clause in the trust instrument to prevent any wholly-owned subsidiary of the HSBC Group from managing or advising on the trust’s assets. The Court held that the test was whether, on the facts and in the circumstances of the particular case, a reasonable person would consider that there was a real and sensible possibility for a conflict of interest between the Trustee and the interests of the trust. The power to delegate investment management to an affiliate was approved, with the following safeguards: (a) the Trustee had a duty to exercise reasonable care in exercising its powers of delegation; (b) the Trustee was obliged to prepare comprehensive guidelines for the investment managers to follow, which would reflect the charitable nature of the trust and would require them to invest conservatively; (c) the power of appointing investment managers and delegating asset management to them was to be revocable; the managers were to report regularly on investment performance and were, at all times, to comply with the guidelines; (d) the Trustee was to keep the delegation arrangements under review and consider whether the guidelines were being complied with and/or whether they needed to be reviewed or replaced; and (e) if the Trustee became aware (actually or constructively) of a breach of the terms of engagement with any manager, it was to insist on immediate remedial action.95
93 HSBC
(HK) Limited v Secretary for Justice (2001) 3 ITELR 763. Bray v Ford [1896] AC 44, 51. 95 Based on Steel v Wellcome Custodian Trustees Ltd [1988] 1 WLR 167. 94 See
Power to Direct Investments 211 In determining that there was no real possibility of conflict, Hartmann J stated: In my judgment I see no real and sensible possibility of conflict arising if I refuse to impose the restriction suggested by the Secretary [that is, that no HSBC company should act as investment manager]. During the course of his submissions, Mr Ma [counsel for the trustee] listed a number of reasons why this court should not, in this instance, be concerned. I am in agreement with those reasons which may be summarised as follows: (a) The trustees have in the past employed investment consultants outside of the HSBC Group; (b) It is accepted that in the past the trustees have always sought to advance the best interests of the fund and have dealt always at arm’s length with third parties in this regard, including Asset Management [that is, the HSBC investment management company in question]; (c) the HSBC Group itself has a global reputation in banking and the supply of financial services, a reputation which no doubt it will seek most jealously to guard.96
Thus, the Trustee was able to choose the HSBC Group asset management company to act as the trust’s investment manager; and in choosing an investment manager, the Trustee was to make a decision by reference to objective criteria, as and when the need arose.
IV. Power to Direct Investments It is now fairly common for settlors to reserve powers to direct investments, or for those powers to be conferred on a protector97 (an ‘Investment Manager’). A power to direct investments is normally a fiduciary one but it is possible to create a wholly personal power if ‘the most direct and express words are used’: Nothing short of the most direct and express words would … justify a construction which would enable those who exercised the power of direction to disregard the interest of the beneficiaries.98
It follows that the power need not be fiduciary if ‘the most direct and express words’ are used. The duties of the Investment Manager and the trustees will depend on the terms of the power. The trustees may have a duty to satisfy themselves that the investment is ‘conducive to the general interest of the persons presently or prospectively entitled under the settlement’,99 or that a ‘reasonable and proper price’ is paid.100
96 HSBC (HK) Limited v Secretary for Justice (n 82) 773–74. 97 As to the reservation of powers generally and the possible impact on the validity of the trust, see ch 5, section VII. 98 Lord Vestey’s Executors v IRC [1949] 1 All ER 1108, 1115, per Lord Simons; a limited personal power is much more common than a wholly personal one: see ch 5, section V. 99 Re Northumberland (Duke of) [1950] 2 All ER 1181, 1184D. 100 Re Hart’s Will Trust [1943] 2 All ER 557, 558F.
212 Trust Investments There is also a distinction to be drawn between (i) a power to direct investments, where the trustee retains a residual power to make investments, and (ii) a reserved investment power, where the entire investment function is reserved to another person by the trust instrument. In the former case ((i)), the trustee needs to play a more active role, involving active consideration of the trust investments. As such, it should consult with the Investment Manager if it is proposing to change investments; and if the trustee does not receive investment directions, it is then free to exercise the investment powers itself.101 In the latter case ((ii)), the trustee has no investment function. The trustee has ‘no duty to the … beneficiaries … to make enquiries or take advice so as to satisfy itself that the property to be acquired for this trust … was likely to produce an adequate return’.102 In that situation, it is thought that the trustee’s role is limited to taking reasonable steps to satisfy itself that the Investment Manager is acting within its powers. Where, as will usually be the case, that Investment Manager is a fiduciary and it appears that it may be acting in breach of its own duties, the trustee would have to consider taking action (which may involve not complying with the Investment Manager’s directions).103
101 ibid 558A. But even where there are reserved investment powers, it is thought that the trustee has a duty to solicit directions if it knows or ought to know that the Investment Manager’s failure to give a direction is a breach of the Investment Manager’s duties: K F Sin, The Legal Nature of the Unit Trust, 1st edn (OUP, 1997) ch 4, section 3.C(7) (Position of the Trustee). 102 Galmerrow Securities Ltd v National Westminster Bank PLC [2002] WTLR 125, 147F. 103 See the discussion in Sin, The Legal Nature of the Unit Trust (n 101) ch 4, section 3.C.
12 Introduction to Trust Litigation* I. The Jurisdiction of the Royal Court In addition to its inherent supervisory jurisdiction,1 the Royal Court has statutory jurisdiction in relation to trusts in the following areas: (a) (b) (c) (d) (e) (f) (g) (h)
power to appoint an additional trustee of a Guernsey trust;2 variation of trusts;3 variation of administrative provisions;4 application of the cy-près doctrine to charitable trusts;5 variation of charitable trusts;6 trustee applications for directions;7 general powers of the court;8 and payment of costs in relation to court applications.9
The Royal Court also has power to make procedural orders in trust matters,10 but to date none has been made.
* Please note that this chapter does not address the detailed rules of litigation procedure in the Guernsey courts, and is not intended to be comprehensive; instead it discusses the Court’s jurisdiction generally, as well as certain issues of principle that have come before the Guernsey Courts for consideration. For a more detailed discussion of civil litigation procedure in Guernsey, see G Dawes, Laws of Guernsey, 1st edn (Hart Publishing, 2003) ch 18 (‘Civil Courts and Procedure’), although please note that some of this is now out of date: for example, the Royal Court Civil Rules, 1989 (ORC 7/1989) have now been replaced by the Royal Court Civil Rules, 2007 (ORC 4/2007) (as amended by the Royal Court Civil Rules (Amendment) Order, 2008) (ORC 2/2008). 1 The Royal Court has an inherent supervisory jurisdiction in relation to trusts: A Ltd v HM Procureur (CA), [2003–04] GLR 593, para 39; Bathurst v Kleinwort Benson (Channel Islands) Trustees Ltd (Royal Ct) [2003–04] GLR N [32]; as to the Court’s inherent jurisdiction to vary trusts, see ch 14, section IV.A. 2 Trusts Law 2007, s 54(1); see ch 7, section VIII. 3 Trusts Law 2007, s.57; see ch 14. 4 Trusts Law 2007, s 58; see ch 14, section IV.M; referred to in the Trusts Law 2007 as ‘Approval of particular transactions’. 5 Trusts Law 2007, s 59; see ch 2, section V.H. 6 Trusts Law 2007, s 60; see ch 2, section V.I. 7 Trusts Law 2007, s 68; see section II of this chapter. 8 Trusts Law 2007, s 69; see section III; this is wide enough to permit the court to remove and appoint trustees: see ch 7, section VIII. 9 Trusts Law 2007, s 71; see section VII. 10 Trusts Law 2007, s 67.
214 Introduction to Trust Litigation Applications attacking trusts as a sham11 on the basis of donner et retenir ne vaut12 and by way of variation in the context of foreign matrimonial proceedings13 are discussed in chapter 13 of this book. Applications for rectification and rescission on the ground of mistake,14 and those to set aside actions taken as a result of inadequate deliberations,15 are discussed in chapter 15. As well as the jurisdiction of the Royal Court generally, this chapter discusses applications for directions,16 Public Trustee v Cooper applications17 and applications for Beddoe relief,18 some of the issues in relation to the payment of costs,19 and prescription and limitation periods.20
II. Applications for Directions A trustee has a statutory right21 to ‘apply to the court for directions as to how he should or might act in any of the affairs of the trust, and the court may make such order as it thinks fit’. This gives partial expression to the Court’s inherent jurisdiction to supervise and, if necessary, intervene in the administration of the trust.22 It has been held that the Royal Court has power under its inherent jurisdiction to grant declaratory relief, and that this power is similar to the powers of the English courts under Rule 40.20 of the Civil Procedure Rules 1988.23 This power may, for example, be used where trustees ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts.24
An application under section 68 is normally non-contentious in nature and might loosely be described as asking the court to act like a judicial legal adviser to the trust for the limited purposes of the application. It follows 11 Ch 13, section II. 12 Ch 13, section III. 13 Ch 13, section IV. 14 Ch 15, section II. 15 Ch 15, section V. 16 Section II of this chapter. 17 Section V of this chapter. 18 Section VI of this chapter. 19 Section VII of this chapter. 20 Section VIII of this chapter. 21 Trusts Law 2007, s 68. 22 That also appears to be the position under Jersey law in relation to the equivalent statutory provision: J Sheedy and S Baker, Litigating Trust Disputes in Jersey, 1st edn (Hart Publishing, 2017) para 3–11 (‘Article 51(1) of the Trusts (Jersey) Law 1984 – Directions Concerning the Manner in which the Trustee May or Should Act in Connection with any matter Concerning the Trust’). 23 Rothschild Trust Guernsey Limited v Pateras and Katigko-Kalliopi (Royal Court, 3 May 2011) (Judgment 15/2011) para 7; The Civil Procedure Rules 1998 No. 3132. 24 Re Buckton [1907] 2 Ch 406, 414 per Kekewich J.
Applications for Directions 215 … that … a different judge from the judge who in due course presides at trial, would necessarily have to hear it.25
Applications for Beddoe relief 26 and for the approval of trustees’ actions under Public Trustee v Cooper27 are made under section 68, although there is considerable overlap with the section 69 jurisdiction, and applications are often made under both sections. A trustee may appeal a decision if he or she considers that it is in the best interest of the beneficiaries to do so: [I]n the majority of cases a trustee who has sought directions from the court should not appeal even if he is not convinced that the court reached the right decision, [but] a trustee is perfectly entitled to appeal if convinced that the decision of the court is not in the best interests of the beneficiaries. Strictly speaking, a trustee who appeals may be at risk of an adverse costs order should the appeal fail; but such an adverse costs order will only be made in administrative proceedings where the appeal court concludes that the trustee has acted unreasonably in appealing, because it is only where a trustee has acted unreasonably that he is to be deprived of his indemnity as to costs (see Alhamrani v J P Morgan Trust Company (Jersey) Limited [2007] JLR 527 at para 69 per Vos JA).28
Indeed, it may be the trustee’s duty to appeal: [I]n my view the trustees were fully justified in bringing this appeal. Indeed it was their duty to bring it since they believe rightly that an appeal is essential for the protection of the general body of beneficiaries.29
A. Standing to Apply to Court for Directions under Section 68 Section 68 of the Trusts Law only applies to applications by trustees. It is thought that a ‘trustee’ includes a bare trustee and a constructive trustee.30 A former trustee is not normally a trustee for these purposes. In Virani, it was held that the application in question was not a Beddoe-type application made for directions.31 Rather, it was a ‘contentious application made by them on the basis
25 Virani v Guernsey International Trustees Limited (Royal Court, 1 August 2003) (Judgment 36/2003) para 35; see also G Dawes, Laws of Guernsey, 1st edn (Hart Publishing, 2003) 150–53 (cited with approval in Virani, para 34). 26 See section VI of this chapter. 27 Public Trustee v Cooper [2001] WTLR 901; see section V of this chapter. 28 In the Matter of the R and RA Trusts (CA, 20 May 2014) (Judgment 25/2014) para 18. 29 Re Londonderry’s Settlement [1965] Ch 918, per Salmon LJ; cited with approval in In the Matter of the R and RA Trusts (n 28) para 18. 30 See ch 5, section I.A. 31 The application was made under s 62 of the Trusts Law 1989, the predecessor to s 68 of the Trusts Law 2007.
216 Introduction to Trust Litigation that they were still in office as trustees’.32 And ‘since the former trustees were no longer trustees … they had … no right or status to apply for the relief claimed under section 62’.33
III. General Powers of the Court A. Standing to Apply to Court under Section 69 Any of the following persons may apply to the Court for an order under section 69(1) of the Trusts Law 2007: HM Procureur;34 a trustee; a settlor; a beneficiary; a person whom a trustee is required to consult or from whom it must obtain consent before exercising a trust power;35 (f) in relation to a non-charitable purpose, the enforcer; or (g) any other person, with leave of the Court.36 (a) (b) (c) (d) (e)
B. Types of Orders Available The Court may make an order in respect of: (a) the execution, administration or enforcement of a trust; (b) a trustee, including matters such as the exercise of its functions, its removal, appointment, remuneration or conduct, the keeping and submitting of accounts and making payments, whether into court or otherwise; (c) a beneficiary, or any person connected with a trust; (d) any trust property, including its vesting, preservation, application, surrender or recovery; (e) an enforcer, in relation to any non-charitable purpose of a trust, including an order in relation to the exercise by an enforcer of his or her functions, removal, appointment, remuneration or conduct.37
32 Virani
(n 25) para 36. para 38. 34 On behalf of charity. 35 Trusts Law 2007, s 69(2)(e); s 32(2). 36 Trusts Law 2007, s 69(2). 37 Trusts Law 2007, s 69(1)(a). 33 ibid
General Powers of the Court 217 The Court may also make a declaration regarding the validity or enforceability of a trust,38 and may rescind or vary an order or declaration under the Trusts Law 2007, or make a new or further order or declaration.39
C. Extent of the Court’s Jurisdiction under Sections 68 and 69 It has been suggested that sections 68 and 69 only give effect to the Court’s inherent supervisory jurisdiction and do not extend that jurisdiction: The application by the Former Trustees was made under section 69 of the Trusts (Guernsey) Law 2007, which gives statutory effect to the court’s supervisory jurisdiction over trusts. It was not suggested to us that that section, or section 68 (which permits a trustee to apply to the court for directions) gave the court wider or different powers of interference in trust matters than are traditionally exercised by the courts in England and Wales; and for the purposes of this judgment I assume that they do not.40
But that was accepted without argument in that case, and is thought to be confined to its facts. It has been held in other cases that ‘the jurisdiction in section 69 is in extremely wide terms’,41 and that the provisions of section 69 were expressed in terms of ‘considerable generality’, and ‘accordingly the section would appear to empower the Royal Court to make an order of any sort on the application of a trustee in respect of a matter relating to his trusteeship’.42 For example, the statutory jurisdiction in relation to protectors may be wider than the Court’s inherent jurisdiction.43 The Court’s jurisdiction under sections 68 and 69 applies to foreign trusts as well as Guernsey trusts.44
38 Trusts Law 2007, s 69(1)(b); see Rothschild Trust Guernsey Limited v Pateras and Katigko-Kalliopi (n 23) – in addition to declarations as to the validity of the trust, declarations were made that the trustee was the validly appointed trustee and that the shares in a company that had been owned by the trustee were validly held trust property prior to their sale. It appears that this was done in the context of a potential challenge to the validity of the trust on forced heirship grounds under Greek law: see ibid para 25. 39 Trusts Law 2007, s 69(1)(c). 40 In Re F (Guernsey CA, 21 June 2013) (Judgment 32/2013) para 10. 41 In the matter of the R and RA Trusts (n 28) CA; approved in In the matter of the K Trust (Royal Court, 14 July 2015) (Judgment 31/2015) para 36. 42 Investec v Glenalla (CA, 27 June 2014) (Judgment 28/2014) para 65. 43 See ch 10, sections VI.B and X. 44 Rawlinson & Hunter Trustees SA v ITG Limited and Bayeux Limited (Jersey law) (Royal Court, 30 January 2017) (Judgment 4/2017) para 45; see also In the Matter of an Application by the Trustees in respect of the Trust, A v R1, R2, R3, R4 and R5 (Bahamian law) (Royal Court, 22 April 2016) (Judgment 25/2016).
218 Introduction to Trust Litigation
D. Types of Applications under Section 69 Matters for which applications have been made under section 6945 include: (a) the remuneration of trustees;46 (b) a declaration as to whether a trust is charitable;47 (c) the approval of a compromise agreement, where the trustee had failed, in the management of the investments, to maintain a proper balance between the interests of the life tenant and the remainder beneficiaries;48 (d) disclosure of trust information by trustees;49 (e) payment to a settlor in relation to a statutory right of recovery under a UK tax statute;50 (f) the removal of a protector;51 (g) the delivery up of trust documents;52 (h) an application to distribute trust assets in accordance with the settlors’ letter of wishes where one of the beneficiaries objected;53 (i) approval of a refinancing of a loan secured on a substantial building in London that was a trust asset;54 (j) approval and ratification of the trustees’ decision to enter into a settlement agreement in relation to proceedings before foreign courts55 and the Guernsey courts;56 (k) an order that the assets held in the trust belong to the plaintiff;57 (l) approval of a loan to be made to a beneficiary to enable him to pay his legal fees, in the context of complex disputes concerning the validity and effect of various deeds of appointment;58 45 Or its predecessor, Trusts Law 1989, s 63. 46 In the Matter of Kleinwort Benson (Guernsey) Trustees Limited, Gilligan and Robins (Royal Court, 12 March 1998); In the matter of the H Sossen 1969 Settlement (Royal Court, 28 May 2004) (Judgment 16/2004). See also ch 7, section IX. 47 Insinger Trust (Guernsey) Limited (as trustee of the FDS Charitable Trust) (CA, 10 June 1999); 27 GLJ 147. see also ch 2, section V.F. 48 Applications by the Trustees of the Will and Trusts of Stanley Sidney Dawes (Royal Court, 7 December 2000). 49 Spread Trustee Company limited v Hutcheson [2011] UKPC 13; see also ch 9, section XI. 50 Kleinwort Benson (Guernsey) Trustees Limited, Gilligan and Robins v Wilson, Wilson, Risk et autres (Royal Court, 31 December 2002); see also ch 4, section III. 51 In the matter of the K Trust (n 41); on the basis that a protector is a ‘person connected with a trust’ for the purposes of Trusts Law 2007, s 69(1)(a)(iii) (ibid para 36). See also ch 10, section VI.B. 52 Rawlinson & Hunter Trustees (n 44). 53 In Re a Trust, A v R1, R2, R3, R4 and R5 (n 44). 54 In Re F (n 40). 55 Rothschild Trust Guernsey Limited v Ojjeh and Ojjeh (In re the NAO Settlement) (Royal Court, 29 November 2010) (Judgment 40/2010); In the Matter of an Application by the Trustee of the LKM Discretionary Trust (Royal Court, 2 August 2016) (Judgment 34/2016). 56 In re Mischca Trust; Butterfield Trust (Guernsey) Limited v Thommessen (Royal Court, 18 March 2010) (Judgment 15/2010); see also In the Matter of the N Settlement (Royal Court, 22 June 2016) (Judgment 29/2016). 57 Liang v RBC Trustees (Guernsey) Limited (Royal Court, 10 May 2018) (Judgment 20/2018); see section IV of this chapter. 58 In the Matter of the V Settlement [2007–08] GLR 240.
Application to Distribute: Anti-money Laundering 219 (m) an order as to the validity of a trust and that the shares in a company were owned by the trustee as trustee of the trust;59 and (n) rectification of the schedules to deeds of gift settling property on trust.60 We shall now consider a number of specific applications that have been considered by the Guernsey courts, starting with an application to distribute trust assets where there were anti-money laundering concerns.
IV. Application to Distribute Trust Assets in the Context of Anti-money Laundering Issues The Royal Court can give directions to a trustee to allow it to distribute trust assets to a beneficiary of the trust, where the trustee has filed a suspicious activity report with the Financial Intelligence Service (the FIS) and the FIS has declined its consent to the distribution.61 In Liang, the application was commenced by the plaintiff62 (who was the settlor of the trust) for an order that the trustee terminate the trust and distribute the assets to her, but it became an application for directions by the trustee. The same principles apply to a trustee–beneficiary relationship as apply to a banker–customer relationship.63 While judicial review proceedings are still possible, it is normally preferable to bring a private action so that the Court can determine the status of the funds in circumstances where ‘(unlike in public law proceedings) … evidential issues may be fully explored and the fund owner and the fund holder represented’.64 A party seeking access to funds that are effectively frozen due to a lack of consent to proceed with a transaction from the FIS, may seek that access on two different grounds: (i) he or she may challenge whether the fund holder has the requisite suspicion; and (ii) he or she may prove (on the balance of probabilities) that the funds are not the proceeds of criminal conduct.65 With regard to the first ground, the burden of proof is on the defendant fund holder, and the threshold for establishing suspicion is that the defendant must
59 Rothschild Trust Guernsey Limited v Pateras and Katigko-Kalliopi (n 23). 60 In the Matter of the Colour Trusts (Royal Court, 24 May 2012) (Judgment 24/2012), on the ground that the order was in respect of ‘the execution, administration or enforcement of a trust’ (s 69(1)(a)(i)) or ‘any trust property, including an order as to the vesting … thereof ’ (s 69(1)(a)(iv)): see ibid para 8. See also ch 15, section III.D. 61 Liang v RBC Trustees (Guernsey) Limited (n 57). 62 Pursuant to the Trusts Law 2007, s 69; see section III.A of this chapter. 63 Liang v RBC Trustees (Guernsey) Limited (n 57) para 12. 64 The Chief Officer of Customs & Excise, Immigration & Nationality Service v Garnet Investments Limited [2011–12] GLR 250; cited with approval in a trust context in Liang v RBC Trustees (Guernsey) Limited (n 57) para 12. 65 Liang v RBC Trustees (Guernsey) Limited (n 57) para 15.
220 Introduction to Trust Litigation think there is a possibility, which is more than fanciful, that the relevant facts exist.66 As this is essentially a subjective test, it will normally be difficult for the plaintiff to prove otherwise. If the defendant does have the requisite suspicion, the burden of proof then lies with the plaintiff to show that the funds are not, on the balance of probabilities, the proceeds of crime.67 It is thought that compliance with a court order must be a sufficient defence to a prosecution for the offence of assisting another person to retain the proceeds of criminal conduct.68 Although that is not a specific defence contained in the legislation, and this point is not specifically addressed in the judgment in Liang, there would normally be a valid defence that the trustee no longer has reasonable grounds to suspect that the released assets are criminal proceeds,69 even though it did have the requisite suspicion before.
V. Approval of Trustees’ Actions The Royal Court has confirmed70 that the principles in the case of Public Trustee v Cooper71 apply to Guernsey trusts. There are four heads under the Public Trustee v Cooper classification, as follows: (a) Those that raise an issue as to whether a proposed course of action is within a trustee’s powers. That would involve a question about the construction of a trust instrument, a statute or both (‘Extent of trustees’ powers’). (b) Those that raise an issue as to whether a proposed course of action is a proper exercise of a trustee’s powers, in circumstances where there is no real doubt as to the scope of those powers and the trustee has decided that he or she wants to exercise them. However, because the decision is momentous, a trustee decides to obtain the Court’s blessing to the proposed course of action (‘Blessing a momentous decision’). (c) Those by a trustee or trustees in circumstances in which they surrender an exercise of their discretion to the Court. The Court will only accept a surrender of an exercise of a discretion for good reason, such as where trustees are deadlocked between themselves or the trustees have an unmanageable conflict of interest (‘Surrender of discretion’).
66 ibid para 16; following Shah v HSBC Private Bank (UK) Limited [2010] 3 All ER 477 and applied in Jakob International v HSBC Private Bank (CI) Limited (Royal Court, 1 July 2016)(Judgment 26/2016), [2016] GLR N6. 67 Liang v RBC Trustees (Guernsey) Limited (n 57) para 26. 68 Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, s 39. 69 Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999, s 39(4)(a). 70 In the matter of Ogier Trustee Limited (as trustee of the PRJ Settlement) et autres (Royal Court, 25 April 2002). 71 Public Trustee v Cooper (n 27).
Approval of Trustees’ Actions 221 (d) Those that arise in circumstances where a trustee has already adopted a particular course of action but it has been challenged (‘Approval of past actions’).
A. Category 1: Extent of Trustees’ Powers This first category in the Public Trustee v Cooper classification commonly covers matters of construction but may also cover the application of rules of law, such as whether a receipt is income or capital. The judgment binds all interested parties.72
B. Category 2: Blessing Momentous Decisions This is the second category of applications under the Public Trustee v Cooper classification. A momentous decision is one that is of ‘real importance for the trust’.73 The English cases will be persuasive on this point.74 It is clear that a decision to appoint out the whole of the trust fund is momentous: ‘There can arguably be no more momentous decision than to wind up a trust.’75 The fact that a distribution is intended to resolve existing and potentially very costly litigation is relevant in deciding whether it was a momentous decision.76 In Re V,77 there was an underlying dispute between the settlor’s son and other family members concerning the meaning and effect of various deeds of appointment. The son was unable to pay his lawyers’ bills, and there was a real risk that he would become bankrupt. The trustee sought approval of the Court to make a loan to the son (who was the principal beneficiary of the trust). The Court accepted that, in light of the dispute, the trustee regarded the making of the proposed loan as ‘particularly momentous’,78 and approved the loan. It was held to be clearly in the interests of the son as (i) the prospect of bankruptcy was avoided, (ii) the dispute could be resolved, (iii) the fees incurred to date were not wasted and (iv) family harmony could be restored.79 But the Court was also satisfied that making 72 L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 27-071 (‘Category 1 – Extent of trustees’ powers’). 73 Kan v HSBC International Trustee Limited [2015] JCA 109, a decision of the Jersey Court of Appeal, but cited with approval in the Guernsey Royal Court in In the Matter of an Application by the Trustee of the LKM Discretionary Trust (Royal Court, 20 July 2016) (Judgment 34/2016) para 16. 74 As to which, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) paras 27-077 to 27-078 (‘Application without surrendering discretion – when suitable’). 75 In the Matter of the A, B, C and D Trusts and the W, X, Y and Z Trusts (Royal Court, 24 February 2016) (Judgment 53/2016) para 38. 76 In the Matter of an Application by the Trustee of the LKM Discretionary Trust (n 73) para 16. 77 In the Matter of the V Settlement [2007–08] GLR 240. 78 ibid para 32. 79 ibid para 36.
222 Introduction to Trust Litigation the loan was of benefit to the son’s immediate family, as the family homes could be at risk of being used to pay his creditors, notwithstanding that they might benefit financially from the income of the trust in the event of his bankruptcy (depending on the ultimate findings as to the effect of the deeds of appointment). It was also held (obiter) to be of benefit to the son’s daughter and any minor and unborn children by assisting in resolving the dispute. In Re Ogier Trustee Limited (as trustee of the PRJ Settlement),80 the Royal Court was asked to consider amendments to a trust instrument, following certain divorce arrangements made in the UK. The Royal Court recognised that the English court, in relation to the relevant divorce, had carefully thought out the future provision for certain family members, having had regard to their interests in the Guernsey trust. In as much as the proposed alterations to the trust were within the trustee’s powers, the Guernsey Court agreed that they should be allowed. There was further argument that, in as much as any proposed alterations were outside the powers of the trustee, those changes should be made under the statutory power to vary, which was duly done.81
i. Conflict of Interests The fact that the trustee has a conflict of interest may also be sufficient to make the decision a ‘momentous’ one: We accept Mr Wessels’ submission that this is a case where it is appropriate for an application to be made to this Court in the situation that trustees have already decided how to exercise their powers, but where they wish to obtain the blessing of the Court for the action which they have resolved to take. As the judgment outlines, sometimes these applications will be made because of the momentous nature of the decision, such as selling a family estate. There can be other situations, as there are here, where the Court, without accepting a surrender of the discretion of the trustees, can reasonably be asked to say to the trustees that in the light of potential conflict of interests, it approves the way in which the trustees propose to deal with a matter.82
Where there is a conflict, the Court does, however, need to be satisfied that the trustees’ opinion has not been vitiated by that conflict, which has or might have affected its decision: ‘the Court will give heightened scrutiny to the decision for which approval is sought’.83 In the Triangle Loans Trust case, the decision involved the apportionment of liability between the Hexagon Trust and the Triangle Trust, where the trustees of two trusts were in common ownership. It seems (although the point is not addressed explicitly in the judgment) that the Bailiff was satisfied on this point. The Bailiff did note that ‘any settlement of Hexagon’s claim has had 80 In the matter of Ogier Trustee Limited (as trustee of the PRJ Settlement) (n 70). 81 As to the variation of trusts by the court generally, see ch 14, section IV. 82 Re Triangle Loans Trust, Rysaffe Trustee Company (CI) Limited v Hexagon Trust Company (CI) Limited (Royal Court, 2 November 2004) (Judgment 52/2004) para 11. 83 In Re H Trust [2018] JRC 171, para 51.
Approval of Trustees’ Actions 223 to be carefully managed’,84 and it seems that he formed the view that it had been sufficiently carefully managed such that it had not affected the trustees’ decision. In particular, the trustees had instructed separate teams of lawyers to represent the interests of the two sets of beneficiaries. Of course, it will not always be possible to manage the conflict effectively (and that will be less likely where the conflict is one between the trustee’s duties as trustee and his or her own personal interest), in which case the better option may be to surrender discretion to the Court.85 If the trustee has failed to disclose and acknowledge a conflict of interest when reaching a decision, that ‘is likely to make it much more difficult for the Court to be satisfied that the decision has not in fact been influenced by the conflict’.86 It was also noted in Re H that where there is a conflict of interest and a trustee subsequently seeks the blessing of the Court to the decision which it has taken, it is of fundamental importance that the trustee address the conflict issue and be seen to do so. Thus, in the present case, we would have expected to have seen minutes in which, when reaching its decision, the Trustee acknowledged the existence of the conflict but went on to explain why, despite the conflict, it was nevertheless in the interests of the beneficiaries/trust estate that the Property be sold.87
ii. Test to be Applied It is now well established that Guernsey law follows English law with regard to the test to be applied:88 In the second type of application, however, the court is not exercising a discretion. What it is doing is in effect making a declaration that the trustees’ proposed exercise of the power is lawful; in other words, that the proposed exercise is within the proper ambit of the power, that the trustees are acting honestly, and that in reaching their decision the trustees have taken into account all relevant matters, have taken into account no irrelevant matters, and have not reached a decision that no reasonable body of trustees could have reached. The effect is to protect the trustees from any challenge to their decision by persons interested in the trust, and to make clear that the trustees are entitled to indemnity from the trust assets in respect of the costs or other financial consequences of their decision. It is immaterial that the court, had it been exercising a discretion of its own, would have exercised it in a way different from that proposed by the trustees. To the extent that the court has any discretion, it is in whether or not to admit the application: if, for example, the court considers that the trustees’ decision is of insufficient moment, it may refuse to entertain the application at all. Once it has decided to deal
84 Re Triangle Loans Trust (n 82) para 9. 85 See section V.C of this chapter. 86 In Re H Trust [2018] JRC 171, para 51. 87 ibid para 48. 88 For example, see In Re F (n 40); In re Mischca Trust (n 56) para 34. As to the position under English law, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) paras 27-079 to 27-082 (‘Application without surrendering discretion – role of court’).
224 Introduction to Trust Litigation with the application, however, it has no more discretion than in the making of any other declaration, and will make it once satisfied of the propriety of the proposed exercise of the power. It may nevertheless be that the court will sometimes engage in a dialogue with the trustees as a result of which the trustees’ decision is modified; but, properly analysed, that is no more than a process by which the court identifies the circumstances in which it will be satisfied that the proposed exercise of the power is within the proper range of such exercises. It is not indicative that the court is exercising a discretion; and any attempt by a court to do so in circumstances where the trustees had not surrendered their discretion would infringe the general principle that a court will not enforce the exercise of a power against the wish of the trustees.89
There are therefore four questions the Court should consider: (i) Does the trustee have the power to make this ‘momentous’ decision? (ii) Is the Court satisfied that the trustee formed the opinion in good faith and that it was desirable and proper for it to make the decision? (iii) Is the Court satisfied that the opinion formed by the trustee is one which a reasonable trustee in its position properly instructed could have arrived at? (iv) Is the Court satisfied that the opinion arrived at by the trustee has not been vitiated by any actual or potential conflict of interests which either had or might have affected its decision?90
iii. Evidential Burden The Court must not act as a rubber stamp, and has to be satisfied as to the rationality of the decision:91 The court will not approve a trustee’s decision without a proper evidential basis for doing so. But the court should equally not deprive a trustee of approval without good reason [and] … should not place insurmountable hurdles in the way of trustees in the position of those before the court.92
However, there is no additional requirement that a trustee must prove in detail that it has given proper consideration to the matter under scrutiny, setting out in detail the steps taken by the trustee and the considerations which informed the trustee’s decision …93
89 In Re F (n 40) para 11. 90 In re Mischca Trust (n 56) para 36; approved in In the Matter of the A, B, C and D Trusts and the W, X, Y and Z Trusts (n 75) and In the Matter of an Application by the Trustee of the LKM Discretionary Trust (n 73) para 19. With regard to conflicts of interest, see section V.B.i of this chapter. 91 In Re a Trust, A v R1, R2, R3, R4 and R5 (n 44) para 14; In Re the A, B, C and D Trusts and the W, X, Y and Z Trusts (n 75) para 6. 92 Cotton and another v Brudenell-Bruce & others [2014] EWCA Civ 1312; approved as representing Guernsey law in In Re a Trust, A v R1, R2, R3, R4 and R5 (n 44) paras 8 and 14 and In Re the A, B, C and D Trusts and the W, X, Y and Z Trusts (n 75) para 6 and In Re an Application by the Trustee of the LKM Discretionary Trust (n 73) para 22. 93 Kan v HSBC International Trustee Limited [2015] JCA 109, para 15.
Approval of Trustees’ Actions 225 although the trustees should put before the court all relevant considerations (supported by evidence) and they should explain their reasons for reaching the decision, even though they are not otherwise obliged to make such disclosure to the beneficiaries.94
The Jersey case of Re H is instructive, as it is a rare instance where the Court declined to bless the trustee’s decision, which was to sell a house that was the sole asset of the trust. In addition to the trustee’s failure to address its conflict of interest,95 it had also failed in a number of other areas: (a) The trustee had not obtained tax advice, and so had therefore failed to consider the tax consequences of a sale, which were relevant in the circumstances. The Court thought that the fact that there was no cash in the trust to pay for that advice was not a sufficient excuse when the trustee could have funded advice itself and would ‘at some stage [have been] able to obtain reimbursement for its reasonable fees and expenses out of the trust property’.96 (b) The Court was not satisfied that it was reasonable to insist on a sale, where two of the four beneficiaries wished to retain the house for their use. In particular, it was not clear that those beneficiaries might not have been able to raise the funds to buy out the eldest son who wanted the property to be sold, as the trustee had not fully explored that possibility. (c) There was no clear explanation as to why the trustee was proposing to split the proceeds of sale into four parts instead of three, where there was some suggestion that the widow (the fourth beneficiary) did not wish to receive her share.
iv. Test to be Applied on Appeal For an appeal of a category 2 blessing of a momentous decision to succeed, the appellants have to show that the Bailiff hearing the case at first instance had been wrong to hold that the [trustees] were acting honestly and within the ambit of the power … or that he had been wrong to hold that the [trustees] had taken into account all relevant considerations, disregarded any irrelevant considerations, and reached a decision that reasonable trustees could have reached.97
v. Without Prejudice Privilege Trustees will typically enter into correspondence with beneficiaries (and protectors, where relevant) to try to reach agreement before applying to court. As a 94 ibid para 19; the additional requirement was rejected by the Jersey Court of Appeal in Kan v HSBC: see ibid paras 15–19; and the rejection of that ground in Kan has been cited with approval by the Guernsey Royal Court: In Re a Trust, A v R1, R2, R3, R4 and R5 (n 44) para 11. 95 The trustee had a considerable amount of unpaid trustee fees, which would be paid out of the proceeds of sale; see section V.B.i. 96 In Re H [2018] JRC 171, para 52. 97 In Re F (n 40) para 13.
226 Introduction to Trust Litigation result, issues relating to without prejudice privilege can arise in relation to that correspondence in these types of applications. It has been held that without prejudice privilege applies in principle to these types of applications, and the following principles also apply:98 (a) Where materials are headed ‘without prejudice’ (and have presumably not been challenged as such at the time of the correspondence),99 or are otherwise deemed to be treated as ‘without prejudice’, they are privileged and are therefore inadmissible in subsequent court proceedings, unless a case to the contrary is made out. The burden of proof therefore rests on the party attempting to show that the materials are admissible.100 (b) The privilege only applies to the communications themselves, not to the fact that without prejudice communications have taken place nor to the open materials that may have been considered in them.101 (c) The nine exceptions to the rule102 generally apply equally to applications to bless momentous decisions, and there is no additional exception that there is a duty of full and frank disclosure that requires the trustees to disclose all matters that are material or potentially material to their decision before the Court: That is because a blessing application is concerned more with process than substance. The Trustees are only seeking the court’s confirmation that, in reaching the decision which they have already made, it appears that they have taken into account all the material matters which they apparently ought to have done, that they have not taken into account anything which is not properly relevant and that, against this background, the decision which they have arrived at is not irrational, or perverse, or a decision which no reasonable trustee could have made.103
C. Category 3: Surrender of Discretion The third category in the Public Trustee v Cooper classification applies where the trustees are leaving the decision to the Court. The Court is not obliged to accept a surrender of discretion and will only do so if there is a good reason. Good reasons include circumstances where the trustees are deadlocked, where they have a conflict that is not capable of being satisfactorily managed, or if there is a proposed compromise of litigation against a third party where beneficiaries are strongly opposed to it.104 98 In the matter of the R Trusts (Royal Court, 2 October 2017) (Judgment 43/2017) para 21. 99 ‘If the recipient did not agree that the communication was properly headed “without prejudice” he would and should, of course, take that point at the time’: ibid para 15. 100 ibid para 17. 101 ibid para 44. 102 The eight originally listed by Robert Walker LJ in Unilever plc v The Procter & Gamble Co [2000] 1 WLR 2436, 2444D–2445G, and the ninth added by Crane J in Pearson v Prentice Hall [2005] EWHC 636; In the matter of the R Trusts (n 98) paras 32–50. 103 In the matter of the R Trusts (n 98) para 47. 104 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 27-082 (‘Application surrendering discretion – when suitable’).
Beddoe Applications 227 On a surrender of discretion ‘[the trustee] has always to bear in mind that it is of the highest importance that the court should be put into possession of all the material necessary to enable that discretion to be exercised’.105 The English cases will be persuasive, and it is thought that Guernsey law will follow English law.106
D. Category 4: Approval of Past Actions A trustee may apply to court for a declaration as to the validity of an exercise of one of its powers, if a doubt has arisen.107 This will normally take place in the context of hostile litigation commenced by a beneficiary or a successor trustee and is typically in open court,108 but the trustees may apply to the Court, as they need to know the basis on which they should continue to administer the trust. If they are at fault, they may be ordered to pay the costs of the application.109 In Rothschild v Pateras,110 the trustee had authorised the directors of a Panamanian company (‘the Company’) owned by it as trustee of a trust to sell land in Greece that had been owned by the Company. An application had been made to the Greek courts by the heirs of the settlor of the trust, that the shares in the Company had in fact belonged beneficially to the settlor and so passed to them on his death under Greek intestacy laws. The trustee applied to the Royal Court for an order as to the validity of the trust, that the shares in the Company were owned by it as trustee of the trust and that it had validly exercised its powers as trustee in authorising the Company to sell the Greek land, which the Court granted.111
VI. Beddoe Applications A trustee may sue and be sued in that capacity,112 and may compromise or settle any action or claim brought by or against the trustee or in any way relating to the trust or the trust property.113 However, a trustee’s right of indemnity from the trust 105 Marley v Mutual Sec Merchant Bank & Trust Co Ltd [1991] 3 All ER 198, 201; cited in Thommessen v Butterfield Trust (Guernsey) Limited [2009–10] GLR 102, [15]. 106 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) paras 27-082 (‘Application surrendering discretion – when suitable’) to 27-084 (‘Application surrendering discretion – role of trustees’). 107 Rothschild Trust Guernsey Limited v Pateras and Katigko-Kalliopi (n 23) para 8. 108 As to the possible grounds on which a challenge may be made, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 29-033 (‘Summary of grounds for challenge’). 109 Re Toland Trust [2005] JRC 142. 110 Rothschild Trust Guernsey Limited v Pateras and Katigko-Kalliopi (n 23). 111 The first two declarations were made under the Court’s jurisdiction conferred by the Trusts Law 2007, s 69(1)(b); the third was under the fourth head of Public Trustee v Cooper: see Rothschild Trust Guernsey Limited v Pateras and Katigko-Kalliopi (n 23) para 8. 112 Trusts Law 2007, s 31(1). 113 Trusts Law 2007, s 31(2).
228 Introduction to Trust Litigation fund in relation to the costs of third party litigation depends on whether or not it has acted properly in bringing or defending the claim: [A] trustee who, without the sanction of the Court, commences an action or defends an action unsuccessfully, does so at his own risk as regards the costs, even if he acts on counsel’s opinion; and when the trustee seeks to obtain such costs out of his trust estate, he ought not to be allowed to charge them against his cestui que trust unless under very exceptional circumstances. … [I]f a trustee brings or defends an action unsuccessfully and without leave, it is for him to shew that the costs so incurred were properly incurred. The fact that the trustee acted on counsel’s opinion is in all cases a circumstance which ought to weigh with the court in favour of the trustee; but counsel’s opinion is no indemnity to him even on a question of costs.114
In disputes with third parties: Views may vary whether the proceedings are properly brought or defended, and … trustees are well advised to seek court authorisation before they sue or defend … The form of application is a separate action to which all the beneficiaries are parties (either in person or by a representative defendant). With the benefit of their views the judge thereupon exercising his discretion determines what course the interests of justice require to be taken in the proceedings …115
The purpose of a Beddoe application is to obtain an order from the Court authorising the trustee to bring or defend proceedings and to be indemnified from the trust fund in respect of the costs of doing so. In seeking approval to bring or defend an action, a trustee must make full disclosure to the Court of the strengths and weaknesses of its case, from the trust’s perspective. Applications are brought, in part, under section 69 and, in part, under the Court’s inherent jurisdiction. The beneficiaries’ views will be given serious weight. It should be noted that: The purpose of the application is to inform the judge as to the strengths and weaknesses of the trustees’ case and the views of trustees and beneficiaries regarding the prospects of success and the course to be taken, for example in respect of a possible compromise.116
A. The Approach of the Royal Court A trustee must set out in a Beddoe application full disclosure of all the relevant facts, and of the arguments both in favour and against its position.117 In Brown v 114 Re Beddoe [1893] 1 Ch 547, CA, 557–58; unless the trustee is given the authority to conduct proceedings on legal advice under the terms of the trust: Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 27-223 (‘Court’s direction whether to litigate – Beddoe applications’); as to a suggested provision, see J Kessler QC and P Matthams, Drafting Trusts and Will Trusts in the Channel Islands, 2nd edn (Sweet & Maxwell, 2013) para 5.13 (‘Relying on professional advice’). 115 Alsop Wilkinson v Neary [1995] 1 All ER 431, 434–35. 116 ibid 436. 117 Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198, 201 per Lord Oliver.
Beddoe Applications 229 Orion Trust Limited,118 the Deputy Bailiff, in considering the position of Beddoe applications in Guernsey, felt that it was right to follow English practice, ‘though in due course it may arise from time to time that variations may be necessary, as justice may require’.119 In Brown v Orion, a beneficiary had brought proceedings alleging breach of trust and sought the removal of the trustee. The trustee filed an application for, and was granted, a Beddoe order, in order to institute proceedings for a declaration that the relevant trust was a sham and/or void for illegality. A person who was not the original settlor, but who had transferred assets to the trust, had fallen out with the trustee’s ultimate holding company, due to problems with ‘exporting’ pension schemes from the UK. The Deputy Bailiff found guidance from a number of English cases, including: (a) Re Moritz (deceased),120 with regard to the limited information to be supplied to beneficiaries concerning an application to the Court. In that case the trustees were seeking directions on whether to bring an action against certain beneficiaries. It was held that the beneficiaries did not have the right either to make representations to the Court, or to see the evidence upon which the Court is asked to act. (b) Re Evans (deceased),121 in which it was stated that where there is a family dispute and the beneficiaries are all ascertained and of full age, the beneficiaries should fight out their dispute between themselves, at their expense, rather than bring a claim at the expense of the trust fund. In view of these and other authorities, a Beddoe application proceeds with only the trustee being present, although other relevant parties may normally see any affidavit submitted, on behalf of the trustee, in support of the application, but without any supporting documentation. The beneficiaries are entitled to make written submissions to the Court in relation to the trustee’s affidavit. However, the other parties are not to be informed ‘to any significant extent of the arguments and/or concerns of the Beddoe applicant’.122 The Deputy Bailiff also said: If it was required of a judge who had granted a Beddoe application to deliver in open court a fully reasoned judgment as to why he had come to such conclusion, inevitably those arguments and/or concerns, and the supporting evidence, would immediately become public knowledge.123
He concluded: I must act as though I were an adviser to the Trustee of the Penang Trust … [T]he Plaintiff and the Brown family already know in general terms the concerns of the
118 Brown
v Orion Trust Limited (Royal Court, 14 April 2000) (Judgment 5/2000). para 2. 120 Re Moritz (deceased) [1960] Ch 251. 121 Re Evans (deceased) [1986] 1 WLR 101. 122 Brown v Orion Trust Limited (n 118) para 5. 123 ibid. 119 ibid
230 Introduction to Trust Litigation Defendant, namely that the original settlement is not as it would seem to be, and that the original funds do not derive from the purported settlor, and that both the original and subsequent funds may be tainted by impropriety.124
That approach was followed in Re Z, in which the Bailiff noted that the Deputy Bailiff in Brown v Orion accepted ‘the concept of the court in effect becoming an adviser to the trustee and indicating what the trustee should be doing when faced with hostile litigation’.125 It has also been held that a typical provision permitting trustees to take opinions from legal counsel and ‘in all matters to act in accordance with the opinions of such counsel’ does not enable trustees to enter into litigation without the comfort of a Beddoe order.126
B. What Costs are Covered by Beddoe Orders? The facts in Brown v Orion emerged more clearly when the case returned for the Royal Court127 to consider the question of a claim for indemnity costs in favour of the trustee. In essence, the relevant trust had been set up by the mother-inlaw of a Mr Brown, who had transferred to it fees that he had earned. This was against a background of ‘exporting’ pension schemes from the UK, the trustee being accused of a breach of its fiduciary duty and its counter-allegation that the trust was a sham. A Beddoe order covers the relevant trustee’s costs on a ‘full indemnity’ basis,128 although they will normally be limited in scope: in Brown, the order covered costs from the date on which the order was made until discovery, including any necessary costs relating to the background to the application: In a Beddoe application, indemnity costs should be allowed in so far as they are reasonable and have reasonably been incurred, with any doubts being resolved in favour of the receiving party. The costs of work, research, inquiries, etc necessary to making a Beddoe application, even if incurred long before the application is made, constitute items which may properly be considered in the taxation129 of full indemnity costs. Specialist legal advice obtained by a trust company making a Beddoe application in relation to a particular trust is an allowable item for the purposes of the taxation of indemnity costs, but the court should bear in mind that the advice may be of continuing professional and commercial benefit to the company, and that, accordingly, it may not be right to attribute the whole amount of those costs to the application in respect of the particular trust.130 124 ibid. 125 In Re the Z Trust Rothschild and others (Royal Court, 25 April 2005) (Judgment 23/2005) para 20. 126 ibid para 21. 127 Brown v Orion Trust Limited (Royal Court, 10 May 2004) (Judgment 14/2004). 128 Brown v Orion Trust Limited (n 127) para 1; Brown v Orion Trust Limited (n 118) para 6. 129 Note: it has subsequently been held that taxation of trustee costs is not normally necessary – see section VII.A of this chapter; The Tchenguiz Discretionary Trust (Royal Court, 27 November 2015) (Judgment 54/2015) para 20. 130 Brown v Orion Trust Limited [2003–04] GLR Note 16.
Payment of Costs in Court Proceedings 231 In Brown, the Court had to determine whether certain costs that had been incurred by the trustee and its related companies were covered by the Beddoe order. Lieutenant Bailiff Day stated: Beddoe’s applications such as the instant one cannot be made in a vacuum, but will always be based on prior work, research, inquiries, etc, to a greater or lesser degree depending upon the circumstances of the case, in order that any appropriate application can be properly formulated. My remarks were so framed because it was clear from background information to which I was privy, that considerable expenditure would already have been incurred, some of which could (my emphasis) have been for prior advice without which the Beddoe’s application could not have been sensibly formulated, and some which could not be so directly linked if at all.131
The expenditure incurred before the Beddoe order, to which Day LB was referring, related to sums expended with various law firms and lawyers on the legal position with regard to the ‘export’ of certain pension trusts. This expenditure was the result of a change in UK tax law announced in November 1994. The expenditure was incurred by the group of companies of which the trustee was a member (the ‘Group’), rather than by the trustee itself. It was argued that this work provided the background to the Beddoe application. Against that position, it was argued that the advice had been obtained generally, in order to advise the Group, and not specifically for the trustee or the trust. The judge concluded that some of these legal costs could be attributed to the trustee and the trust. He said that the trustee would have to have obtained legal advice in any event, once the action against it had begun, even though that action actually commenced some years after the Group had obtained the advice in question. To be measured against this, however, was the professional know-how the Group had acquired and from which it could derive benefit. A balancing process was undertaken, and just over half of the total costs in issue were held as being covered by the Beddoe order.
VII. Payment of Costs in Relation to Court Proceedings In addition to its general jurisdiction to award costs,132 the Royal Court has power to order the costs and expenses of and incidental to an application to the court under [the Trusts Law 2007] to be paid from the trust property or in such manner and by such persons as the court thinks fit.133 131 Brown v Orion Trust (n 127) para 15. 132 Royal Court (Costs and Fees) Law 1969, s 1(1): ‘The costs of and incidental to all proceedings in the Royal Court shall be in the discretion of the Royal Court and the Royal Court shall have power to determine by whom and to what extent the costs are to be paid.’ As to the jurisdiction of the Guernsey courts to award security for costs, see section VII.B of this chapter. 133 Trusts Law 2007, s 71.
232 Introduction to Trust Litigation A detailed discussion of the principles applicable to costs in relation to trust disputes in Guernsey is outside the scope of this work, but we do discuss some of the principles that have been determined by the Guernsey courts.134
A. Trustee’s Right to Litigation Costs – Some General Principles The trustee’s right is prima facie a complete indemnity, without any need for taxation by the Royal Court.135 The cost of foreign lawyers, including English counsel, will also be met from the trust fund, unless it can be shown that the use of those lawyers was unreasonable.136 The right may be lost through misconduct, not only in relation to the conduct that occasioned the proceedings, but also in relation to that of the proceedings themselves.137 This is a matter to be determined according to the law of the Royal Court where proceedings are conducted in Guernsey, even though the proper law of the trust may that of a different jurisdiction.138 The procedure to be used to establish misconduct is that the parties who wish to be indemnified should calculate the extent of their claims, giving appropriate detail, including dates of costs being incurred and a detailed summary of the work done, to enable the other parties to decide whether or not they wish to challenge the nature or the amount of the costs claimed.139
B. Security for Costs Rule 82(1) of the Royal Court Civil Rules, 2007 confers jurisdiction on the Guernsey courts to award security for costs. It is in similar terms to the equivalent jurisdiction of the English courts set out in rules 25.12 and 25.13 of the Civil Procedure Rules, and regard will be had to the English principles.140 134 For a more detailed discussion, see Dawes, Laws of Guernsey (n 25) 470–76, but please note that some of this discussion is now out of date: for example, the Royal Court Civil Rules, 1989 have now been replaced by the Royal Court Civil Rules, 2007 (as amended by the Royal Court Civil Rules (Amendment) Order, 2008). 135 The Tchenguiz Discretionary Trust (n 129) para 20 (as to Jersey law, but it seems clear that the position is the same under Guernsey law, particularly bearing in mind that this was a decision by the Guernsey Royal Court). 136 ibid para 34. 137 ibid para 30 (although strictly obiter, as this was a Jersey trust); Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) paras 27-112 to 27-113 (‘Trustee deprived of costs or ordered to pay costs by court order on ground of breach of trust or misconduct’). 138 ‘As is made clear in both Alhamrani and des Pallieres, this statement [ie that set out in Lewin on Trusts (n 72) para 27-113] applies as much in Jersey, as it does in England and, in my judgment, the law applies equally in Guernsey’: The Tchenguiz Discretionary Trust (n 129) para 31. 139 The Tchenguiz Discretionary Trust (n 129) para 36. 140 Jefcoate & Jefcoate v Spread Trustee Company Limited (Royal Court, 13 August 2012) (Judgment 31/2012) para 27; followed in Trust Corporation of the Channel Islands & East Forest Green Limited (Royal Court, 22 January 2014) (Judgment 05/2014).
Payment of Costs in Court Proceedings 233
C. Construction Proceedings – The Buckton Categories The Guernsey courts have adopted the Buckton classification of construction proceedings. In Albany Trustee Company Limited v Jeandon and Cristolfini,141 the Deputy Bailiff quoted Lewin with approval: The easiest way of describing them is, I think, to quote the summaries set out in para 21–79 of Lewin on Trusts, 18th ed (2008): • ‘Conventionally these kind of proceedings [about construction of the trust instrument or determination of questions of law as to the validity or scope of trusts or powers under the trust instrument or imposed or conferred by law] are treated as being divisible into three categories following the classifications in the leading case Re Buckton:142 (1) Proceedings brought by the trustee to have the guidance of the court as to the construction of the trust instrument or some other question of law arising in the administration of the trust or in relation to the trusts on which the trust property is held. In such cases, the costs of all parties are, whatever the outcome, usually treated as necessarily incurred for the benefit of the trust fund and ordered to be paid out of it. But a trustee is at risk as to costs if he commences a construction claim unnecessarily, though will be given credit if he does so on advice. In a case where any doubt is a slight one, consideration should be given to an application to the court under section 48 of the Administration of Justice Act 1985 as a convenient and inexpensive method of securing appropriate protection for the trustees. (2) Proceedings in which the application is made by someone other than the trustee, but raises the same kind of point as in the first category and would have justified an application by the trustee. Such proceedings differ in form but not in substance from the first consideration and similar considerations apply as to costs. (3) Proceedings in which the application is made by someone other than the trustee, but differ in substance from the second category, and in substance as well as form from the first category, in that they have the character of a hostile claim founded on a point of construction or law raised by someone other than the trustee to a beneficial interest in or entitlement to the trust fund. The distinction, though not easy to draw in practice, between this kind of litigation and litigation within the first two categories, is that the claim is brought not in substance for the benefit of the trust fund, but for the benefit of the claimant, and is resisted for a similar reason. A case which clearly falls within the third category is where the whole of the trust fund has been distributed to a supposed beneficiary in reliance on some construction of the trust instrument, or view of the law, and another person claiming to be the true beneficiary brings proceedings against the recipient or the trustee in reliance on a rival construction, or rival view of the law. Here the general principles as to costs of hostile litigation 141 Albany Trustee Company Limited v Jeandon and Cristolfini (Royal Court, 10 September 2012) (Judgment 32/2012) paras 16–21. 142 Re Buckton [1907] 2 Ch 406 although note that the s. 48 procedure is not available in Guernsey.
234 Introduction to Trust Litigation
Further:
apply between the claimant and the party against whom the claim is directed, and so the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, subject to the general qualifications which apply in ordinary hostile litigation.’143
‘Not all proceedings commenced by a trustee for the determination of some question affecting entitlement to the trust fund are within Buckton category (1), particularly in a case which does not involve the construction of the trust instrument but rather a dispute over the beneficial ownership of the trust fund [McDonald v Horn [1995] 1 All ER 961]. … Although in form the proceedings come within Buckton category (1), in substance the dispute comes from the third category, and the costs of the rival claimants should be governed by the principles of cases falling within the third category, for the proceedings are akin to an interpleader. This kind of litigation might perhaps be conveniently treated as a fourth category.’144
The fourth category – where proceedings are commenced by a trustee but have the characteristics of category (3) – has also been recognised and applied in Guernsey.145
D. Beneficiaries’ Costs The trust fund will normally bear the beneficiaries’ costs146 in relation to cases falling within Buckton categories (1) and (2), on the basis that they have been incurred for the benefit of the trust. Those costs will normally be awarded on an indemnity basis, but are subject to a requirement of reasonableness, as they are awarded by analogy to the trustees’ right of indemnity.147 For those cases that fall within Buckton categories (3) and (4), the unsuccessful beneficiary will normally by ordered to pay the costs of the successful beneficiary in the same way as other hostile proceedings.148
143 Albany Trustee Company Limited v Jeandon and Cristolfini (n 141), para 17, quoting the summary from J. Mowbray L Tucker, N Le Poidevin QC, J Brightwell and E. Simpson (eds), Lewin on Trusts, 18th edn (Sweet & Maxwell, 2008) para 21-79; the equivalent summary is now contained in Lewin on Trusts (n 72) para 27-139 (‘Construction proceedings – the Buckton Categories’). 144 Albany Trustee Company Limited v Jeandon and Cristolfini (n 141), para 17, quoting the summary from Mowbray et al (eds), Lewin on Trusts, 18th edn (Sweet & Maxwell, 2008) para 21-80; the equivalent summary is now contained in Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 27-140. 145 Albany Trustee Company Limited v Jeandon and Cristolfini (n 141) paras 16 and 21; see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 27-145 (‘Fourth category’). 146 See also section VII.E of this chapter. 147 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 27-147 (‘Beneficiaries’ costs’); as to the trustees’ requirement for reasonableness, see section VII.A. 148 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 27-147 (‘Beneficiaries’ costs’).
Prescription and Limitation Periods 235
E. Beneficiary’s Right to Costs When Seeking a Ruling on a Question of Construction or Law A trustee may be entitled to the legal costs it has incurred in pursuing a ruling either on the construction of the relevant trust instrument, or on a question of law relating to the trust. There are also cases where a beneficiary itself has pursued a matter. In Alan Stuart-Hutcheson v Spread Trustee Company Limited,149 the successful applicant was entitled to his full (indemnity) costs from the trust fund, because: (a) it was not an ordinary dispute between rival litigants seeking to obtain or resist the award of a judgment to a monetary or proprietary claim; (b) it was a claim to decide a point of Guernsey law that had not been previously resolved (dealing with a discretionary beneficiary’s right to obtain information from trustees);150 (c) the trustee had also brought an application to have the question determined and had had a Beddoe order made in its favour by the Royal Court. This led to the trustee’s stating that it would pay all of its own costs from the trust fund and that, therefore, it was not fair that the winning party, who had obtained a decision that was to the advantage of all the other beneficiaries, should be treated less favourably than the trustee; (d) it was the type of case where a beneficiary had made an application necessary for the administration of the trust, and as such the costs of all parties were necessarily incurred for the benefit of the trust as a whole; and (e) although there was hostility between the trustee and the beneficiary, and indeed the beneficiary had issued substantive proceedings against the trustee, this application benefited all of the beneficiaries, as they could all enjoy the right to access trust information.
VIII. Prescription and Limitation Periods Prescription periods are considered to be matters of substantive law, whereas limitation periods are procedural rules.151 Limitation is therefore normally governed by the law of the forum, whereas prescription forms part of the law applicable to the cause of action. Under Guernsey customary law, a right of action is prescribed, that is extinguished, if an action is not brought to court within a particular time. Somewhat confusingly, section 76 of the Trusts Law 2007 begins by referring to ‘limitation or prescription’.
149 Alan Stuart-Hutcheson v Spread Trustee Company Limited (Royal Court, 10 September 2001) (Judgment 6/2001). 150 As to which, see ch 9, section XI. 151 Dawes, Laws of Guernsey (n 25) 396–97.
236 Introduction to Trust Litigation However, it is submitted that the better view is that the periods set out in section 76 are regarded as prescription periods (that is, a matter of substantive law).152 As such, if the question were to arise in a foreign court, that court would (assuming it were to apply the same conflict of laws rules) apply the Guernsey periods set out in section 76, rather than any limitation (or prescription) period that foreign jurisdiction might have. The following rules apply to trusts.
A. Actions for Which there is no Prescription or Limitation Period Under the Trusts Law 2007, section 76(1): No period of limitation or prescription applies to an action brought against a trustee – (a) in respect of any fraud to which the trustee was a party or was privy, or (b) to recover from the trustee trust property or the proceeds thereof – (i) held by or vested in him or otherwise in his possession or under his control, or (ii) previously received by him and converted to his use.
This closely follows the wording of section 21(1) of the Limitation Act 1980 in England, so English law authority will be persuasive.153 But the Guernsey provision is expressly extended to both prescription and limitation periods, and is not limited to those prescribed by the statute (as is the case under English law).154
B. Breach of Trust Claims The prescription period in which a beneficiary may bring an action for breach of trust is three years from the date on which that beneficiary first has knowledge of the breach of trust.155
i. Meaning of ‘Knowledge’ The period starts to run from the earliest date on which the claimant had knowledge of the breach, not the date on which a successor trustee acquires knowledge of the breach.156 152 That appears to be the position in relation to the equivalent provisions in Jersey (Trusts (Jersey) Law 1984, Art 57); see, eg, Sheedy and Baker, Litigating Trust Disputes on Jersey (n 22), para 16.14 (‘Claim to recover trust property’), which refers to the claim’s being ‘subject to a three-year prescription period’. 153 As to which, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 44-004 (‘Where no limitation period applies’). 154 See also section VIII.E. 155 Trusts Law 2007, s 76(2). 156 Jefcoate and Jefcoate v Spread Trustee Company Limited and others (Royal Court, 11 April 2013) (Judgment 11/2013) para 84.
Prescription and Limitation Periods 237 It is thought that the customary law doctrine of empêchement d’agir157 does not apply to the period specified under section 76(2),158 although the position is not certain: in particular, it seems that it does apply under Jersey law, even though there are similar statutory prescription provisions in Jersey.159 The following principles can be inferred from the case law:160 (a) The relevant ‘knowledge’ can be actual or constructive. (b) It is ‘neither as low as the level of mere suspicion that there may have been the relevant breach of trust as one possibility, nor as high as certainty that there has been’.161 (c) It is the degree of knowledge which is sufficient to make it reasonable to expect that the Plaintiff will be able to decide whether or not he will institute proceedings, at all, within a further three years, after making any such further enquiries, taking any such further advice, or gathering any such further evidence, as may be reasonably necessary for him to take that decision.162
(d) Section 5 of the Law Reform (Guernsey) Law 1979 provides some assistance as to how it should be approached. It lays down guidance as to the material facts for the purpose of the plaintiff ’s relevant ‘knowledge’ in the context of a tort claim. These are knowledge: (i) of a ‘significant’ injury (as to which a working test is given in s 5(7)), (ii) of its being wholly or partly attributable to the act or omission alleged to be the negligence (etc), (iii) of the identity of the perpetrator and proposed defendant, or (iv) of the facts rendering the proposed defendant apparently responsible for negligence by some other person. This is ‘knowledge’ at a generally broad level.163
(e) It does not require the level of knowledge one might gain after a period of disclosure,164 nor that which is required to plead a fully particularised pleading.165 (f) Decisions on similarly worded legislation in Jersey, England or Scotland provide useful and persuasive guidance as to the appropriate interpretation 157 Which translates as ‘impediment from acting’; see Dawes, Laws of Guernsey (n 25) 399–401; Yaddehige v Credit Suisse Trust Limited and others [2007–08] GLR 282. 158 Broadhead v Spread Trustee Company Limited and others (Royal Court, 26 November 2014) (Judgment 46/2014); while this was not stated explicitly in the decision (ibid paras 76–85), it is clearly implicit as it was part of the defendants’ submissions (ibid para 65), which were preferred (ibid para 76), and no reference is made to the doctrine in the decision; but contrast Jefcoate and Jefcoate v Spread Trustee Company Limited and others (n 156) para 84: ‘[The advocate] was correct to concede that on the facts of this case the date on which the Plaintiffs acquired the knowledge of a cause of action for the purposes of section 76 of the Trusts Law is the same as the date on which any “empêchement” ceased to operate.’ 159 Nolan v Minerva Trust Company Ltd [2014 (2)] JLR 117. 160 The position under Jersey law may be different; see Sheedy and Baker, Litigating Trust Disputes in Jersey (n 22) para 16.21 (‘Date of knowledge’). 161 Broadhead v Spread Trustee Company Limited (n 156) para 78. 162 ibid para 79. 163 ibid para 80. 164 ibid para 81. 165 Haward v Fawcett [2006] UKHL 9, [2006] 1 WLR 682; Broadhead v Spread Trustee Company Limited (n 156) para 71.
238 Introduction to Trust Litigation of the Guernsey provision; in particular, the English case of Haward v Fawcett was ‘particularly useful and persuasive’.166 (g) Where gross negligence must be proved, the knowledge of the breach does not require knowledge of the breach comprising gross negligence,167 nor knowledge of a breach that gives rise to a viable cause of action.168 (h) The burden of proof is on the plaintiff.169
C. Suspension – Minors and Persons under a Legal Disability If an individual is a minor or under a legal disability, the period during which an action for breach of trust may be brought does not start to run until either (i) he or she ceases to be a minor or the legal disability comes to an end, or (ii) his or her guardian first has knowledge of the breach, whichever occurs first.170 An action may be brought on behalf of a beneficiary who is a minor or is under a legal disability by his or her legal guardian.
D. Long Stop The period is subject to a long-stop provision that no breach of trust action may be brought against a trustee after the expiration of 18 years from the date of the breach.171 The period runs against future beneficiaries and objects of discretionary trusts and powers in the same way as against beneficiaries with an interest in possession.172
E. Actions by Non-beneficiaries Section 76 of the Trusts Law 2007 is not limited to claims by beneficiaries,173 so the same periods apply to claims by co-trustees and successor trustees.174 166 Broadhead v Spread Trustee Company Limited and others (n 156) para 82; a summary of the dicta in Haward v Fawcett is set out in para 71. 167 Broadhead v Spread Trustee Company Limited (n 156) para 83. 168 ibid para 84. 169 Haward v Fawcett (n 163) para 23; Broadhead v Spread Trustee Company Limited (n 156) paras 71 and 86. 170 Trusts Law 2007, s 76(2)(b). 171 Trusts Law 2007, s 76(3). There is no additional long-stop dependent on delivery of final accounts, as there is under Jersey law: Trusts (Jersey) Law 1984, Art 57(2)(a). 172 Contrast the position under English law: Limitation Act 1980, s 21(3); Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) paras 44-035 to 44-039 (‘Accrual of right of action – future interests and discretionary trusts’). 173 It refers to actions brought by a ‘claimant’ rather than by a ‘beneficiary’; contrast the position under English law: see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 72) para 44-032 (‘Action “by a beneficiary”’). 174 A trustee who becomes aware of a breach of trust has a duty to take all reasonable steps to have the breach remedied: Trusts Law 2007, s 39(6); see ch 8, section V.F.
Alternative Dispute Resolution 239
IX. Breach of Trust Judgment against Trustee to be Binding on All Beneficiaries Section 62 of the Trusts Law 2007 provides that: (1) Any order, judgment or finding of law or fact of the Royal Court in an action against a trustee founded on breach of trust is binding on all beneficiaries of the trust, whether or not yet ascertained or in existence, and whether or not minors or persons under legal disability. (2) Subsection (1) applies in respect of a beneficiary only if – (a) he was represented in the proceedings (whether personally, or by his guardian, or as the member of a class, or otherwise), or (b) if not so represented, he had notice of the proceedings and a reasonable opportunity of being heard. ‘Notice’ in paragraph (b) means 14 days’ notice or such other period as the Court may direct. (3) This section is without prejudice to the powers of the Royal Court in respect of representative proceedings and class actions.
X. Alternative Dispute Resolution A settlement of an action against trustees by alternative dispute resolution is binding on beneficiaries, subject to the conditions set out in the Trusts Law 2007. In accordance with section 63: (1) Where – (a) the terms of a trust direct or authorise, or the Court so orders, that any claim against a trustee founded on breach of trust may be referred to alternative dispute resolution (‘ADR’), (b) such a claim arises and, in accordance with the terms of the trust or the Court’s order, is referred to ADR, and (c) the ADR results in a settlement of the claim which is recorded in a document signed by or on behalf of all parties, the settlement is binding on all beneficiaries of the trust, whether or not yet ascertained or in existence, and whether or not minors or persons under legal disability. (2) Subsection (1) applies in respect of a beneficiary only if – (a) he was represented in the ADR proceedings (whether personally, or by his guardian, or as the member of a class, or otherwise), or (b) if not so represented, he had notice of the ADR proceedings and a reasonable opportunity of being heard, and only if, in the case of a beneficiary who is not yet ascertained or in existence, or who is a minor or person under legal disability, the person conducting the ADR proceedings certifies that he was independently represented by a person appointed for the purpose by a court of law.
240 Introduction to Trust Litigation ‘Notice’ in paragraph (b) means 14 days’ notice or such other period as the person conducting the ADR proceedings may direct. (3) A person who represents a beneficiary in the ADR proceedings for the purposes of subsection (2)(a) is under a duty of care to the beneficiary. (4) For the avoidance of doubt, the ADR proceedings need not be conducted in Guernsey or in accordance with the procedural law of Guernsey. (5) In this section – ‘ADR’ includes conciliation, mediation, early neutral evaluation, adjudication, expert determination and arbitration, and ‘proceedings’ includes oral and written proceedings.
13 Attacks on Trusts I. Introduction In this chapter, we discuss three types of attacks on trusts: (i) those based on the allegation that the document purporting to set out the terms of the trust is a sham;1 (ii) the customary law doctrine of donner et retenir ne vaut;2 and (iii) the variation of trusts by foreign courts in the context of matrimonial proceedings.3
II. The Sham Doctrine The doctrine of ‘sham’ is one of general application to acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.4
In other words, the parties execute documents in order to give an appearance to the outside world that does not show their real intentions. In Snook, the issue of a sham arose in the context of documentation with regard to financing, but there is an increasing body of case law in relation to trusts. The term ‘sham’ should not be used for an arrangement where, on the face of the document(s), the settlor has remained the sole beneficial owner of the property.5 In such a case, there is (normally) no question of giving the appearance of legal relationships different from those the parties intended to create.
1 See section II of this chapter. 2 See section III of this chapter. 3 See section IV of this chapter. 4 Snook v London and West Riding Investments Ltd [1967] 2 QB 786, 802. 5 See ch 5, section VII.A; see L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 4-031 (‘The difference between a finding of sham, proper legal construction and absence of certainty of intention’).
242 Attacks on Trusts
A. Minwalla In determining that the trust was a sham in Minwalla,6 Singer J took the evidence, which included declarations of wealth made by the husband, and said: Such assertions are supported rather than belied by the way in which he has operated the assets (including the companies) of this supposed trust with utter disregard for any but his own wishes, decision-making and – in short – total control.7
The husband (H) had written two letters of wishes, apparently on the same day. One would benefit his wife and the other would not. The clear inference from this was that either letter was to be used, as circumstances determined. The judge went on to state: The nature and structure of sophisticated offshore arrangements such as have been deployed by H [the husband] is well understood in this Division. No doubt the professional advisers and trustees of wealthy individuals wish honestly to strive to construct a network of interwoven trusts and companies able successfully to withstand the scrutiny of the internal revenue services of the parts of the world relevant to the interested parties. That shelter is dependent upon there being properly constituted corporate and trust structures in place; and there being a level of competence and of formality in the production of minutes of board meetings, powers of attorney and so on. There must be supporting evidence (if and when questions arise which must be answered) for the proposition that proper consideration has been given by the trustees to the exercise of their discretionary powers … I would have no hesitation in concluding that H should in his lifetime be regarded as the owner of FT [an underlying company]. If bounty from the trust reaches other individuals it does so as H’s gift or to meet his requirements, rather than as the result of any exercise of trustees’ discretion independently exercised.8
Thus, the assets were available to the husband for the purposes of section 25(2)(a)(i) of the Matrimonial Causes Act 1973. Singer J stated: I have, therefore, no hesitation in coming to the conclusion that H never had the slightest intention of respecting even the formalities of the trust and corporate structures that had been set up at his direction. His purpose was only to set up a screen to shield his resources from other claims or unwelcome scrutiny and investigation. In most cases where offshore structures are put in place the primary objective is fiscal, and for all I know such considerations here played their part. But in this case, where H has already been through three divorces, it may well be that he was keen to shield his resources from matrimonial claims as well. Undoubtedly, H’s intention always was that the resources were his and would continue to be his.9
6 Minwalla
v Minwalla (2005) 7 ITELR 457. 474–75. 8 ibid 476–77. 9 ibid 479. 7 ibid
The Sham Doctrine 243 Thus, the trust was a sham and, accordingly, its assets were treated as belonging to the husband for the purposes of the ancillary relief proceedings.
B. External Evidence A finding of sham requires a careful analysis of the facts. External evidence is permissible, including ‘the parties’ explanations and circumstantial evidence, such as evidence of the subsequent conduct of the parties’.10 The Guernsey Court has confirmed that ‘The subsequent conduct of the parties is admissible evidence that they were parties to a sham.’11 But subsequent departure from the terms of an agreement does not necessarily mean that they never intended the agreement to be effective and binding. The proper conclusion to draw may be that they agree to vary the agreement and that they have become bound by the agreement as varied.12
C. The Necessary Intention The test of intention is a subjective one; there must also be an intention to give a false impression to third parties.13 In other words, ‘there must be an intention to mislead’.14 It is not sufficient that the settlor has the necessary intention (except in the case of a declaration of trust by the settlor) – all parties to it must share a common intent.15 However, reckless indifference will be taken to constitute a common intention.16 It is therefore enough if the trustee (or protector, where relevant) goes along with the trusts’ being ignored, ‘not either knowing or caring what he is signing’.17 If the original trustees do not have the necessary intent at the outset, any later arrangement will not make the arrangement a sham but will constitute a breach of trust.18 If the original trust was a sham, the appointment of new trustees who do not have the necessary intent may convert the sham into a valid trust. Conversely,
10 Hitch v Stone [2001] EWHC Civ 63 [65]. 11 Cross & Cross v Benitrust International (CI) Limited and others (1998) 25 GLJ 47 (Royal Court, 24 and 29 November 1999). 12 Hitch v Stone (n 10) [68]. 13 ibid [66]. 14 Re Esteem Settlement [2003] JLR 188, para 57; confirmed in Mackinnon v Regent Trust Co Ltd [2004] JRC 211 (aff ’d by the Jersey Court of Appeal: [2005] JCA 066). 15 Hitch v Stone (n 10) [69]; Snook v London and West Riding Investments Ltd [1967] 2 QB 782, 802D–F. 16 Midland Bank v Wyatt [1995] FLR 696. 17 Re Esteem Settlement (n 14) para 58. 18 Hill v Spread Trustee Co Ltd [2005] EWHC 336 (Ch); see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-024 (‘Original trustees’).
244 Attacks on Trusts if the original trust was valid because the original trustees did not have that intent, appointing new trustees who do have it will not convert a valid trust into a sham.19 Where an initial settlement was valid, later transfers can still be held to be a sham if the requisite intention is present in relation to the subsequent transfer.20
D. Motive Not Relevant If the document accurately records the parties’ intentions, it is genuine; it does not matter that it is uncommercial or artificial: A distinction is to be drawn between the situation where parties make an agreement which is unfavourable to one of them, or artificial, and a situation where they intend some other arrangement to bind them. In the former situation, they intend the agreement to take effect according to its tenor. In the latter situation, the agreement is not to bind their relationship.21
Nor does it matter that they had an ulterior motive: ‘Impropriety of motive alone will not provide grounds for treating a transaction as a sham.’22
E. Reliance on the Sham A party to the sham cannot rely on his or her own shamming intent as against innocent third parties.23 In Midland Bank v Wyatt,24 DMC Young QC, sitting as a Deputy Judge of the English High Court, said: Diplock LJ’s observations in their proper context [in Snook] state no more than where a ‘sham’ transaction affects the rights of a third party the ‘shammer’ cannot rely on the sham transaction unless the third party is also a party to the sham. The ‘shammer’ is otherwise estopped by his conduct from so relying on the sham transaction.25
The question of whether the trust company could rely on the doctrine was left open in Cross v Benitrust.26 But while the point has not been specifically decided
19 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 4-025 to 4-026 (‘Appointment of new trustees’). 20 Re Esteem Settlement (n 14) para 60. 21 Hitch v Stone (n 10) [67]. 22 Chase Manhattan Equities v Goodman [1991] BCLC 897, 921i; see also Miles v Bull [1969] 1 QB 258, 264. 23 Carman v Yates [2004] EWHC 3448 (Ch); notwithstanding Commissioner of Stamp Duties (Queensland) v Joliffe (1920) 28 CLR 178: see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-028 (‘Reliance on the sham by the settlor’). 24 Midland Bank v Wyatt (n 16). 25 ibid 699. 26 Cross v Benitrust (n 11).
The Sham Doctrine 245 before the Guernsey courts, it is thought that the same principles should apply to reliance by the trustee where it is a shamming party.
F. Proper Law Applicable to the Question of Sham The proper law applicable to the question of sham is the putative law governing the trust:27 As a matter of generality, we would regard an assumption of jurisdiction by a foreign court to declare a Jersey trust a sham to be exorbitant and we would be reluctant to enforce any judgment based upon such an assumption.28
The Zurich court has also applied Guernsey law to the question of whether a Guernsey trust was a sham.29
G. Consequences of a Finding of Sham i. General If a trust instrument is held to be a sham, the usual consequence is that the property belongs beneficially to the settlor or the settlor’s estate.30 A claim that a trust is a sham is most likely to be raised by a disadvantaged heir,31 a disadvantaged creditor32 or a tax authority.33 Even where there may be good grounds for bringing a sham claim, the parties who wish to proceed against the trustees may decide not do so: (a) because there may be no advantage to them, as a successful plea of sham will cause the trust property to fall back into the settlor’s estate, which will only be of benefit to them if they are entitled to a stake in it as heirs or legatees; (b) due to the high standards that trustees are expected to follow. It may be to the advantage of those proposing to take action to maintain that there is a trust but that the trustees have acted in breach of trust. In Esteem,34 it was recognised that if the trustees blindly followed what the settlor wanted after the trust was properly set up, that could constitute a breach of trust, which would be actionable by the beneficiaries but not by third parties seeking to set the trust aside. 27 In Re The Fountain Trust [2005] JLR 368; see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-034 (‘The proper law governing the question whether a trust is a sham’). 28 In Re The Fountain Trust [2005] JLR 368 para 18. 29 Re WKR Trust (2002) 4 ITELR 487. 30 Although it has been held (in the context of a lease) that only certain provisions are a sham and that the remainder is valid: AG Securities v Vaughan [1990] 1 AC 417. It is not clear if this principle applies to a trust: see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-027 (‘The effect of finding a sham’). 31 Rahman v Chase Bank (CI) Trust Co Ltd [1991] JLR 103. 32 Midland Bank v Wyatt (n 16). 33 Hitch v Stone (n 10). 34 Re Esteem Settlement (n 14) para 73.
246 Attacks on Trusts
ii. Consequences for the Trustees A finding of sham is a serious matter, especially for professional trustees.35 It would clearly reflect very badly on their reputation: It is a serious matter to find that a professional trustee in Jersey has been party to a sham. It is a finding, moreover, which might well have adverse consequences under the statutory regime which regulates the activities of professional trustees in Jersey …36
Very similar considerations apply in Guernsey. For those who are subject to regulation in Guernsey,37 there would also be implications under the relevant Code of Practice, which enjoins regulated trustees to ‘avoid setting up or participating in discretionary trusts where the trustees merely carry out the settlor’s instructions and exercise no significant discretion’.38 The principal legal consequences for the trustees are: (a) The trustees may have expended legal fees with regard to the claims. One view might be that the trustees should adopt a role of ‘neutrality’.39 But in view of the fact that the wrongdoing causing the creation of the sham involves the trustees, it is hard to see how trustees cannot take part. As we have seen, except where the settlor has declared himself or herself sole trustee, the trustees must be a necessary party to the alleged sham and so, by implication, they are instrumental in the false picture generated by the settlor. (b) The trustees would lose their right to trustee fees, although perhaps it could be argued that they do have rights to payment for acting as the settlor’s ‘nominee’. Such a claim becomes harder to establish the more serious the purported wrongdoing that causes the trust to be treated as a sham. (c) The trustees could also incur liability where they have made distributions to beneficiaries, possibly for dishonest assistance40 or knowing receipt.41
III. Donner et Retenir ne Vaut A. Application under Guernsey Law Donner et retenir ne vaut is a principle of Norman customary law. The purpose of the maxim is to ‘protect the rights of succession to heirs, to protect creditors and
35 A v A [2007] EWHC 99 [54]. 36 In Re The Fountain Trust [2005] JLR 368, para 18. 37 See ch 16. 38 Code of Practice – Trust Service Providers (1 August 2009), 4, available at www.gov.gg. 39 See Alsop Wilkinson v Neary and others [1995] 1 All ER 431. 40 As to which, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 40-014 to 40-061 (‘Dishonest assistance’). 41 As to which, see ibid paras 42-022 to 42–100 (‘Knowing receipt’).
Donner et Retenir ne Vaut 247 to prevent frauds’.42 It is defined as referring to the situation ‘when the donor has reserved the power freely to dispose of the thing given by him during his lifetime or where he remains in possession of it’.43 There are no reported Guernsey cases on the doctrine, but it seems clear that it is part of Guernsey law. It was recognised by the Jurat Laurent Carey: ‘To give and withhold is a nullity where the donor has kept the power of disposal of the gifted item.’44 And Advocate Gallienne also noted the application of the doctrine and exceptions to it with regard to land.45 Since 22 April 1989,46 the doctrine has not applied to any transfer or disposition of property to a trust,47 but does still apply to any dispositions taking effect before that date.48 While the public policy justification for the rule was arguably weakened with the abolition of the légitime in 2012,49 it is thought that it does still form part of Guernsey law, as the abolition in the Trusts Law is not expressed to be retrospective. It is thought that the substantive law on the maxim is the same in Guernsey as under Jersey law.50 It would be prudent to review any Guernsey trusts established before that date under which the settlor has retained powers, to decide whether any remedial action is necessary now to ensure that they do not fail.
B. Application to Reserved Powers Trusts: The Rahman Case It has been held in Jersey that the retention by the settlor of powers to nominate new trustees, to veto additional members of the class of beneficiaries and to veto payments out of the trust fund did not come within the rule.51 It was considered in some detail in the Rahman52 case in Jersey, where the reserved powers were more extensive, and more recently in the Esteem53 case. In Rahman, the settlor’s widow brought an action to declare that a Jersey law trust administered in Jersey was invalid. This was because, under the law of 42 Rahman v Chase Bank (n 31) 125. 43 H Basnage, 2 Commentaires sur la Coutume de Normandie, 4th edn (1778) 294. The original reads: ‘Donner et retenir ne vaut. C’est quand le donateur s’est réservé la puissance de disposer librement de la chose par lui donnée entre vifs, ou qu’il demeure en la possession d’icelle.’ 44 L Carey, Essai sur les Institutions, Lois et Coûtumes de L’Île de Guernsey (1889) 161. The original reads: ‘Donner et retenir ne vaut, c’est-à-dire, lorsque le donateur se réserve le pouvoir de disposer de la chose donnée’. 45 J Gallienne, Tráite de la Renonciation par loi Outrée et de la Garantie (1845) 252. 46 The date on which the Trusts Law 1989 came into force. 47 Trusts Law 2007, s 84(5). 48 Trusts Law 2007, s 84(1)(d) (originally enacted as Trusts Law 1989, s 74(1)(d)). 49 Inheritance Law 2011, s 1; see ch 2, section IV.D. 50 For a discussion of the rule under Jersey law, see H Brown, The Jersey Law of Trusts, 4th edn (Key Haven Publications, 2013) ch 10 (‘Donner et retenir ne vaut and Trusts’). 51 Johnson Mathhey Bankers v Shamji [1985–6] JLR N26d. 52 Rahman v Chase Bank (n 31). 53 Re Esteem Settlement (n 14).
248 Attacks on Trusts Lebanon, which was applicable to the settlor’s estate, she would be entitled to far more of her deceased husband’s property than she would be under the trust, if it were upheld. Under the terms of the trust in question, the settlor could, with the consent of the trustee, appoint the trust fund and its income, but in any 12-month period the settlor could only appoint one-third of the capital without the trustee’s consent. Further, the trustee could pay or apply capital or income to or for the benefit of the settlor with regard to his interests exclusively. Many of the administrative powers required the settlor’s written consent before the trustee could exercise them. In his lifetime, the settlor called the trust fund ‘my assets’ and the trustee ‘my trust manager’. Considerable evidence was heard as to how the trustee exercised its discretion, and it was shown that the trustee always did what the settlor required. The settlor was able to take funds from the trust assets and only later would tell the trustee what had been done. He also gave direct instructions regarding the investment of the trust’s assets. In Rahman, the key deciding factor was that the settlor had retained the power to control the ultimate destination of the trust assets. In making the determination that the trust failed under this doctrine, the Court took into account the conduct of the parties as well as the terms of the trust.
C. The Esteem Case In the Esteem54 litigation, the plaintiffs were seeking to attack two trusts created by a settlor, who had acted as the chairman of the Kuwait Investment Office in London in the late 1980s. In a civil action in the High Court in London, the settlor had been held liable for being a party to defrauding the Kuwait Investment Office in London, leading to judgment against him for US$687 million, with interest running at US$55 million a year. The Jersey litigation dealt with an attack on the Esteem Settlement on the grounds, amongst others, of: (a) sham; and (b) donner et retenir ne vaut. The essential point of the litigation was that if the assets held in the Esteem Settlement remained in the settlor’s estate, the Kuwait Investment Office, as creditor, could seize them. With regard to donner et retenir ne vaut, the Court said: The maxim is concerned with the irrevocability of gifts. The donor must divest himself completely of the thing given. If he does, the gift is valid; if he does not, the gift is invalid as being in breach of the maxim.55
54 ibid. 55 ibid
para 66.
Foreign Matrimonial Proceedings 249 The Court went on to state that for the maxim to apply, a settlor must retain the ‘power to freely dispose’ of assets placed under trust. If the express terms of the trust instrument confer this power on the settlor then the maxim is infringed. Even if that power is not conferred by deed, it may be conferred by an arrangement or understanding that the trustees will do exactly as they are told by the settlor, i.e. that they will act as nominee or agent and not under the express terms of the trust. That of course would amount to a sham. If, on the contrary, the trustees intend to act as genuine trustees exercising their fiduciary powers, it cannot be said that a settlor has the power to freely dispose of the trust assets.56
The Court in the Esteem case said that, with regard to Rahman: The court found that the transfer had indeed been to a mere agent or a nominee, not to a trustee and that there was accordingly a sham … but because there is also a sham, the application of the maxim does not add anything to the case under sham.57
In conclusion, the Court stated that: The maxim is breached if the trustee intends from the start to act as a nominee or agent of the settlor rather than under the express terms of the trust deed because, in that event, the settlor will have retained a power to dispose freely of the transferred assets. But, in that event, the trust deed will also be a sham because both parties will intend that the trustee should hold the assets as nominee rather than upon the trusts set out in the trust deed. If, on the other hand, the trustee intends to act as a bona fide trustee pursuant to the powers and duties conferred on it by the trust deed, then the settlor does not retain a ‘power freely to dispose’. The maxim will therefore not be infringed. If subsequently the trustee were to cede de facto control to the settlor so that he thereafter had free power of disposal, that would no doubt amount to a breach of trust actionable by the beneficiaries, but it would not infringe the maxim and lead to the subsequent invalidating of what was originally a valid and irrevocable gift.58
The Esteem case seems to equate the maxim with a nomineeship, but leaves some questions unanswered. If the gift needs to be ‘irrevocable’, does that mean a power to revoke alone infringes the doctrine? Similarly, if the test is the ‘power to dispose freely’, is that infringed by the settlor’s retaining a general power of appointment?
IV. Variation of Trusts in Foreign Matrimonial Proceedings A. Guernsey Divorces A Guernsey Court has jurisdiction to grant a divorce where the parties are sufficiently connected with Guernsey, that is, at least one of them is domiciled in
56 ibid
para 68. para 72. 58 ibid para 73. 57 ibid
250 Attacks on Trusts Guernsey at the start of the proceedings, or is habitually resident in Guernsey in the year up to that day.59 The Guernsey Court has wide powers to vary trusts: The Court, after the making in the Island of Guernsey of a decree of divorce or nullity of marriage, may, upon the application of either party to the marriage which is the subject of such decree, or upon the application of any person beneficially interested, (a) cancel, vary or modify, or (b) terminate the trusts of any marriage contract, marriage settlement, post-nuptial settlement, or terms of separation subsisting between the parties to such marriage, in any manner which, having regard to the means of the parties, the conduct of either of them or the interests of any children of such marriage appears to the Court to be just.60
This jurisdiction extends to trusts made or entered into outside Guernsey.61 A ‘marriage settlement’ is one that has been made ‘in contemplation of … marriage’, whilst a ‘post-nuptial settlement’ is one that is made during the course of a marriage. A party to the marriage in question does not have to be a settlor of the trust under consideration. Therefore, a trust may be caught by section 45, regardless of who may have settled it. The Guernsey Court has invoked section 45 on occasion, although not in connection with the variation of trusts.62 English jurisprudence on the same subject would be persuasive.
B. Non-Guernsey Divorces i. Powers of the English Family Courts Of more significance for a Guernsey trustee will be if it administers a trust that is involved in a non-Guernsey divorce. There are two ways in which a foreign divorce may affect a Guernsey trust. We consider matrimonial proceedings in England, as they are the most likely to be relevant, but similar jurisdiction exists in other jurisdictions, such as Hong Kong.63
59 Matrimonial Causes (Guernsey) Law, 1939, s 15(1). 60 Matrimonial Causes (Guernsey) Law, 1939, s 45(1). 61 Matrimonial Causes (Guernsey) Law, 1939, s 45(2). 62 A v A [2003-4] GLR 123; Husband v Wife (Royal Court, 13 February 2015) (Judgment 29/2015). 63 For example, see In Re B Trust, RBS Coutts Trustees v W [2010(2)] CILR 348 (Cayman Islands); HSBC International Trustee Limited v Poon Lok To Otto and others [2011] JRC 167 (Jersey).
Foreign Matrimonial Proceedings 251
ii. Power to Vary Trusts The English court has power to vary ante-nuptial and post-nuptial settlements.64 The court must have regard to the ‘financial resources’ a party to a marriage has or ‘is likely to have in the foreseeable future’,65 which could include an interest under a trust, whether or not it is an ante- or a post-nuptial settlement.
iii. Judicious Encouragement Where a party to a marriage is a beneficiary under a discretionary trust, it has been held that the court would not act directly against the rights of, or usurp the discretion exercisable by, a third party (ie the trustee). However, the court may frame its orders in a form ‘which affords judicious encouragement to third parties to provide the maintaining spouse with the means to comply with the court’s view of the justice of the case’.66 Glidewell LJ repeated that whilst improper pressure should not be placed on trustees to exercise their discretion for the benefit of, in this case, the wife, the reality of the situation should be considered, and if it was shown that if trustees exercised their discretion to release more capital or income to a husband, the interests of the trust or of other beneficiaries would not be appreciably damaged, the court can assume that a genuine request for the exercise of such discretion would probably be met by a favourable response. In that situation if the court decides that it would be reasonable for a husband to seek to persuade trustees to release more capital or income to him to enable him to make proper financial provision for his children and his former wife, the court would not in so deciding be putting improper pressure on the trustees.67
iv. Exerting Pressure through a Beneficiary In some situations, pressure might be brought by the English courts on a beneficiary. In Browne v Browne,68 Lady Browne was a discretionary beneficiary of a Jersey trust. An order was made that some of the trust assets be paid to her husband. The evidence was that the trustees in the past had always followed her wishes. She was ordered to exercise her influence to obtain her husband’s ‘share’. When she did not do this she was committed to prison for contempt. The trustees considered that this was not in her interests, and they made the relevant payment.
64 Matrimonial Causes Act 1973 (England), s 24(1)(c). The terms have the same meanings as under Guernsey law: see section IV.A of this chapter. 65 Matrimonial Causes Act 1973 (England), s 25(2)(a). 66 Thomas v Thomas [1995] EWCA Civ 51. 67 ibid [30]. 68 Browne v Browne [1989] 1 FLR 291.
252 Attacks on Trusts
C. Should the Trustee Submit to the Jurisdiction of the Foreign Court? A foreign judgment will not be enforced or recognised by a Guernsey court, even if the trustee has submitted to the foreign court, if it is inconsistent with Guernsey law.69 It could however, put the trustee in a difficult position, as it may be subject to conflicting orders from different courts. It is therefore normally a momentous decision, for which the trustee should apply to the court for directions. In most cases, it is unlikely to be in the interests of the beneficiaries to submit, as the Family Division is concerned to do justice between the two spouses before it. It is sitting in a matrimonial context and its objective is to achieve a fair allocation of assets between those spouses. It has no mandate to consider the interests of other beneficiaries of any trust involved. Conversely, this court is sitting in its supervisory role in respect of trusts, as is regularly done in the Chancery Division of the English High Court. This Court’s primary consideration is to make or approve decisions in the interests of the beneficiaries. It has therefore a very different focus from the Family Division.70
The trustee’s decision is likely to be influenced by the location of the trust assets71 (as it could not effectively defend those assets from enforcement in those circumstances in any event) and the trustee (or administrator, if different).72 It may also be appropriate to submit where the trustee ‘has no discretion to exercise. All it is required to do is to make arrangements to pay a pension or, if Mr D [ie the husband in the matrimonial proceedings] so elects, to provide him with a lump sum.’73 It is also unlikely to be in the interests of the beneficiaries for the trustee to give an indication to the court as to how it is likely to exercise its discretion:74 Any such indication will necessarily establish in the minds of the parties an expectation that the trustee’s discretion will thereafter be exercised in the way it has intimated. The court itself may share that view. After all, there can be no purpose in the trustee providing an ‘indication’ as to how it may exercise its powers other than influencing the positions of the parties and shaping their expectations. There is a risk that the trustee will find itself in a position where it feels obliged to exercise its discretion in a particular way because it accords with an indication given earlier. There is always the danger, however, that the circumstances may have changed somewhat in the interim. I consider the suggestion that the trustee might give an indication now of how it might exercise its discretion in the future to be fraught with difficulty and therefore inappropriate.75 69 See ch 6, section IV.B. 70 In Re H Trust [2006] JLR 280, para 14. 71 In HSBC v Otto Poon (n 63), approximately 70% of the trust assets were in Hong Kong, where the family proceedings were taking place: ibid para 4. 72 In HSBC v Otto Poon (n 63), a company affiliated to the trustee was administering the trust in Hong Kong, so ‘key individuals could be subpoenaed to give information’: ibid, para 13. 73 T Limited, In the Matter of the A Limited Funded Unapproved Retirement Benefits Scheme and the B Employee Benefit Trust (Royal Court, 24 April 2017) (Judgment 21/2017) para 47. 74 RBS Coutts (Cayman) Limited v W (n 63); RBS Coutts v W is a Cayman case, but it is thought that the position is the same under Guernsey law. 75 ibid 362–63.
Foreign Matrimonial Proceedings 253
D. Exclusive Jurisdiction Clause If a trust has an ‘exclusive jurisdiction clause’, it will not be seen by the English Court as preventing it from exercising its jurisdiction in ancillary matrimonial proceedings. In a 2004 Jersey case,76 a Jersey law trust had a clause giving the Jersey Court exclusive jurisdiction over the trust. However, the trust did not have Jersey resident trustees and the trust assets were in England. The judge approached it on the grounds that there would be cases where the exclusive jurisdiction clause would apply, but here, due to the lack of links with Jersey, there was no need to go to the Jersey Court. The approach was approved by the English Court of Appeal in Charalambous v Charalambous.77 The husband’s mother had created a trust from which both husband and wife had later been excluded. The principal argument that was pursued against the English courts’ having jurisdiction was that the exclusive jurisdiction clause made it solely a matter for the Jersey courts, by virtue of the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. The original trustee, a Jersey trust company, was replaced by two Cypriot residents. The husband and wife were joint protectors, while the husband had the power of removal and appointment of trustees. In confirming that the English Court had jurisdiction, Thorpe LJ said: This power to vary is derived not from the settlement but from the matrimonial regime of the state. Equally the right to seek variation derives not from the settlement but from the matrimonial regime of the jurisdiction that dissolves the marriage. So cl 3.2 of the settlement [which stated: ‘… this Trust shall be subject to the exclusive jurisdiction of the Royal Courts of the Bailiwick of Jersey which shall be the forum for disputes relating hereto (hereinafter called “the Forum”)’] cannot oust or defeat the wife’s exercise of her statutory right to apply under s 24 of the 1973 [Matrimonial Causes] Act for a variation of settlement order. The clause is of no avail to the husband.78
On the basis that it was accepted that the trust was a post-nuptial settlement on creation, the removal of the parties to the marriage as beneficiaries of the trust did not prevent the trust from continuing to enjoy the status of a post-nuptial settlement and, with it, the English Court’s power to vary under section 24 of the Matrimonial Causes Act 1973.79 Whether removal of spouses as beneficiaries does or does not erase the nuptial element depends on the particular facts of each case. So, whenever the parties to a marriage are removed from a trust, that trust would not necessarily retain its status as a post-nuptial settlement (and, thus, be subject to the Court’s power to vary).
76 C
v C [2004] 2 WLR 1467. v Charalambous [2004] EWCA (Civ) 1030. 78 ibid [30]. 79 ibid [44]. 77 Charalambous
254 Attacks on Trusts Finally, it may be noted that Arden LJ made the point that, for the Court’s judgment to be enforceable, there would probably have to be further action in Jersey: If Mrs Charalambous obtains an order under s 24(1)(c) of the 1973 Act varying the terms of the Hickory Trust, she will have to take separate proceedings against the trustees, probably in Jersey, in order that they too should be bound by the order. I note that in Compass Trustees v Mc Barnett [2002] JLR 321 the Royal Court of Jersey (Le Cras, Commissioner) was prepared as a matter of comity to recognise an order made in England under s 24(1)(c) of the 1973 Act as the English Court had considered the matter fully and concluded that the need to provide capital to the wife outweighed the disadvantage caused to the other beneficiaries.80
E. Information Gathering i. Position under Foreign Matrimonial Law Family courts normally require the relevant parties to make full and frank disclosure of all of their actual and potential assets. That is certainly the case in England: Browne v Browne81 shows that the English courts may try to obtain information indirectly from offshore sources by ordering a party within its jurisdiction to obtain it. Thus, where an English resident settlor-beneficiary has information about the relevant trust, the English court may seek to compel production of that information. However, it may be incomplete, or lawyers for the other side may wish to check the accuracy of the information provided. If those circumstances arise and the relevant party under ‘compulsion’ is: (a) a settlor, who might be ordered to exercise his or her statutory rights to information;82 or (b) a beneficiary, who may have statutory rights83 or rights under the general law,84 the trustees ought to consider whether supplying the information might be harmful to other beneficiaries of the trust. Thus, if a spouse were to attack the validity of a trust, the courts might be less likely to provide assistance.
ii. Disclosure on Grounds of Concealment A spouse might also seek to obtain such information, not as a party to a trust but on the ground that the trust has been used to conceal the other spouse’s assets from any hostile court order. The Guernsey case of O’Dwyer Russell v Hamilton Trustees
80 ibid
[54]. v Browne (n 68). 82 Trusts Law 2007, s 26(1)(b)(ii) 83 Trusts Law 2007, s 26(1)(b)(i). 84 See ch 9, section XI. 81 Browne
Foreign Matrimonial Proceedings 255 Limited85 underlines the possibility of seeking this type of relief. In that case the Bailiff said: The Second Respondent has to accept that as a third party fiduciary it is under a duty to provide the information concerning monies that have been handed to it with a view of putting them beyond the reach of the First Respondent’s wife. The exact extent of such a disclosure order might be a matter for further argument … [Counsel for the Second Respondent] rightly cautioned against referring to these proceedings as being in aid of English matrimonial proceedings. In matrimonial proceedings both here and in England the Court has wide powers of ordering disclosure by one party or the other and those cannot automatically extend to third parties offshore who have got muddled up with one of the spouses in matrimonial proceedings. Put another way, money which an errant husband transfers to an offshore fiduciary in an attempt to defeat the claims of his wife in ancillary proceedings, is not subject to a constructive trust in favour of the Wife in the same way as would money stolen from an employer by a dishonest employee.86
iii. Letters of Request One way around this issue might be for the Court to make a ‘letter of request’.87 An example of this is found in a 1993 Jersey case88 concerning a divorce granted in Denver, USA. The wife was trying to identify and trace matrimonial property, and was seeking information from various individuals and entities administered in Jersey. The District Court of Denver asked the Jersey Royal Court to examine and take evidence from the trustees. The other parties objected on the grounds that the letters of request were too wide and that they breached the duty of confidentiality that each owed to other relevant parties. The Jersey Court of Appeal held: (a) As a matter of principle, the requested Court should always strive to give effect to letters of request. The letters of request, however, had to be precise, and in this instance they were too widely worded and so would need to be re-written. (b) It was proper for the Court to seek to obtain evidence relating to the identification and tracing of the marital property. (c) Although confidential relationships would be respected by the Court, information between an investment company and its clients was not absolutely privileged from disclosure. (d) It was open to a witness to plead, under Jersey law, that the questions he or she was being asked to answer were oppressive or irrelevant, or that because of overriding confidentiality he or she should not answer them. However, this was not an absolute right.
85 Elizabeth O’Dwyer Russell v Timothy O’Dwyer Russell and Hamilton Trustees Limited (Royal Court, 8 October 2001). 86 ibid. 87 Pursuant to the Evidence (Proceedings in Other Jurisdictions) Act 1975, which was applied to Guernsey in 1980. 88 Wadman and Others v Dick [1993] JLR 52.
256 Attacks on Trusts
iv. Minwalla An example of the use of information gathering is to be found in Minwalla v Minwalla.89 This concerned a Jersey trust that held assets for a businessman who married four times. In order to produce information, letters of request were sent to Jersey, principally to obtain information from the trustees. This led to a two-day hearing,90 which produced most of the evidence on which the Court acted. There was also a like application in Guernsey to obtain information from a bank. As regards this procedure, Singer J remarked: This is, therefore, an efficacious and comparatively inexpensive method of extracting necessary information concerning offshore trusts where the settlor or beneficiary is unwilling to provide relevant information. It has however been courteously drawn to my attention in a letter from Mr Jowitt, the senior legal adviser to the Law Officers’ Department in Jersey, that it is important for English courts and lawyers to bear well in mind that such assistance as letters of request can provide must be sought in accordance with the formal requirements of the Hague Evidence Convention, which in the case of Jersey requires that they be sent to Her Majesty’s Attorney General for Jersey, and not direct to residents of the island or to public authorities there.91
89 Minwalla 90 ibid
464. 91 ibid 493.
(n 6).
14 Variation of Trusts I. Introduction A trust may be varied in one of three ways: (a) under its express terms; (b) by the agreement of all beneficiaries, if they are adults and not under any legal disability; or (c) by the Court. We deal with each method in turn.1
II. Variation under the Express Terms of the Trust Under the Trusts Law 2007: The terms of a trust may be varied in any manner provided by those terms.2
The Law provides3 that an express power in the trust instrument is in addition to the Court’s power to vary.4 The position is confirmed by section 50, which also provides that the exercise of a power may be capable of: (a) revocation, in whole or in part; or (b) variation …
and that No revocation or variation prejudices anything lawfully done by a trustee in relation to the trust before he receives notice of the revocation or variation.
1 The variation of trusts in the context of foreign matrimonial proceedings is discussed at ch 13, section IV; as to the variation of a trust under the Succession Law 1890, see ch 2, section II.F. 2 Trusts Law 2007, s 47(1). 3 Trusts Law 2007, s 47(2). 4 Contained in ss 57–66; as to which, see section IV of this chapter.
258 Variation of Trusts Powers of appointment and advancement may also be exercised to vary the terms of a trust.5 It is thought that Guernsey law follows English law with regard to powers of amendment.6 With any power of amendment, consideration needs to be given to the scope of the power,7 the purposes for which it was conferred and the duties of the donee. In a Jersey case concerning an employee benefit trust, it was held in the circumstances of that case that the employer’s power of amendment was a limited power and that the implied obligation of good faith, as described in Imperial Group Pension Trust8 applies … [I]n deciding whether to propose amendments to … the trust deed, the settlor is entitled to consider its own interests as employer provided it has regard to the reasonable expectations of the beneficiaries.9
III. Variation by the Beneficiaries A version of the rule in Saunders v Vautier10 applies to Guernsey trusts: [N]otwithstanding the terms of the trust, where all the beneficiaries are in existence and have been ascertained, and none is a person under legal disability or a minor, they may require the trustees to terminate the trust and distribute the trust property among them.11
Where beneficiaries satisfy the requirements,12 they may effectively use this power to vary the terms of the trust, but ‘This is subject to modification where all the beneficiaries of a trust are sui juris and concur in varying or amending the terms of the trust.’13 However, beneficiaries cannot direct the trustee as to how to exercise its discretions.14 While they can declare new trusts, they cannot compel the trustee to 5 For a discussion, see J Kessler and P Matthams, Drafting Trusts and Will Trusts in the Channel Islands, 2nd edn (Sweet & Maxwell, 2013) ch 10 (‘Drafting Overriding Powers (Appointment, Resettlement and Advancement)’); see also G Thomas, Thomas on Powers, 2nd edn (Oxford University Press, 2012) para 16-01 (‘Purpose and nature of power of amendment’). 6 See Thomas on Powers (n 5) ch 16 (‘Powers of Amendment’). 7 For a helpful discussion of the principles that apply to the construction of a power of amendment, In the Matter of the Internine and the Intertraders Trusts [2005] JLR 236, paras 62–78. 8 Imperial Group Pension Trust v Imperial Tobacco Ltd [1991] 1 WLR 589. 9 In the Matter of the HHH Employee Trust [2012] (2) JLR 64, paras 27–28. 10 Saunders v Vautier (1841) 4 Beav 115. For a discussion of the rule, see L Tucker, N Le Poidevin QC and J Brightwell (eds) Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) paras 24-009 to 24-023 (‘Conversion of a special trust into simple trust – the rule in Saunders v Vautier’ and ‘Requirements for the principle to apply’). 11 Trusts Law 2007, s 53(3); see ch 5, section VIII. 12 If there are minor or unborn beneficiaries, as is often the case, they will not be satisfied; however, there is no need for the class to have closed: see ch 5, section VIII. 13 Re Osias Settlements [1987–88] JLR 389, 402; see also Mourant & Co Retirement Trustees Limited v JH and HK [2008] JRC 100, para 40: ‘It is equally true that they can vary the terms of the trust.’ 14 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) paras 24-024 to 24-026 (‘Controlling trustees’ discretions – declaring new trusts’).
Variation by the Court 259 accept the new trusts,15 and the variation may strictly be a termination of the old trust and resettlement on new terms, which may, for example, have different tax consequences. It is not necessarily a resettlement for UK capital gains tax purposes – that will depend on the circumstances – but there is a risk that it will be, as it is certainly possible for it to constitute a resettlement.16
IV. Variation by the Court A. The Court’s Inherent Jurisdiction Before the Trusts Law 1989, there were no decisions on the Court’s inherent jurisdiction to vary trusts. But it is thought that there was no such general jurisdiction, in view of the decision in Re Moore deceased,17 in which it was held that there was no general cy-près doctrine in relation to charitable trusts under Guernsey law. Under the inherent jurisdiction in England, there are only very limited powers to vary trusts, and it is submitted that the position is likely to be the same under Guernsey law; the Court has no inherent power to vary trusts on the ground that it is in the interests of the beneficiaries to do so.18 The Court does have power under its inherent jurisdiction to authorise the payment of remuneration to a trustee, including retrospective remuneration, although there is also express statutory jurisdiction to do so.19 The inherent jurisdiction is now of largely historical interest only, as there is statutory jurisdiction to vary both administrative powers20 and dispositive powers.21
B. The Statutory Jurisdiction The majority of trusts will have minor beneficiaries, or the possibility of future beneficiaries who are not yet born. The Court’s jurisdiction to approve variations on behalf of those beneficiaries who cannot themselves consent is based on the corresponding jurisdiction of the English courts,22 but is wider in scope in some important respects. 15 ibid paras 24-026 (‘Controlling trustees’ discretions – declaring new trusts’). 16 As to the position regarding court-approved variations, see section IV.D and section IV.L of this chapter. 17 See ch 2 section V.H and ch 2, section V.I. 18 Chapman v Chapman [1954] AC 429; Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) paras 45-005 to 45-011 (‘The Inherent Jurisdiction’). 19 In the Matter of the H Sossen 1969 Settlement (Royal Court, 28 May 2004) (Judgment 16/2004); Trusts Law 2007, s 35(1)(c); see ch 7, section IX.B. 20 See section IV.M of this chapter. 21 See section IV of this chapter. 22 Variation of Trusts Act 1958.
260 Variation of Trusts English and Jersey cases are persuasive and ‘where appropriate … should be followed in Guernsey … [T]he Royal Court will … pay a close regard to the English common law authorities, since the jurisdictions on variation of trusts are very similar’.23 Section 57(1) of the Trusts Law 2007 provides as follows: The Royal Court, on the application of any person mentioned in section 69(2)24 … [on behalf of those categories of persons set out in paragraphs (a) to (e) of section 69(2)] may, subject to subsection (2), approve any arrangement which varies or revokes the terms of a trust or enlarges or modifies the powers of management or administration of any trustees, whether or not there is another person with a beneficial interest who is capable of assenting to the arrangement.
C. Meaning of ‘Arrangement’ There must be an ‘arrangement’, but it is a term that ‘is deliberately used in the widest possible sense so as to cover any proposal which a person may put forward for varying or revoking the trusts’.25 In particular, there need not be anything in the nature of a contract between the parties.26 Indeed, the arrangement may be so extensive as to leave little of the existing trust provisions extant; but so long as those benefiting were within the ambit of the settlor’s expressed bounty … [s]o long as the arrangement is to some extent to the benefit of those entitled to the court’s protection … the court may grant approval.27
The power can be exercised so as to reinstate a beneficiary who has been revocably or even irrevocably excluded from benefit.28 The Court also has jurisdiction to approve an arrangement that ‘enlarges or modifies the powers of management or administration of any trustees’.29 It is thought that Guernsey law will follow English law on this aspect of the jurisdiction, so if there is no express power to release or restrict their powers, a restriction of trustee powers is likely to require an enlargement of powers by way of the addition of an express power to release or restrict.30
23 In re the H Trust (Royal Court, 29 August 2007) (Judgment 28/2007). 24 See ch 12, section III. 25 Re Osias Settlements (n 13), 404, quoting from In re Steed’s Will Trusts [1960] 1 All ER 487, 492. 26 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-039 (‘The arrangement’). 27 Mubarik v Mubarak [2008] JLR 430, paras 81–83. 28 Trustee ‘T’ and Five Respondents (Royal Court, 4 July 2011) (Judgment 14/2011); In the Matter of the X, Y and Z Trusts (Royal Court, 21 November 2014); see also In the Matter of the DDD 1976 settlement, DDD 1979 settlement and DDD 2005 Settlement [2011] JRC 243; also Mubarik v Mubarak (n 27) paras 84–86. 29 Trusts Law 2007, s 57(1). 30 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-064 (‘Enlarging and restricting the powers of the trustees’).
Variation by the Court 261
D. Resettlements It seems to be settled under English law that it is not possible to approve a complete resettlement.31 The entire revocation of the existing trusts and substitution of new trusts is permissible, provided it retains the ‘substratum’ of the original trust: If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded merely as varying that trust. But if an arrangement, while leaving the substratum, effectuates the purpose of the original trust by other means, it may still be possible to regard that arrangement as merely varying the original trusts, even though the means employed are wholly different and even though the form is completely changed.32
That is the case even if the new trust is governed by a different law and has different trustees.33 That approach was criticised in Jersey in the Osias case,34 both on the ground of the practical difficulty in determining when the substratum had been lost and on principle: If, as we said earlier, the court under art 43, is merely supplying the consent on behalf of beneficiaries which they are not in a position themselves to give, and if all beneficiaries being sui juris can put an end to the trust and re-settle the trust property as they please, whether the substratum of the new trust be the same as the old or not, we can see no justification for implying any limit on the scope of the arrangement to which the court can give approval beyond the words of the article itself. The article says nothing about substrata and indeed refers to ‘varying or revoking the terms of the trust.’ The only limitation on the court’s power to give consent is that contained in art 43(2), ie that the carrying out of the arrangement appears to be for the benefit of the person on whose behalf the court’s approval is being given.35
Osias was cited with approval in the Royal Court in Guernsey in In re the H Trust, albeit obiter, with the Royal Court stating that ‘the only limitation on discretion … was that the variation must … benefit minor and potential beneficiaries’36 This remains an open question, but it is submitted that the approach taken in Osias and In re the H Trust is the better one. However, if it is correct, it may have different tax consequences.37
31 ibid para 45-063 (‘Variation or revocation not resettlement’). 32 In Re Ball’s Settlement Trusts [1968] 2 All ER 438, 442–43. 33 Re Osias Settlements (n 13), in which the trustee of two Jersey law trusts made an application to the Jersey Royal Court for those two trusts to be converted to Florida law trusts with Florida resident trustees. 34 Re Osias Settlements (n 13), albeit obiter, as the Deputy Bailiff was satisfied that ‘the substratum of the original trusts remains’ (per Deputy Bailiff Tomes, ibid 406). 35 ibid 409. 36 In re the H Trust (n 23) para 31. 37 See section IV.L of this chapter.
262 Variation of Trusts
E. Limits of the Jurisdiction The power is discretionary and there are circumstances in which the Court is likely to decline to make the order, even if the other conditions are satisfied. In In re the H Trust,38 again citing Osias,39 the Royal Court has suggested40 that these circumstances would include: (a) pointless or spurious applications, such as approval on behalf of a beneficiary who will never exist; (b) where the application followed the purported exercise of a power of appointment that was done purely to facilitate the application; or (c) where a settlor has created protective trusts in order to protect a beneficiary against his or her own profligacy.41 But in contexts other than those contemplated in (c), a variation can still be approved even if it is contrary to the wishes of the settlor, although his or her wishes will normally be taken into account.42 The Court may only vary Guernsey law trusts under section 57,43 but may assume jurisdiction to vary trusts governed by other laws and, in doing so, would apply the governing law of the trust in relation to the variation. The Royal Court has assumed jurisdiction to vary an English law trust.44
i. Human Rights Law In deciding whether to approve a variation, the Court is bound by the European Convention on Human Rights, most of which is incorporated into Guernsey law,45 as it is a public body.46 In Re Y and Z Trusts, a Jersey case, it was held that while there is a public policy in favour of the financial services industry to respect the settlor’s wishes, that is outweighed by the public policy in favour of tolerance and nondiscrimination.47 It is thought that the Guernsey courts are likely to take a similar approach.
38 In
re the H Trust (n 23) para 31. Osias Settlements (n 13). 40 Obiter, although it would be of some persuasive value before the Guernsey courts. 41 Re Osias Settlements (n 13) 411–12. 42 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-097 (‘Wishes of settlor’). 43 Section 57 is in pt II of the Trusts Law 2007 (‘Provisions applicable only to Guernsey Trusts’). 44 The judgment was not available at the time of writing. 45 Human Rights (Bailiwick of Guernsey) Law, 2000 (‘Human Rights Law 2000’), s 1(1). 46 Human Rights Law 2000, s 6(3). 47 In the Matter of the Representation of the Y Trust and the Z Trust [2017] (1) JLR 266, para 45. 39 Re
Variation by the Court 263
F. Minor or Person under a Legal Disability The first category of persons on whose behalf the Court may approve a variation is ‘a minor or a person under legal disability having, directly or indirectly, an interest,48 vested or contingent, under a trust’.49
i. Minors It has been held in Jersey that the Jersey age of majority is the relevant one, so a person who has reached the age of majority under the law of his or her domicile but not under Jersey law is a ‘minor’ for these purposes.50
ii. Adult Beneficiaries Who Lack Capacity A guardian will need to be appointed to represent a person under a legal disability. However, there is no need for a guardian (or curateur) to be appointed under the Curatelle Rules, and there is no equivalent under Guernsey law of the English law rule that approval of variations on behalf of persons under a disability must be given by the Court of Protection rather than the High Court.51 The Royal Court can appoint a special guardian for the purposes of the variation application, so that instructions can be given on behalf of the individual under a disability.52 As a guardian is not named in section 69(2) of the Trusts Law53 as a person who may make an application under section 57, a guardian must obtain leave of the Court to bring such an application.54
G. Unborn Persons The second category of person on whose behalf the Court may give its consent to a variation is ‘any person unborn’.55 This covers the common case where the class of beneficiaries includes the descendants or issue of a named individual. There is no need for the unborn person to have any ‘interest’.
48 As to the meaning of ‘interest’, see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) paras 45-042 to 45-043 (‘Incapacity – meaning of “interest” in section 1(1)(a)’). 49 Trusts Law 2007, s 52(1)(a). 50 In the Matter of the Representation of N & N [1999] JLR 86. 51 Variation of Trusts Act 1958 (England), s 1(3). 52 In re the H Trust (n 23) para 12. 53 As to which, see ch 12, section III. 54 Trusts Law 2007, s 69(2)(g). 55 Trusts Law 2007, s 57(1)(b).
264 Variation of Trusts
H. Persons Who May Become Entitled to an Interest The third category of person on whose behalf the Court may give its consent to a variation is any person, ascertained or not, who may become entitled, directly or indirectly, to an interest under a trust, as being (at a future date or on the happening of a future event) a person of any specified description or a member of any specified class …56
This catches those who will or may take an interest in the trust, either on a future date or on the occurrence of a future event. For example, where a life interest is given to the settlor, W, and then to her husband, H, if he should succeed her, H falls within this category. While this category is modelled on the equivalent section of the English statute,57 the proviso at the end of the English section, which excludes existing persons falling within the category, has been omitted.58 Those persons are therefore not so excluded from the Guernsey provision. Thus, using the above example, H would be included in the class defined in section 57(1)(c), but would be excluded from the similar class under section 1(1) (b) of the Variation of Trusts Act 1958, because of the proviso.59 The equivalent provision in Jersey similarly excludes the proviso,60 and the Jersey Court of Appeal61 has confirmed that the Court does have power to grant approval on behalf of ‘unascertained’ but existing persons. The Jersey Court of Appeal also held that it is unnecessary for the Court to approve an arrangement on behalf of potential beneficiaries under a wide power to add to the class of beneficiaries.62 The position is the same under Guernsey law: while there is no reported authority on the point, it is followed in practice in the Guernsey courts.
I. Objects of Powers under Protective Trusts The fourth category for whom the Court may give consent is ‘any person, in respect of an interest that may accrue to him by virtue of the exercise of a discretionary power on the failure or determination of an existing interest’.63 56 Trusts Law 2007, s 57(1)(c). 57 Variation of Trusts Act 1958 (England), s 1(1)(b). 58 Section 1(1)(b) of the Variation of Trusts Act 1958 (England) concludes with ‘so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the court’. 59 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-051 (‘Persons who become entitled to an interest – section 1(1)(b)’). 60 Trusts (Jersey) Law 1984, Art 47. 61 Mubarik v Mubarak (n 27) paras 107–108. 62 ibid paras 109–115; the English High Court has recently taken a similar approach: A v B [2016] EWHC 340 (Ch). 63 Trusts Law 2007, s 57(1)(d).
Variation by the Court 265 The terms of a trust instrument may make the interest of a beneficiary liable to termination,64 or ‘subject to diminution or termination in the event of the beneficiary becoming bankrupt or any of his property becoming liable to arrest, saisie, or similar process of law’.65 By way of example, a trust instrument may provide that if a beneficiary (A) becomes bankrupt, his or her interest under the trust will terminate and B will then be entitled to that interest. At any time before B becomes entitled to that interest under the terms of the trust, B falls within the ambit of this fourth category. There does not need to be any benefit to anyone in this category.66
J. Other Persons The Court also has jurisdiction, under section 57(1)(e) of the Trusts Law 2007, subject to the applicant’s first obtaining the leave of the Court, to approve arrangements on behalf of any other person. The English courts do not have this jurisdiction.67 The practical problems that may arise if there are large numbers of adult beneficiaries of full capacity or beneficiaries who cannot be found68 can therefore be avoided. Difficulties can also arise if there is one adult beneficiary who refuses to cooperate, or where adult beneficiaries are willing to consent in principle but cannot do so for fear that it will create a tax charge. The Guernsey courts can consent to a variation on behalf those persons as well, subject to leave. There is no need for there to be benefit to those persons, although the Court will no doubt take that into consideration. The courts in Bermuda have held that they have jurisdiction69 to approve variations on behalf of adult beneficiaries of full capacity,70 although the point has not been the subject of adversarial argument and has been subject to criticism.71
K. Requirement for Benefit The Court will not approve an arrangement on behalf of any person in section 57(1)(a), (b) or (c) unless it ‘appears to be for his benefit’.72 There is no 64 Trusts Law 2007, s 45(a). 65 Trusts Law 2007, s 45(c). 66 See section IV.K of this chapter. 67 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-058 (‘Other beneficiaries’). 68 The Jersey Court may approve variations on behalf of beneficiaries in these two categories: Trusts (Jersey) Law 1984, ss 47(1)(ba) and (bb) (inserted by the Trusts (Amendment No 7) (Jersey) Law 2018). 69 Under the Trustee Act 1975 (Bermuda) s 47. 70 GH v KL [2011] SC (Bda) 23 Civ; for a full discussion, see K Robinson, ‘Variation of trusts in Bermuda – a rose by any other name’ (2012) 18(5) Trusts & Trustees 439. 71 See the discussion in E Talbot-Rice QC, R Avis and T Sherwin, ‘The Variation of Trusts: How Far Can You Go?’ (8 September 2016) available at https://xxiv.co.uk/xxiv-vanguard-variation-legislation/, in particular at 29 and 54. 72 Trusts Law 2007, s 57(2).
266 Variation of Trusts requirement to show benefit to the persons under section 57(1)(d) (‘Objects of powers under protective trusts’) or (e) (‘Other persons’).
i. Meaning of ‘Benefit’ The following test in the Jersey case of In the Matter of the Representation of N & N73 was quoted with approval in the Guernsey Royal Court In re A Settlement: [I]s the benefit to be obtained on behalf of those for whom the Court is acting such that a prudent adult motivated by intelligent self-interest after sustained consideration of the expectancies and risks and the proposal made, would be likely to accept?74
While ‘benefit’ will normally mean financial benefit, the Royal Court will therefore take other benefits into account and give the word a wide meaning.75 The discharge of a moral obligation may be a benefit.76 Educational and social benefits may be relevant,77 as may family harmony.78 In addition, the advantage of postponing the age at which a minor who was irresponsible and immature would become entitled to an interest under the trust was ‘the kind of benefit … which seems to be within the spirit of the Act.’79
It was noted in a Jersey case that whilst it is clearly to the advantage of children that a variation be made to allow them to receive advances of income and capital from the trust fund during the lifetime of a parent, it is not generally in the interest of young persons to inherit large sums of money should that parent die prematurely.80
Indeed, one Jersey case went as far as to say that the undesirability of allowing a person to acquire a significant capital sum at a very young age is a powerful reason for varying a trust so as either to defer her entitlement to the trust fund or to convert her beneficial interest into a potential entitlement under a discretionary trust of the capital and income.81
73 In the Matter of the Representation of N & N (n 50). 74 In re a Settlement (Royal Court, 28 June 2011) (Judgment 25/2011) para 27; In Re X, Y & Z Trusts (n 28) para 36. 75 In re the H Trust (n 23) para 29; In re A Settlement (n 74); see also Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) paras 45-091 to 45-094 (‘Non-financial considerations’). See also ibid paras 45-071 to 45-085 (‘Benefit and discretion’) and paras 45-087 (‘Beneficiaries as individuals’) to 45–90 (‘Source of the Benefit’) for a discussion of the English cases on ‘benefit’. 76 In the Matter of the T Settlement [2002] JLR 204; but see also In the Matter of the DDD 1976 settlement, DDD 1979 settlement and DDD 2005 Settlement (n 28). 77 Re Weston’s Settlements [1969] 1 Ch 223. 78 Re Remnant’s Settlement Trusts [1970] Ch 560; In the Matter of the Representation of N & N (n 73). 79 In re the H Trust (n 23) para 30, quoting from In re T’s Settlement Trusts [1964] Ch 158; approved in In re a Settlement (n 74). 80 In re Brian Munro Ltd. Settlement [1995] JLR Notes 30b. 81 In re Elizabeth Gates Estate Trust [2000] JLR Notes 68a.
Variation by the Court 267 The fact that the variation provides greater flexibility, by allowing the trustee to ‘determine when and how future generations are to benefit from the Settlement [may be] sufficient “benefit” for the purposes of Section 57’.82
ii. Variations for Tax Purposes The Court may approve a variation to reduce the tax burden on the trust or beneficiaries, although other factors may outweigh tax considerations.83 In Re Mr and Mrs N’s 1989 Settlement,84 in the context of the capital gains tax changes brought in by the UK Finance Act 1998, a variation was allowed to a Jersey trust where failure to vary would have subjected the settlors to a tax liability, reimbursement for which might have been enforced against the trustees. In Re the Richard Colin Douglas 1990 Settlement,85 the Jersey Court said: [T]he court is quite satisfied that the avoidance, minimisation or deferral of taxation is capable of being a benefit and that, as in the English courts, the fact that such avoidance, minimisation or deferral is the principal object of the variation is not a reason for the court to refuse to give its consent if satisfied that the arrangement is for the benefit of the persons concerned.
The Deputy Bailiff quoted this passage In Re X, Y and Z Trusts, and was ‘quite satisfied that this is a principle of Guernsey law to be applied in the same manner’.86 In the Douglas case, the Court was prepared to take a wide view of ‘benefit’, which included avoiding any possibility of the settlors’ seeking to exercise their statutory right to reimbursement of a tax charge.87
iii. Power to Add Beneficiaries A variation that provides greater flexibility for future tax planning may be a sufficient benefit.88 In a Jersey case, it was held that ‘the wider class of beneficiaries will provide flexibility and increase the prospects in the future for sensible tax planning’.89 For the same reason, a power to add to the class of beneficiaries may be of benefit to existing beneficiaries. The meaning of ‘benefit’ was summarised in Re X, Y and Z:
82 In re a Settlement (n 74). 83 Re Weston’s Settlements [1969] 1 Ch 223. 84 Re Mr and Mrs N’s 1989 Settlement (1998–99) 1 ITELR 803; see also In the Matter of the Representation of N & N (n 50). 85 Re the Richard Colin Douglas 1990 Settlement (2000) 2 ITELR 682, 687; [2000] JLR 73. 86 In Re X, Y and Z Trusts (n 28) para 38. 87 See ch 4, section III.A. 88 In re the H Trust (n 23) para 30, citing with approval the Jersey case of In the Matter of The Neil Ashley (1990) Settlement [2003] JLR N9. 89 In the Settlement of Douglas [2000] JLR 73, 79.
268 Variation of Trusts In summary, therefore, ‘benefit’ is to be given a broad meaning. It extends beyond financial benefit to encompass moral and social benefits. In relation to tax consequences, it can include measures to avoid, minimise or defer taxation. It is recognised that arrangements that offer a trustee greater flexibility in determining who will benefit, when they will benefit and how they are to benefit from the assets in a trust can be of ‘benefit’ for those for whom the court is acting pursuant to section 57 of the 2007 Law.90
L. Effect of Order There is no equivalent of section 53(1)(c) of the English Law of Property Act 1925 in Guernsey law, so there is no need for a written instrument to effect a transfer of an equitable interest.91 It is also the authors’ understanding that a variation is not treated as a resettlement for UK capital gains tax purposes,92 although it can be used to restart the perpetuity period.93 Helpfully, HMRC have expressed the view that since the court has no jurisdiction to approve a resettlement under the 1958 Act, HMRC would not seek to argue that there was a resettlement for the purposes of s 71 of the Taxation of Chargeable Gains Act 1992 in the event that the court approved the variation under the 1958 Act.94
It was held that ‘HMRC was correct to reach this conclusion.’95 However, it has been suggested96 that there is no such restriction on the Guernsey jurisdiction. As Lewin puts it: If the jurisdiction in variation as well as revocation cases were simply an application, with the assistance of the court, of the rule in Saunders v Vautier, the capital gains tax implications for all variations, as well as revocations, would be disturbing.97
Even if the jurisdiction is capable of effecting a complete resettlement, that does not mean that every variation will do so; that would depend on the extent of the variation in each case. But if effecting a resettlement would create a tax charge, as it does in the UK, care should therefore be taken (and appropriate tax advice obtained) to ensure that the variation does not in fact effect a resettlement for tax purposes, assuming that is the desired outcome. 90 In Re X, Y and Z Trusts (n 28) para 41. 91 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) paras 45-098 to 45-099 (‘Effect or order’). 92 Taxation of Chargeable Gains Act 1992, s 71(1) (UK); Wyndham v Egremont [2009] EWHC 2076; IRC v Holmden and others [1967] UKHL 7. 93 Allfrey v Allfrey and others [2015] EWHC 1717; it was accepted that restarting the perpetuity period did not effect a resettlement for UK capital gains tax purposes; see also Mercator Trustees Limited v Chrisalis Trustees (Guernsey) Limited, In Re the XYZ Settlement (Royal Court, 25 April 2014). 94 Allfrey v Allfrey and others [2015] EWHC 1717, [23]. 95 ibid, per Mr Jeremy Cousins QC, sitting as a Deputy Judge of the Chancery Division. 96 See section IV.D of this chapter. 97 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-098, fn 310.
Variation by the Court 269
M. Variation of Administrative Provisions A variation of a trust under section 57 of the Trusts Law 2007 has to be made with the agreement of all adult beneficiaries not under a legal disability, and by the Court on behalf of those classes set out in section 57(1)(a)–(c). If a proposed variation does not affect the dispositive provisions, it may well be simpler for the trustees to apply under section 58, which states: Where, in the management or administration of a trust, a transaction is, in the opinion of the Royal Court, expedient, but cannot be effected because the necessary power is not vested in the trustees by the terms of the trust or by law, the Royal Court, on the application of any person mentioned in section 69(2) – (a) may confer upon the trustees, generally or in any particular circumstances, the necessary power, on such terms and conditions as the court thinks fit; and (b) may direct the manner in which, and the property from which, any monies authorised to be expended, and the costs of any transaction, are to be paid or borne.
The jurisdiction is in substance the same as that conferred on the English courts,98 so the English cases will be persuasive in the Guernsey courts.99
N. Exclusion of Trusts Created by Order in Council The powers of variation in sections 57 to 60 of the Trusts Law do not apply to trusts created by an Order in Council.100
98 Trustee Act 1925 (England), s 57. 99 See, eg, Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 10) para 45-016 (‘Transactions that come within the management or administration requirement’). 100 Trusts Law 2007, s 60.
15 Remedial Applications to Court I. Introduction This chapter examines three remedies that are available to correct problems that have arisen, either because the trust instrument does not correctly reflect the intention of the settlor (rectification on the ground of mistake),1 or because it has unintended consequences (rescission on the ground of mistake)2 or actions were taken by the trustee in error as a result of inadequate deliberations (the so-called ‘rule in Hastings-Bass’).3
II. General Principles Applicable to Rectification and Rescission Rectification and rescission are equitable remedies forming part of the court’s wider jurisdiction to relieve parties from the consequences of their mistakes.4 In summary, trusts may be rescinded or rectified on the ground of an operative mistake. It must be of sufficient gravity to make it unjust to leave the document uncorrected.5 An order operates with retrospective effect, so that a rectified settlement is deemed to have been in its rectified state from the outset6 and a rescinded settlement is deemed never to have been made at all, such that the trust assets are deemed to have been held on bare trust for the settlor.7 There have been no reported Guernsey cases on the question of whether a unilateral mistake by the settlor is always enough, but it is thought that Guernsey law is likely to follow English law on this point.8 1 See section III. 2 See section IV. 3 See section V. 4 Allnut v Wilding [2007] EWCA Civ 412 [5]. 5 L Tucker, N Le Poidevin QC and J Brightwell (eds), Lewin on Trusts, 19th edn (Sweet & Maxwell, 2015) para 4-061 (‘Voluntary settlements’). 6 Allnut v Wilding (n 4) [9]. 7 Re Strathmullan Trust [2014(1)] JLR 309, para 29. 8 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-062 (‘Whether unilateral mistake by the settlor of a voluntary settlement is always enough’) and para 4-083 (‘Rescission or rectification on the ground of mistake – settlements executed by way of bargain’).
Rectification on the Ground of Mistake 271 Similarly, while there are no reported cases on locus standi, it is thought that English law is likely to apply.9 It is thought that the test for mistake in relation to both rectification and rescission is the same.10 Equitable defences, such as change of position11 and laches,12 may be available to a beneficiary.
III. Rectification on the Ground of Mistake Rectification is where the Court corrects ‘a mistake in the way in which that transaction has been expressed in writing’:13 A court of equity will order the rectification of a document which does not give effect to the true intention of the maker, or to the agreement of the parties to it.14
The Guernsey Royal Court has recognised that it has jurisdiction to make a rectification order in relation to trusts since 1989 (prior to the enactment of the 1989 Trusts Law),15 and has exercised it a number of times since then.16
A. General Principles It is settled that the Guernsey Court should apply the relevant principles of English law in relation to rectification.17 The Court’s order has retrospective effect.18
9 ibid paras 4-075 to 4-077 (‘Locus standi to apply for rescission and rectification on the ground of mistake’); the Loi relative à la Réforme des Diverses Dispositions de la Loi 1936, s 1(1), is in similar terms to the Law Reform (Miscellaneous Provisions) Act 1934, s 1(1): the cause of action survives for the benefit of the settlor’s estate. 10 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 4-071 to 4-072 (‘Mistake in rectification after Pitt v Holt’). 11 Pitt v Holt [2013] UKSC 26, [125]–[126]. 12 See Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-078 (‘Bars to rescission and rectification on the ground of mistake’); see also J McGhee QC, Snell’s Equity, 33rd edn (Sweet & Maxwell, 2014) paras 16-025 to 16-026 (‘Rectification’–‘Defences’). 13 Re Gamble (Royal Court, 6 February 2003) (Judgment 30/2003); McGhee, Snell’s Equity (n 12) para 16-001 (‘The Remedy of Rectification’). 14 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-059 (‘General scope of each remedy’). 15 Re Darby’s Settlement Trusts (Royal Court, 2 March 1989); see section III.D of this chapter. 16 In Re Ferguson (Royal Court, 10 December 1992) (rectification of a trust instrument by the addition of the names of beneficiaries to a schedule which had not been completed); Re Gamble (n 13) (intention to create accumulation and maintenance trusts for UK IHT purposes, but wrong precedent used – see section III.B of this chapter; Re Wilson (Royal Court, 12 March 1998); Re Pelican Trust [2005–6] GLR 20. 17 Re Pelican Trust (n 16) paras 35–37, citing Re Gamble (n 13) with approval; see also In the matter of the OSM Provident Fund (Royal Court, 7 August 2018) (Judgment 33/2018) paras 6–7. 18 Re Pelican Trust (n 16) para 50.
272 Remedial Applications to Court In relation to the rectification of a voluntary settlement, there are five requirements: (a) There must be sufficient evidence of the error. (b) It must be established to the highest degree of civil probability that a genuine mistake has been made. This burden will be harder to satisfy with the passing of time.19 (c) There must be full and frank disclosure. (d) There must be no other practical remedy. (e) There should be no undue delay.20
B. Tax If a mistake is made in a document legitimately designed to avoid the payment of tax, there is no reason why it should not be corrected.21 In Re Gamble, there was evidence that an elderly settlor (Mr Gamble’s widow) had intended to create an accumulation and maintenance trust for her two granddaughters. It was intended that that trust would receive special treatment accorded to such trusts under the UK’s Inheritance Tax Act.22 There was evidence that the drafter had used a precedent that was not designed to comply with what was intended, but instead created discretionary trusts that could be used to defeat the grandchildren’s vested interests. The settlor’s two granddaughters were the only beneficiaries and the trust had been administered as the settlor had intended. It was held that the beneficiaries would not be disadvantaged by rectification, which would remove the wider discretionary powers and confirm the beneficiaries’ vested rights to the appropriate part of the trust income, once each had attained 25 years of age. The only party that would be prejudiced by rectification was the UK Inland Revenue. As the trust instrument stood, the trust would have been liable to taxation as a discretionary trust, while if rectification were granted, the rectified version of the trust instrument would apply from the moment the trust was created. Thus, if the Inland Revenue accepted the decision to grant rectification, it would have to accept that the trust had always been an accumulation and maintenance trust (with related tax consequences). The UK revenue authority indicated that, whilst not wishing to be a party to the action, it would agree
19 Re Smouha Family Trust [1998] JLR N19; as to the standard of proof generally, see section III.E. 20 Re Pelican Trust (n 16); The O’Neill Settlements and Embleton Trust Corporation Limited (Royal Court, 30 October 2009) (Judgment 48/2009); Re the Colour Trusts, Wilson v Monaghan and Le Gallez (Royal Court, 24 May 2012) (Judgment 24/2012). 21 Re Pelican (n 16) para 42, citing Whiteside v Whiteside [1950] Ch 65 with approval; Re Gamble (n 13), following the English case of Re Slocock’s Will Trusts [1979] 1 All ER 358. 22 Inheritance Tax Act 1984 (UK), s 71.
Rectification on the Ground of Mistake 273 to be bound by a rectification order, if certain legal authorities were cited to the Court.23 It was held that the Court should apply English principles and that it could draw considerable comfort on this rather sensitive area of making an order which will be to the detriment of the revenue of the United Kingdom if we can be satisfied that an English court faced with a similar application would make an order against the interests of the Revenue in the way that we are being asked to make an order today.24
The Bailiff quoted Mr Justice Graham with approval on this point: The Crown is in no privileged position qua such a document. It would not be a correct exercise of the discretion in such circumstances to refuse rectification merely because the Crown would thereby be deprived of an accidental and unexpected windfall. … As counsel for the trustees submitted, neither Whiteside v Whiteside nor any other case contains anything which compels the court to the conclusion that rectification of a document should be refused where the sole purpose of seeking it is to enable the parties to obtain a legitimate fiscal advantage which it was their common intention to obtain at the time of the execution of the document.25
The question of whether public policy in Guernsey ‘does not require the courts to protect the interests of a foreign revenue in the same way as it might feel that it should protect the interests of the domestic revenue’26 was left as an open question. In Nourse, ‘the fact that the Applicant was participating in a scheme to avoid payment of tax in the United Kingdom [was not regarded] as any reason to refuse to grant the relief if it could otherwise be given’.27 In Gresh, however, the Bailiff said that ‘[h]e was not seeking to pursue an aggressive tax avoidance scheme which the court would not want to support for reasons of public policy’,28 although Nourse does not appear to have been cited in the Gresh case. It may be that it will turn on whether it is seen as ‘aggressive’.29
23 The Inland Revenue (now HMRC) asked that the following be considered: Re Colebrook’s Conveyances [1972] 1 WLR 1397; Re Slocock’s Will Trusts [1979] 1 All ER 358; Sherdley v Sherdley [1986] 2 All ER 202; Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 and Racal Group Services v Ashmore & others [1995] STC 1151. 24 Re Gamble (n 13) para 2. 25 Re Slocock’s Will Trusts [1979] 1 All ER 358, 363; it may be that attitudes of the English courts have changed since this case was decided. 26 Re Gamble (n 13) para 2. 27 Nourse v Heritage Corporate Trustee Limited and Concept Fiduciaries Limited (Royal Court, 15 January 2015) (Judgment 06/2016) para 71. Both Nourse and Emanuel Gresh v RBC Trust Company (Guernsey) Limited and Her Majesty’s Revenue and Customs (Royal Court, 26 February 2016) (Judgment 6/2016) are cases on rescission, rather than rectification, but it is thought that the same principles apply on this point. 28 Gresh (n 27) para 45. 29 See also ch 5, section VI.E.
274 Remedial Applications to Court
i. Negligent Advice It was accepted in Re Gamble30 that the professional advisers had been negligent in preparing the trust instrument, and if rectification were not available their professional indemnity insurance would meet the costs. Thus, the only persons who would benefit from rectification were their insurers. This point has recently been considered in more detail by the Royal Court in Jersey: We are however driven back again to the question of the justice of involving the Royal Court in helping trustees and individual beneficiaries out of a tax problem which has been created by the mistaken advice they have received. If a trust were not involved, one would expect the tax payer to bring proceedings against his or her adviser to recover the loss which had been sustained and which, on this analysis, could have been avoided. In some respects, it might be said that that was the desirable approach to take with trusts as well. It is not obvious that the Courts should come to the rescue of a trustee or his professional advisers for a mistake that one or other might have made in circumstances where, had there been no trust, the trustee as client would have sued the professional adviser for the loss in question. It might be said that if trustees were aware that this was a step which they might be required to take, they would be more careful is setting the terms of reference under their contract with the tax adviser in question.31
The Court implicitly accepted the submissions from the trustee’s advocate that it would be very undesirable for the Court to consider whether, as he put it, there was a ‘slam dunk’ claim in negligence. For the Court to go down that road would require it to make its decision on the basis of information from one party alone, namely the trustee as potential plaintiff, and even assuming that trustees would be prepared to make the fullest disclosure of the strengths and weaknesses of their potential case against the adviser, there might be other information which had been overlooked and which would have an impact on the possible outcome of the claim. The practical difficulties of assessing on what is likely to be an ex parte application (in the sense that the advisers would not be present) would be capable of being intense.32
It was also noted that the trust did not have substantial assets, and it was held that in the circumstances, it was just to grant relief in respect of the trustee’s mistake.
C. Costs In Re Gamble,33 the Bailiff made no order for costs, except that they should not be met from the trust fund but must be borne by the trustee personally. It is not entirely clear how the costs burden ultimately fell in that case, but it seems likely that it was borne by the insurers of the professional advisers involved. It was
30 Re
Gamble (n 13). the Matter of the J Settlement [2019] JRC 111, para 23. 32 ibid para 26. 33 Re Gamble (n 13). 31 In
Rectification on the Ground of Mistake 275 accepted that they had been negligent and the loss was covered by insurance; in the circumstances, the Bailiff noted that the sole beneficiaries of a rectification order are the professional indemnity insurers of the professional advisers concerned. In Re Darby,34 the Court also ordered that no costs be paid out of the trust fund, but the judgment does not record how the costs were to be borne in that case. In Re Pelican, by way of contrast, the Bailiff ordered the costs of both counsel to be paid from the trust fund,35 but again, there is no discussion in the judgment as to the reasons for that decision.
D. Supplemental and Related Documents The same principles apply to the rectification of documents exercising powers under a trust. In Re Darby,36 a deed of appointment contained errors that meant that an intended beneficiary was inadvertently excluded. The deed had been incorrectly copied, and mistakenly omitted a line of text that included the name of the intended beneficiary. The Court made an order for rectification. Rectification has also been ordered in relation to the schedules to a number of deeds of gift settling property on trust. They had mistakenly omitted to include the benefit of certain loans due to the settlor.37 In that case, the trusts themselves were governed by Jersey law, but the deeds of gift were governed by Guernsey law.38
E. Standard of Proof A case for rectification must be made by ‘convincing proof ’39 (earlier English cases referred to ‘strong irrefragable evidence’).40 As the Court is dealing with a signed document – the trust instrument – the Bailiff, in his directions on Re Gamble, referred to an English authority of 1981,41 where it was stated: The requisite degree of cogency of proof will vary with the nature of the facts to be established and the circumstances of the case. I would say that in civil proceedings a fact must be proved with that degree of certainty which justice requires in the circumstances of the particular case. In every case the balance of probability must be discharged, but in some cases that balance may be more easily tipped than in others.42 34 Re Darby’s Settlement Trusts (n 15). 35 Re Pelican Trust (n 16) para 50. 36 Re Darby’s Settlement Trusts (n 15). 37 Re the Colour Trusts (n 20); see also ch 12, section IV.B (n 60). 38 As to the jurisdiction of the Guernsey courts, see ch 6, section III; as to the treatment of foreign trusts, see ch 6, section III.A. 39 Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) para 4-072 (‘Standard of proof ’). 40 Countess of Shelborne v Earl of Inchiquin (1784) 1 Bro CC 338, 341. 41 Thomas Bates & Sons Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505. 42 ibid 514.
276 Remedial Applications to Court The principles advanced by the Bailiff in his directions to the Jurats were: (a) The Court must be satisfied that the settlor intended that the document she signed should not be in the form that it was, but should be in the form presented to the Court. (b) As to delay, it was not clear when the drafting errors were first identified. Because two sets of professional indemnity insurers had been involved, it had taken them some years to bring the matter to Court. However, no one had been adversely affected, because no one had acted on the documents as unrectified. (c) The Court has a discretion as to whether or not to allow rectification. In that case the Court did make an order for rectification.
IV. Rescission on the Ground of Mistake A Guernsey trust is invalid on the ground of mistake,43 and the Royal Court44 has held that the test to be applied is that laid down by the Supreme Court in the judgment delivered by Lord Walker in Pitt v Holt,45 summarised in Kennedy.46 The key elements of the Pitt v Holt test under the law of England and Wales were summarised by the Royal Court as follows: a. b. c. d. e.
f.
The court may set aside a voluntary transaction where there was a causative mistake which was so grave that it would be unconscionable to refuse the relief of setting it aside. The test will normally be satisfied only where there is a mistake either as to the legal character or nature of the transaction, or as to some matter of fact or law which is basic to the transaction. Such a causative mistake may relate to the tax consequences of the transaction. A causative mistake differs from inadvertence, misprediction or mere ignorance, but forgetfulness, inadvertence or ignorance, although not as such a mistake, can lead to a false belief or assumption which the law will recognise as a mistake. The gravity of the mistake must be assessed by a close examination of the facts, including the circumstances of the mistake, its centrality to the transaction in question and the seriousness of its consequences, including tax consequences, for the disponor. The court then has to make an objective evaluative judgment as to whether it would be unconscionable, or unjust, to leave the mistake uncorrected. In this context it would be necessary to consider whether there was any defence based on the equitable doctrine of laches.47
43 Trusts Law 2007, s 11(2)(d)(i). 44 Gresh (n 27); Nourse (n 27); see Tucker, Le Poidevin and Brightwell (eds), Lewin on Trusts (n 5) paras 4-058 to 4-083 (‘Rectification and Rescission’). 45 Pitt v Holt (n 11). 46 Kennedy v Kennedy [2014] EWHC 4129 (Ch). 47 Whittaker v Concept and Williams (Royal Court, 23 March 2017) (Judgment 15/2017) para 23.
Rescission on the Ground of Mistake 277
A. General Principles The general principles were summarised as follows by the Chancellor of the English High Court in Kennedy: (1) There must be a distinct mistake as distinguished from mere ignorance or inadvertence or what unjust enrichment scholars call a ‘misprediction’ relating to some possible future event. On the other hand, forgetfulness, inadvertence or ignorance can lead to a false belief or assumption which the court will recognise as a legally relevant mistake. Accordingly, although mere ignorance, even if causative, is insufficient to found the cause of action, the court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference. (2) A mistake may still be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition, unless the circumstances are such as to show that he or she deliberately ran the risk, or must be taken to have run the risk, of being wrong. (3) The causative mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property. That test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction or as to some matter of fact or law which is basic to the transaction. The gravity of the mistake must be assessed by a close examination of the facts, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition. (4) The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively but with an intense focus on the facts of the particular case. The court must consider in the round the existence of a distinct mistake, its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected.48
B. Unconscionability The mistake must render it ‘unconscionable’ for the donee to retain the property, and [t]he evaluation of what is or would be unconscionable must be objective … The gravity of the mistake must be assessed by a close examination of the facts, whether or not they are tested by cross-examination, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition.49
48 Kennedy v Kennedy (n 46) [36]; quoted with approval in Gresh (n 27) para 34 and in Whittaker v Concept (n 47) para 24 (as to the position under the law of England and Wales). 49 Pitt v Holt (n 11) [125]–[126].
278 Remedial Applications to Court It was held in Gresh that it was clear that ‘unconscionable’ is to be interpreted as being synonymous in this context with ‘unjust or unfair’. It is not necessary to look for a specific conscience that would be affected if the vitiated transaction were not set aside.50
It has to be viewed objectively.51 When considering the issue of unconscionability, ‘it is necessary to look at the consequences of setting aside, or not setting aside, the disposition’.52 In Gresh, the transaction – a distribution from the trust with serious adverse UK tax consequences for the beneficiary – was not set aside. The reasons for that included the fact that, unlike other cases, in which other persons were affected, the only person affected if the distribution were not set aside would be the applicant; there were no other family members or third parties involved (apart from HMRC). Another factor seems to have been the contractual relationship between the applicant beneficiary and his tax adviser, so it was more likely (albeit not certain) that he had a remedy in professional negligence against his tax adviser. This was in contrast to the position in a Jersey case, where there was no such relationship, and as a result it was ‘not obvious that the trust itself will have sustained an enforceable loss’.53
C. Tax On the question of tax consequences, the Bailiff in Gresh also quoted Mrs Justice Proudman with approval: It is clear from Pitt v Holt [at [129]–[132]] that a mistake as to the tax consequences of a transaction may, in an appropriate case, be sufficiently serious to warrant rescission … There is no justification for a different approach to mistakes about tax and other types of mistake.54
However, ‘[i]n some cases of artificial tax avoidance … the court might think it right to refuse relief ’.55 The Guernsey courts have also exercised jurisdiction to set aside an English law trust on the ground of mistake.56
50 Gresh (n 27) para 30. 51 ibid para 56. 52 ibid para 46. 53 In re The Strathmullan Trust [2014(1)] JLR 309, para 27. 54 Freedman v Freedman [2015] EWHC 1457 (Ch) [27], quoted with (implicit) approval in Gresh (n 27) para 44. 55 Pitt v Holt (n 11) [135], quoted with (implicit) approval in Gresh (n 27) para 42. 56 Arun Estate Agencies Limited v Kleinwort Benson (Guernsey) Trustees Limited [2009–10] GLR 437; Whittaker v Concept Fiduciaries Ltd (n 47).
The Rule in Hastings-Bass 279
D. The Customary Law Doctrine of Erreur The Jersey courts have held that the Norman customary law doctrine of erreur57 ‘may be relevant when considering a contract governed by Jersey law … [I]t cannot possibly … have any relevance in a case governed by equitable principles’.58 It is thought that the position must be the same under Guernsey law.
V. The Rule in Hastings-Bass The general principle of the so-called ‘rule in Hastings-Bass’59 may be summarised as follows: Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account.60
It is clear that the principle applies under Guernsey law.61
A. Background In Re Hastings-Bass, deceased, the trustees of one trust had advanced trust assets by way of sub-settlement to the trustees of a second trust. There was a perpetuity problem in that second trust, which the trustees of the first trust had not taken into account. The trustees of the first trust sought to set aside the advance on those grounds. It was stated in that English Court of Appeal case: Where by the terms of a trust … a trustee is given a discretion as to some matter under which he acts in good faith, a court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorised by the power conferred upon him, or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should
57 As to which, see Pothier on Obligations, tr WD Evans (The Lawbook Exchange Ltd, 2000; originally published 1806) vol 2, 408–46. 58 JP v Atlas Trust Company (Jersey) Limited [2008] JRC 159, para 22. 59 Re Hastings-Bass deceased [1975] Ch 25. It was noted in Pitt v Holt (n 11) [1] that the case was not in fact authority for the principle to which it had given its name. 60 Sieff v Fox [2005] 1 WLR 3811, para 119, per Lloyd LJ; quoted with approval in M v St Anne’s Trustees, Re Richmond Retirement Plan (CA, 20 June 2018) (Judgment 21/2018) para 28. 61 In Re Richmond (n 60); HCS Trustees Limited and another v Camperio Legal and Fiduciary Services Plc (Royal Court, 30 June 2015); Re the Aylesford and Achilles Trusts (Royal Court, 27 February 2018).
280 Remedial Applications to Court not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.62
The above principle expressed by the Court of Appeal did not apply in that case, on its facts. In Mettoy Pension Trustees Ltd v Evans,63 Warner J, in the context of a pension trust, said that a principle existed that he labelled ‘the rule in Hastings-Bass’. He continued: I do not think that the application of that principle is confined … to cases where an exercise by trustees of a discretion vested in them is partially ineffective because of some rule of law or because of some limit on their discretion which they overlooked. If, as I believe, the reason for the application of the principle is the failure by the trustees to take into account considerations that they ought to have taken into account, it cannot matter whether that failure is due to their having overlooked (or to their legal advisers having overlooked) some relevant rule of law or limit on their discretion, or is due to some other cause. It is not enough, however, for the principle to apply, that it should be shown that the trustees did not have a proper understanding of the effect of their act. It must also be clear that, had they had a proper understanding of it, they would not have acted as they did.64
In Pitt v Holt, Lord Walker distinguished between an error by trustees who go beyond the scope of their powers (‘excessive execution’) and an error in failing to give proper consideration to relevant matters in making a decision that is within the scope of their powers (‘inadequate deliberation’).65 Hastings-Bass was an instance of excessive execution, whereas the principle, as it was subsequently developed, concerned inadequate deliberations.
B. Pitt v Holt In Pitt v Holt,66 the Supreme Court applied a narrower formulation of the rule in Hastings-Bass than that which had been applied in a number of earlier cases.67 That narrower formulation of the principle is summarised by Lloyd LJ in the Court of Appeal in Pitt v Holt (and was approved by the Supreme Court): It seems to me that the principled and correct approach to these cases is, first, that the trustees’ act is not void, but that it may be voidable. It will be voidable if, and only if, it can be shown to have been done in breach of fiduciary duty on the part of the trustees.68
62 Re
Hastings-Bass (n 59) para 41. Pension Trustees Ltd v Evans [1991] 2 All ER 513. 64 ibid at 555. 65 Pitt v Holt (n 11) [60]. 66 ibid. 67 For example Sieff v Fox (n 60). 68 Pitt v Holt [2011] EWCA Civ 197 [127]. 63 Mettoy
The Rule in Hastings-Bass 281 It is thought that the Guernsey courts are likely to follow the narrower formulation of the principle, as set out in Pitt v Holt, but that has not yet been finally determined by the Guernsey courts. In HCS Trustees Limited v Camperio,69 it was held that there was a clear breach of fiduciary duty by the trustees in failing to consider the UK tax implications of the transaction in question, so the Lieutenant Bailiff did not need to consider whether Guernsey law would follow Pitt v Holt in requiring a breach of duty. In Re Aylesford,70 the point does not appear to have been argued, as it also proceeded on the basis that there had been a breach of duty, but the Bailiff indicated71 that Guernsey law should follow Pitt v Holt. At first instance in Re Richmond,72 it was held that Guernsey law should follow the revised approach in Pitt v Holt. However, while the Court of Appeal in that case proceeded on the assumption that Pitt v Holt represented the law in Guernsey, it explicitly stated that it was not deciding the issue.73
C. The Rule does not have a Positive Counterpart It seems that the rule in Hastings-Bass does not have a positive counterpart, in that it does not provide for rectification in circumstances where something should have been done but has not been done. For example, where trustees should have made an appointment by a particular date, but failed to do so and instead made a purported appointment after that date, the rule would not apply to the purported appointment made after the relevant date in order to prevent it from being a nullity, even though the trustees would not have acted as they did, had they appreciated the time limit.74
D. Breach of Fiduciary Duty In Pitt v Holt, the transaction is said to be voidable only if the inadequate deliberations were ‘in breach of fiduciary duty on the part of the trustees’.75 That raises the question76 of whether a breach of fiduciary duty is necessary and, if so, whether inadequate deliberations constitute such a breach. The Lieutenant Bailiff concluded in Re Richmond (correctly in the authors’ view) that it was part of the trustee’s non-fiduciary duty, rather than a fiduciary duty, but that it made no difference in relation to the engagement of the Hastings-Bass principle. The Court of Appeal did
69 HCS
Trustees Limited v Camperio Legal and Fiduciary Services Plc (n 61). the Aylesford Trust (n 61). 71 ibid para 9. 72 Re Richmond (Royal Court, 12 January 2018) (Judgment 1/2018) para 50. 73 Re Richmond (n 60) para 38. 74 Breadner v Granville-Grossman [2001] Ch 523. 75 Pitt v Holt (n 11) [127]. 76 Discussed by the Lieutenant Bailiff at first instance in Re Richmond (n 72) paras 84–105. 70 Re
282 Remedial Applications to Court not decide the point, noting that there are differences of views and that the cases were ‘not easy to reconcile’77 the approach in Pitt v Holt, which suggests that there must be a breach of a fiduciary duty, with that in Spread Trustee v Hutcheson,78 in which Lord Kerr said that where what is alleged against the trustee is a breach of the duty of care owed to the beneficiaries by the trustee, the fiduciary duties of the trustee are of no relevance. Nothing in the fiduciary duties owed by the trustee alter[s] the standard of the duty of care owed by it.79
In any event, it seems sufficiently clear that nothing turns on that point, as it is a breach of the duty of adequate deliberation of sufficient gravity that is a necessary prerequisite to avoid a transaction under the Hastings-Bass principle. That was the finding in Re Richmond in the Court of Appeal, and it was the reason why the Court did not find it necessary to determine the point.80
E. Causal Connection At first instance in Re Richmond, it was held that the breach must have ‘caused damage to a beneficiary qua beneficiary’.81 This was rejected in the Court of Appeal, but if the decision taken in breach did cause loss to a beneficiary or the trust fund, ‘that is likely to be a material factor when the court comes to decide what, if any, relief to grant in respect of that breach of duty … that would be a matter which goes to the discretion of the court when deciding whether to grant relief ’.82
F. Failure to Consider Tax Implications The trustee in Re Richmond never ascertained whether the beneficiary had in fact obtained his own tax advice, as a result, ‘it completely ignored the tax consequences for the plan’s beneficiary … This was an extremely serious failure to consider a relevant matter … [which] was clearly of sufficient gravity to constitute a breach of duty’.83
G. Factors Relevant to the Exercise of Court’s Discretion Once a breach of duty has been found, it is clear from Pitt v Holt that the decision is voidable, and it is a matter of discretion as to whether or not the court will grant
77 Re
Richmond (n 60) para 52. Trustee Company Limited v Hutcheson [2011] UKPC 13. 79 ibid [61]. 80 Re Richmond (n 60) para 53. 81 Re Richmond (n 72) paras 104, 106, 107, 135 and 186(3). 82 Re Richmond (n 60) para 57. 83 ibid para 62(vi). 78 Spread
The Rule in Hastings-Bass 283 relief. There is no additional test of unconscionability,84 nor is there any requirement for an ‘extreme case’,85 or any need for any ‘heightened level of misconduct’ beyond that required to find a breach of duty.86 The cases where the possibility of a claim against professional advisers will be relevant are ‘very rare’.87
84 ibid para 66. 85 ibid para 70. 86 ibid para 71. 87 ibid para 78; contrast the position in relation to rescission on the ground of mistake, where it seems that the availability of a professional negligence claim is a factor to be considered in the exercise of the court’s discretion as to whether to set aside the transaction: see section IV.B of this chapter.
16 Regulation of Fiduciaries I. Background The licensing of trustee business in Guernsey was under consideration for some years.1 Arguments in favour of some form of regulation included the following: (a) that such regulation should be even-handed in its application, given the increasing regulation over other types of financial/investment business;2 (b) remedies, such as bringing a court action for breach of trust, are only available after something has gone wrong, which might lead to a reputational risk to Guernsey;3 and (c) certain other jurisdictions were introducing licensing.4 There had been, in fact, limited control over trustee business since 1984, when special conditions were attached to Guernsey-registered companies acting as trustee companies.5 The early proposals envisaged that there would be a notification system, rather than a licensing system. Other principles that were considered, and which have been adopted subsequently, include the following: • that trustee business be conducted with prudence, professional skill and integrity; • that Guernsey should not to be brought into disrepute; • directors and principals of a trustee business should be fit and proper persons; • two individuals should direct a trustee business (the ‘four-eyes principle’); and • that a trustee business should have adequate resources for the business that it undertakes.6
1 See the Guernsey Fiduciary Business Law Joint Working Group, Consultation Document, Supervision of Fiduciary Business (October 1997). 2 ibid para 1.2. 3 ibid para 2.3. 4 ibid para 2.3. 5 ibid para 2.4. 6 ibid para 4.1.
The Regulatory Regime for Professional Fiduciaries 285
II. The Guernsey Financial Services Commission The Guernsey Financial Services Commission (‘the GFSC’) is a body set up by statute,7 with wide supervisory powers over financial institutions in the Bailiwick of Guernsey. Since 1 April 2001, when the Fiduciaries Law 2000 came into force, the GFSC has supervised professional trusteeships carried out in the Bailiwick of Guernsey, which includes Alderney and Sark.8 The GFSC generally has regard to: (a) the protection of the public interest, including the protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons carrying on finance business; and (b) the protection and enhancement of the reputation of the Bailiwick as a financial centre.9 There are provisions for the GFSC to exchange information with other agencies, including: (a) for the purposes of the investigation, prevention or detection of crime, or with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings; (b) in connection with the discharge of any international obligation to which the Bailiwick is subject; and (c) assisting, in the interests of the public or otherwise, any authority outside the Bailiwick that appears to the GFSC to exercise functions similar to any of those of the GFSC.10 The GFSC is only subject to liability in the context of the Fiduciaries Law 2000 where it has acted in bad faith.11
III. The Regulatory Regime for Professional Fiduciaries A. Regulated Activities ‘Regulated activities’12 comprise: (a) the formation, management or administration of trusts, and the provision of advice in relation to such formation, management or administration of trusts, including: (i) acting as trustee or protector,13 (ii) the provision of corporate or individual trustees or protectors;
7 The
Financial Services Commission (Bailiwick of Guernsey) Law, 1987 (‘FSC Law 1987’). Law 2000, s 1(1), (2). 9 FSC Law, s 2(4). 10 FSC Law, s 21(2). 11 Fiduciaries Law 2000, s 57. 12 Fiduciaries Law 2000, ss 1(1) and 2(1); see also ch 10, section III. 13 As to the meaning of ‘protector’ in this context, see ch 10, section III. 8 Fiduciaries
286 Regulation of Fiduciaries (b) company administration, including: (i) the formation, management or administration of companies, partnerships or other unincorporated bodies14 and the provision of advice in relation to such formation, management or administration, (ii) the provision to such companies, partnerships of unincorporated bodies of: (A) directors; (B) secretary or other corporate officers; (C) nominee services (including acting as or providing nominee shareholders) or (D) registered office or accommodation addresses; and (iii) acting as a director or partner, (c) the provision of executorship services, including acting as, or accepting an appointment made by will as, an executor of a will or an administrator of a deceased’s estate; (d) the formation, management or administration of foundations15 and the provision of advice in relation to such formation, management or administration including acting as or providing a foundation official; and (e) the formation, management or administration of pension schemes or gratuity schemes and the provision of advice in relation to the formation, management or administration of pension schemes or gratuity schemes.16 Paragraph (a) is defined as ‘trust business’ (when carried on by way of business and not exempt under section 3), and any person who carries on trust business is known as a trust service provider or ‘TSP’.17
B. Exemptions The Fiduciaries Law 2000 also provides exemptions from regulation,18 which, in the context of trusts, include: (a) acting as trustee or custodian of collective investment schemes authorised by the GFSC; 14 Whether incorporated or established in or under the laws of the Bailiwick of elsewhere: Fiduciaries Law 2000, s 2(1)(b)(i). 15 Whether created under the Foundations (Guernsey) Law, 2012, or an equivalent or similar body created or established under the law of another jurisdiction: Fiduciaries Law, 2000, s 2(1)(d). 16 Para (d) was inserted, with effect from 14 January 2013, by the Regulation of Fiduciaries, Administration Business and Company Directors etc (Bailiwick of Guernsey) (Foundations Amendment) Regulations, 2013 (SI 4/2013) reg 1; para (e) was inserted the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) (Pensions Amendment) Regulations, 2017 (SI 34/2017) reg 1, with effect from 30 June, 2017. 17 Code of Practice for Trust Service Providers, para 1 (‘Definitions’), available at www.gfsc.gg. 18 Fiduciaries Law 2000, s 3(1).
Private Trust Companies 287 (b) a lawyer19 acting as executor of the will of, or as administrator of the estate of, or as trustee of a will trust of, a person who was resident or domiciled in Guernsey at the time of execution of his will or at his death; and (c) lawyers drafting documents or providing advice in the ordinary course of carrying on their profession.
IV. Principal Offence No person may carry on a regulated activity in or from within the Bailiwick ‘by way of business’ except under the authority and in accordance with the conditions of a fiduciary licence; and a Bailiwick company may not carry on a regulated activity anywhere in the world other than under the authority and in accordance with the conditions of a fiduciary licence.20 Contravention is an offence.21
A. Meaning of ‘By Way of Business’ For the purposes of the Fiduciaries Law, a ‘person who carries on any activity shall be deemed to do so by way of business if he receives any income, fee, emolument or other consideration in money or money’s worth for doing so’.22 This is not an exhaustive definition, so while anyone who charges a fee is automatically caught,23 the converse is not true; thus it is possible that someone who does not charge a fee may still be caught. However, if that person is not carrying on business with a view to a profit, it seems that he or she will not be caught by the definition.24
V. Private Trust Companies A private trust company (‘PTC’) may apply to the GFSC for a discretionary exemption if: (a) it acts as trustee to a specific trust or a group of connected trusts with a common interest, for example trusts for one family; 19 For these purposes, a ‘lawyer’ is a Guernsey advocate or a UK solicitor or barrister: Fiduciaries Law 2000, s 58(1). 20 Fiduciaries Law 2000, s 1(1), (2). 21 Fiduciaries Law 2000, s 1(3). 22 Fiduciaries Law 2000, s 58(3). 23 Although see section V of this chapter. 24 Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited and others (Royal Court, 17 March 2017) (Judgment 30/2017) para 16: the Public Trustee was held not to require a licence under the Protection of Investors (Bailiwick of Guernsey) Law, 1987 to act as the trustee of a unit trust, as she is prohibited from making a profit (under the Public Trustee Act 2002, s 2(2)); see also ch 17, section IV.
288 Regulation of Fiduciaries (b) it does not advertise or market its services to the public in any way; (c) its name does not include any reference to ‘trust’ or ‘trustee’, unless an application is also made for permission to use those names at the same time (although ‘PTC’ may be used without having to obtain permission); (d) it is administered by a company licensed under the Fiduciaries Law; and (e) the licensed fiduciary that will administer the PTC confirms to the GFSC that it will retain sufficient knowledge and information about the PTC’s ownership and control structure and about its activities to be satisfied that – (i) the PTC is effectively administered and governed, and (ii) the PTC complies with relevant laws and regulatory requirements. The GFSC’s guidance confirms that this may be achieved, for example, by provision of a director to the board of the PTC, provision of a company secretary, provision of an authorised signatory, and close monitoring and oversight of the PTC.25
VI. Types of Licences A company or partnership must hold a ‘full fiduciary licence’ and an individual must hold a ‘personal fiduciary licence’.26 A personal licence may cover ‘acting as trustee (provided that he does not act as a sole trustee) or as protector for trusts’.27
A. Relevant Persons The GFSC must be satisfied that the minimum criteria for licensing28 are met: (a) by an applicant for a fiduciary licence; and (b) in the case of a company or partnership applying for a full fiduciary licence, by any director, controller, partner or manager of the applicant, or, indeed, by any person proposing to hold such a position (‘relevant persons’).29
25 GFSC Statement of Guidance on Private Trust Companies, available at https://www.gfsc.gg/sites/ default/files/June%202019%20-%20PTC%20Guidance%20-%20FINAL%202.pdf. 26 Fiduciaries Law 2000, s 4(1). 27 Fiduciaries Law 2000, s 4(3)(b)(ii). 28 These are set out in sch 1 to the Fiduciaries Law 2000. 29 Fiduciaries Law 2000, s 6(2), (3).
Other Powers under the Fiduciaries Law 2000 289 The GFSC may revoke a fiduciary licence if the licensee fails to meet the minimum criteria, or, in the case of a body with a full fiduciary licence, if any relevant person fails to meet those criteria.30
B. The Minimum Criteria for Licensing Broadly, the minimum criteria are: (a) that the regulated activities are or will be carried on with integrity and skill; (b) licensees and relevant persons are fit and proper persons; (c) a business with a full fiduciary licence is or will be directed by at least two individuals resident in the Bailiwick, with appropriate standing and experience who are sufficiently independent of each other; (d) where the applicant or licensee is a company, the board of directors include such number of executive and non-executive directors as the GFSC considers appropriate having regard to the circumstances of the company and the nature and scale of its operations; and (e) the business is or will be conducted in a prudent manner.31
VII. Other Powers under the Fiduciaries Law 2000 The Fiduciaries Law confers a wide raft of regulatory powers on the GFSC. These include: (a) the power to impose conditions on licences when granted and at any time after such grant;32 (b) the power to issue directions to licensed fiduciaries,33 which could include, for example, a prohibition on employing a named individual; (c) the power to issue a ‘no objection’ or an ‘objection’ notice in relation to notification of proposed changes to a person’s becoming a controller or a partner in a licensed fiduciary;34 (d) the power to issue a notice of objection to a person who is an existing controller or partner in a licensed fiduciary on grounds that he or she is not, or is no longer, a fit and proper person;35 (e) wide investigatory powers.36
30 Fiduciaries
Law 2000, s 8(1)(a). Law 2000, sch 1. 32 Fiduciaries Law 2000, s 9. 33 Fiduciaries Law 2000, s 12. 34 Fiduciaries Law 2000, s 14. 35 Fiduciaries Law 2000, s 15. 36 Fiduciaries Law 2000, ss 23–28. 31 Fiduciaries
290 Regulation of Fiduciaries
VIII. Licensees’ Obligations There are a number of obligations imposed on licensees, which include: (a) the requirement for a licensed fiduciary with a full licence to notify the GFSC when a person becomes, or ceases to be, a director, controller, partner or manager of that entity;37 and (b) the requirement for a person to notify the GFSC on becoming a ‘significant’ shareholder38 (ie broadly, a person who, either alone or with associates, is able to exercise or control the exercise of between 5 per cent and 15 per cent39 of voting rights in a general meeting). After appropriate consultation, the GFSC may also issue codes of practice.40 Whilst a breach of such a code is not, in itself, an offence, the GFSC will take it into account in exercising its powers. A court may also take into account such a breach, to the extent that it considers it relevant. Codes of Practice have been issued for trust service providers, corporate service providers, company directors and foundation service providers.41
37 Fiduciaries Law 2000, s 21. 38 Fiduciaries Law 2000, s 22. 39 A person may not become a ‘controlling shareholder’ (ie able to exercise or control the exercise, either alone or with associates, of 15% or more of a licensed fiduciary: Fiduciaries Law 2000, s 58) until he or she has (i) notified the GFSC in writing of his or her intention to become a shareholder controller, and (ii) received written notification from the GFSC that it has no objection to his or her becoming a controlling shareholder: ibid, s 14. 40 Fiduciaries Law 2000, s 35. 41 The Code for foundation service providers came into operation on 2 September 2013, and the current version of the other Codes came into operation on 1 August 2009; they are all available at www. gfsc.gg.
17 The Public Trustee I. The Office of the Public Trustee One issue that arose out of the regulation of trustee businesses was what should be done if the Guernsey Financial Services Commission (GFSC) wished to remove trustee business from a body that it considered to be unfit. Rather than take over that business itself, or transfer it to other licensed bodies directly or to, say, accountants appointed for the particular occasion, a legislative solution has been found in the creation of the ‘Office of the Public Trustee’. The Advisory and Finance Committee stated in one of the two policy letters presented to the States of Guernsey that the Public Trustee was intended to act as a ‘trustee of last resort’.1 This was considered necessary for two reasons: (i) to ‘avoid the situation arising where trust property is put at risk because there is no trustee, for example because the last trustee has died or become unable to act’;2 and (ii) where an unlicensed person may need to be replaced to avoid placing trust assets at risk. The second policy letter proposed that the Public Trustee be appointed if all or some of the beneficiaries were not identified or could not be found.3 The office was established under the provisions of the Public Trustee Law 2002. The Public Trustee is appointed by the States, the first person to hold the office being appointed in 2004, and must exercise the functions assigned or transferred to him or her by or under the Public Trustee Law and any other enactment.4 The Public Trustee must act as a trustee in the circumstances set out in section 2(1) and in no other circumstances:5 ‘It is not the function of the Public Trustee to act as a trustee other than in circumstances assigned to that office by legislation.’6
1 Billet d’Etat XIX of 31 July 2002, 1553, available at www.gov.gg. 2 ibid. 3 Billet d’Etat VI of 2003, 830; see also Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited and others (Royal Court, 17 March 2017) (Judgment 30/2017) para 27. 4 Public Trustee (Bailiwick of Guernsey) Law, 2002 (‘the Public Trustee Law’), s 1(2). 5 Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited (n 3) para 26. 6 ibid para 28.
292 The Public Trustee
II. Trusts in Respect of which the Public Trustee May Act Under section 4 of the Public Trustee Law 2002, the Public Trustee may act as trustee in respect of the following trusts (and this cannot be overridden by the terms of the trust): (a) any trust which is subject to Guernsey, Alderney or Sark law. This jurisdiction remains in effect even if the proper law of the trust changes in any particular circumstance, on the happening of a particular event or on the exercise of a power under the trust to change the proper law; (b) any other trusts: (i) where a trustee is resident in the Bailiwick of Guernsey, (ii) where a trustee is a Guernsey or Alderney company, (iii) that have no existing trustee but whose last trustee was one covered by sub-paragraph (i) or (ii), (iv) that have property situated or administered in the Bailiwick, (v) where the trust terms provide that a Guernsey, Alderney or Sark Court is to have jurisdiction, or (vi) that have a trustee: (aa) that is or was or has applied to be licensed under the Fiduciaries Law 2000; or (bb) which is carrying on an unlawful trustee business contrary to section 1 of the Fiduciaries Law 2000.7
III. The Functions of the Public Trustee Subject to the provisions as to his or her appointment,8 the Public Trustee may act as trustee of a trust9 where: (a) the trust has no trustee who can lawfully act; (b) a Guernsey law trust has fewer than the minimum number of trustees;10 (c) it is necessary or desirable to preserve trust assets or protect beneficiaries, or to protect or enhance the reputation of the Bailiwick; or (d) all or any of the beneficiaries of the trust cannot be identified, ascertained or found. Section 2 is subject to the sections 3 and 4,11 both of which restrict the trusts to which the Public Trustee may be appointed as trustee.
7 The
States may by Ordinance add to the categories set out in the text. section V. 9 Public Trustee Law 2002, s 2(1)(a). 10 Trusts Law 2007, s 17(1); see also ch 7, section I. 11 Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited (n 3) para 32. 8 See
Appointment of the Public Trustee as Trustee 293 If the above-mentioned circumstances cease to apply (eg where beneficiaries who could not be identified are subsequently identified), ‘it would no longer be [the Public Trustee’s] function to continue to act’, so he or she could only continue in pursuit of one of his or her other functions, if they applied; but if they did not and he or she continued as trustee in the meantime, his or her appointment would still be valid.12
IV. Regulation The Public Trustee is prohibited from making a profit, as the fees and interest that he or she can charge may not exceed the ‘fees, expenditure and liabilities actually and reasonably incurred by the Public Trustee in connection with the exercise of his functions in that particular case’.13 The Public Trustee does not therefore require a licence under any regulatory legislation that applies only to activities carried on ‘by way of business’, such as the Protection of Investors (Bailiwick of Guernsey) Law, 1987.14 He or she is also carrying out a statutory function and is not therefore ‘conducting a business’.15
V. Appointment of the Public Trustee as Trustee The Public Trustee may be appointed to act as trustee of a trust16 where: (a) the persons who have the power to appoint new or additional trustees under the trust agree; (b) subject to the right of appeal,17 the Public Trustee appoints himself or herself; (c) by order of the Court18 made on the application of the Public Trustee, the GFSC, a trustee, settlor or beneficiary of the trust, or, with the leave of the Court, any other person. If the Court appoints the Public Trustee to act as trustee, it may make the appointment subject to terms and conditions.19
12 Public Trustee Law 2002, s 3(4); Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited (n 3) para 29. 13 Public Trustee Law 2002, s 2(2). 14 Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited (n 3) para 16; see also ch 16, section IV.A. 15 Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited (n 3) para 34. 16 Public Trustee Law 2002, s 3. 17 Pursuant to Public Trustee Law 2002, s 12; see section VII of this chapter. 18 The ‘Court’ is the Alderney Court or the Sark Court in cases where the relevant Court has jurisdiction and the Royal Court of Guernsey does not. In any other case, the ‘Court’ is the Guernsey Royal Court. 19 Public Trustee Law 2002, s 3(3).
294 The Public Trustee The appointment of the Public Trustee overrides any term of the relevant trust, or any enactment or rule of law.20 A provision of the trust instrument mandating that the trustee must be a company does not therefore prevent the Public Trustee’s being validly appointed.21
VI. Supplementary Powers and Provisions The Public Trustee has a number of supplementary powers, which include the following: (a) Power to do anything necessary or expedient for the purpose of exercising his or her functions, including powers to: (i) request the production of documents, accounts or information;22 (ii) publish information, reports and other documents;23 and (iii) appoint persons to advise him or her in relation to the exercise of any of his or her functions.24 (b) Wide powers of dealing with property, including entering into security arrangements and into any contract.25 (c) Power to refer questions of law ‘arising in connection with the performance … of his functions’ to the Royal Court in accordance with orders to be prescribed by the Court.26 (d) Power to obtain injunctions in connection with any trust for which he or she acts, or in respect of which he or she has functions.27 (e) Power to investigate, where he or she reasonably requires information for the performance of his or her functions, including whether he or she should act as a trustee.28 This includes powers to require that documents or information be produced, that documents be copied and that appropriate persons provide explanations in relation to relevant documents. If these powers prove insufficient, there can be enforcement by a warrant, issued by the Bailiff or by the appropriate judge in Alderney or Sark.29 Statements made by someone under this provision may not generally be used in evidence against that person in criminal proceedings, except for offences under the Public Trustee Law.30 The usual principles will apply with regard to legal professional privilege. 20 Public Trustee Law 2002, s 3(4). 21 Kleinwort Benson (Guernsey) Limited v Aras Investment Management Limited (n 3) para 16. 22 Public Trustee Law 2002, s 5(1)(a). 23 Public Trustee Law 2002, s 5(1)(b). 24 Public Trustee Law 2002, s 5(1)(c). 25 Public Trustee Law 2002, s 5(2). 26 Public Trustee Law 2002, s 13. 27 Public Trustee Law 2002, s 14. 28 Public Trustee Law 2002, s 15. 29 Public Trustee Law 2002, ss 16–17. 30 Public Trustee Law 2002, s 15(5); the offences are set out in s 19(1) and relate to the provision of false or misleading information.
Confidentiality 295
VII. Appeals against Decisions of the Public Trustee There is a right of appeal by a person who is aggrieved by a decision of the Public Trustee either to appoint himself or herself as trustee of a trust, or to require the production of documents or information.31 The appeal must be lodged within 28 days of the date of the relevant decision (or such other period as the Court allows). An appeal may be brought on the grounds that: (a) (b) (c) (d)
the decision was ultra vires, or that some other error of law has been made; a material error as to the facts has been made; there was a material procedural error; or there was some other material irregularity, including unreasonableness, bad faith or lack of proportionality.
However, appeals are not permitted under section 12 in relation to anything done or omitted by the Public Trustee as trustee of any trust.32
VIII. Confidentiality The Public Trustee Law 2002 creates a duty of confidentiality in respect of documents and information obtained under the Law, which is backed up by a criminal offence.33 However, there is a long list of exceptions to this duty of confidentiality, which includes the following: (a) where the information is in the public domain; (b) where disclosure is for the purpose of enabling or assisting the Public Trustee to discharge his or her functions; (c) where the Public Trustee refers a matter to a professional person for advice; (d) where the Public Trustee discloses information in the interests of beneficiaries of a trust in respect of which the Public Trustee has been appointed as trustee; (e) for the purpose of enabling or assisting the GFSC (whether for the Fiduciaries Law 2000 or otherwise) or a foreign supervisory body in the exercise of their functions; (f) to comply with the Public Trustee Law, or enabling or assisting another to comply; (g) for the investigation, prevention or detection of crime, or with a view to the instigation of, or otherwise for the purposes of, any criminal proceedings; (h) in connection with any proceedings under the Public Trustee Law; (i) for disciplinary proceedings relating to a person’s professional duties;
31 Public
Trustee Law 2002, s 12. Trustee Law 2002, s 12(2). 33 Public Trustee Law 2002, s 20. 32 Public
296 The Public Trustee (j) in connection with offences under the Public Trustee Law that relate to the production of documents and information; (k) in relation to any scheme to compensate clients, investors or beneficiaries wherever constituted; (l) in connection with the discharge of any applicable international obligation; (m) where disclosure is to assist, in the public interest, any body outside the Bailiwick exercising a function like that of the Public Trustee; (n) in order to comply with any Court order. There are also restrictions on the duty of confidentiality in relation to information given to the Public Trustee by any department of the States of Guernsey or by the GFSC.34 It is a defence to any offence committed under the Public Trustee Law ‘for the accused to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence by himself and by any person under his control’.35
IX. Limitation of Liability The Public Trustee and those working under him or her are exempt from liability in connection with the discharge of their functions, other than in respect of an act or omission arising from bad faith.36
X. Public Trustee to Act Alone in Most Cases The Public Trustee will normally act as sole trustee. The Trusts Law 2007, section 28(5) provides: [S]ubject to the provisions of subsection (6), in the case of a trust in respect of which the Public Trustee has been appointed to act as trustee under the Public Trustee (Bailiwick of Guernsey) Law, 2002 – (a) the Public Trustee shall act alone in the execution of the trust, (b) functions conferred on the trustees shall be exercised by the Public Trustee without the agreement of any other trustee, and (c) the functions of any trustee other than the Public Trustee shall cease, for so long as the appointment of the Public Trustee continues.
That may be disapplied by the Public Trustee in writing, or by the Court, either at the time of the appointment or at any other time.37
34 Public
Trustee Law 2002, s 20(4). Trustee Law 2002, s 22. 36 Public Trustee Law 2002, s 23. 37 Trusts Law 2007, s 28(6). 35 Public
Remuneration 297
XI. Delegation The Public Trustee has statutory powers of delegation in addition to those conferred by the terms of the trust of which he or she is a trustee.38 He or she may, in writing, delegate any functions to any person (including any of his or her officers or servants), other than the power to delegate itself and the obligation to submit an annual report to the States Committee for Economic Development.39 All actions taken pursuant to a delegation are treated as made by the Public Trustee for all purposes, and all things done and decisions taken have the same effect as if done or made by the Public Trustee.40 A delegation may be varied or terminated at any time, without prejudice to anything done before then, and does not prevent the exercise of the relevant function by the Public Trustee while the delegation subsists.41
XII. Remuneration The Public Trustee has a statutory power to pay his or her fees out of the relevant trust fund, unless the court appointing the Public Trustee directs otherwise or the Royal Court directs otherwise at any other time.42
38 Trusts
Law 2007, s 33(1); see ch 8, section II.E. Trustee Law 2002, sch, para 3(1). 40 Public Trustee Law 2002, sch, para 3(2). 41 Public Trustee Law 2002, sch, para 3(3). 42 Trusts Law 2007, s 35(4). 39 Public
APPENDIX: TRUSTS (GUERNSEY) LAW, 2007 Order in Council No.III of 2008
PROJET DE LOI ENTITLED
The Trusts (Guernsey) Law, 2007 ARRANGEMENT OF SECTIONS PART I PRELIMINARY 1. 2. 3. 4.
Existence of a trust Validity of trusts. Proper law of trust. Jurisdiction of court. PART II PROVISIONS APPLICABLE ONLY TO GUERNSEY TRUSTS
5.
Application of Part II. Creation, validity and duration of Guernsey trusts
6. 7. 8. 9. 10. 11. 12. 13.
Creation of a trust. Property which may be held on trust. Beneficiaries of a trust. Disclaimer of beneficial interest. Nature of beneficial interest. Validity and enforceability of trust. Trusts for non-charitable purposes; and enforcers. Duty of enforcer not to profit from his office.
Appendix: Trusts (Guernsey) Law, 2007 299 14. Application of Guernsey law to questions of validity. 15. Reservation or grant of certain powers does not invalidate trust. 16. Duration of trust, etc. Appointment, retirement and discharge of trustees 17. 18. 19. 20. 21.
Number of trustees. Appointment of new or additional trustees. No renunciation after acceptance. Resignation or removal of trustees. Position of continuing trustees on reduction in number of trustees. Duties of trustees
22. 23. 24. 25. 26. 27. 28. 29.
General fiduciary duties. Duty to get in and preserve trust property. Duty of trustee not to profit from trusteeship. Duty to keep accounts. Duty to give information. Duty to keep trust property separate. Duty of co-trustees to act together. Impartiality of trustees. General powers of trustees
30. 31. 32. 33. 34. 35. 36. 37. 38.
Powers of trustees in relation to property. Power to sue and compromise. Consultation by trustees. Delegation by trustees. Powers of attorney. Remuneration and expenses of trustees. Power to appropriate. Corporate trustee may act by resolution. Non-disclosure of deliberations or letters of wishes. Liability for breach of trust
39. 40. 41. 42. 43. 44.
Liability for breach of trust. Beneficiary may relieve or indemnify trustee. Trustees of more than one trust. Dealings by trustees with third parties. Position of outgoing trustees. Trustees’ lien.
300 Appendix: Trusts (Guernsey) Law, 2007 Protective trusts, class interests and certain powers 45. 46. 47. 48. 49. 50. 51.
Protective trusts. Class interests. Power of variation. Power of accumulation and advancement. Power of appointment. Power of revocation. Change of proper law. Failure, lapse and termination of trusts
52. Failure or lapse of interest. 53. Termination of trusts. Powers of the court 54. Appointment of resident trustees. 55. Power to relieve trustees from personal liability. 56. Power to make beneficiaries indemnify. Variation, etc. of trusts 57. 58. 59. 60. 61. 62. 63.
Variation of trusts on behalf of minors, etc. Approval of particular transactions. Charitable and non-charitable trusts – “cy-près”. General power to vary. Trusts created by Orders in Council. Judgement against trustee to be binding on beneficiaries. Settlement of action against trustee by alternative dispute resolution to be binding on beneficiaries. PART III PROVISIONS APPLICABLE ONLY TO FOREIGN TRUSTS
64. Application of Part III. 65. Enforceability of foreign trusts. PART IV PROVISIONS OF GENERAL APPLICATION 66. Application of Part IV. 67. Rules of Royal Court. 68. Applications for directions.
Appendix: Trusts (Guernsey) Law, 2007 301 69. 70. 71. 72. 73. 74. 75. 76. 77.
General powers of court. Powers of court in event of default. Payment of costs. Nature of trustee’s interest. Following trust property. Bankruptcy of trustees. Protection for persons dealing with trustees. Limitation and prescription. Constructive trusts. PART V SUPPLEMENTAL
78. Application of Law. 79. Constitution of Royal Court. 80. Interpretation. 81. Power to amend Law by Ordinance. 82. General provisions as to subordinate legislation. 83. Repeals and transitional provisions. 84. Savings. 85. Citation. 86. Commencement.
302 Appendix: Trusts (Guernsey) Law, 2007
PROJET DE LOI ENTITLED
The Trusts (Guernsey) Law, 2007 THE STATES, in pursuance of their Resolution of the 15th December, 2006a, have approved the following provisions which, subject to the Sanction of Her Most Excellent Majesty in Council, shall have force of law in the Island of Guernsey. PART I PRELIMINARY Existence of a trust. 1. A trust exists if a person (a “trustee”) holds or has vested in him, or is deemed to hold or have vested in him, property which does not form or which has ceased to form part of his own estate – (a) for the benefit of another person (a “beneficiary”), whether or not yet ascertained or in existence, and / or (b) for any purpose, other than a purpose for the benefit only of the trustee. Validity of trusts. 2. Subject to the provisions of this Law, a trust is valid and enforceable in Guernsey. Proper law of trust. 3. (1) Subject to sections 51 and 57, the proper law of a trust is – (a) the law chosen by the settlor to be the proper law, the choice being expressed or implied in the terms of the trust, or (b) if no law is so chosen, the law with which the trust has its closest connection at the time of its creation, and in determining the law with which a trust has its closest connection regard shall be had in particular to (i) the place of administration of the trust designated by the settlor, (ii) the situs of the assets of a trust, (iii) the place of residence or business of the trustee, (iv) the objects of the trust and the places where they are to be fulfilled.
a Article
VIII of Billet d’État No. XXI of 2006.
Appendix: Trusts (Guernsey) Law, 2007 303 (2) A trust the proper law of which is the law of Guernsey is referred to in this Law as a “Guernsey trust”. (3) For the purposes of subsection (1)(a), where the proper law of a trust is expressed (in whatever terms) to be the law of the Bailiwick of Guernsey, without further particularity, the proper law of the trust shall be deemed to be the law of Guernsey. Jurisdiction of court. 4. (1) The Royal Court sitting as an Ordinary Court (“the Royal Court”) has jurisdiction in respect of – (a) a Guernsey trust, and (b) any other trust – (i) a trustee of which is resident in Guernsey, (ii) any property of which is situated or administered in Guernsey, or (iii) the terms of which provide that the Royal Court is to have jurisdiction. (2) For the purposes of subsection (1)(b)(iii), where the terms of a trust provide, in whatever terms and without further particularity, that the courts of the Bailiwick, or the courts of Guernsey, are to have jurisdiction, the terms of the trust shall be deemed to provide that the Royal Court is to have jurisdiction, PART II PROVISIONS APPLICABLE ONLY TO GUERNSEY TRUSTS Application of Part II. 5. This Part of this Law applies only to Guernsey trusts. Creation, validity and duration of Guernsey trusts Creation of a trust. 6. (1) Subject to subsections (2), (3) and (4), a trust may be created(a) by oral declaration, (b) by an instrument in writing, (c) by conduct, or (d) in any other manner whatsoever. (2) A unit trust may be created only by an instrument in writing. (3) A trust of real property situated in Guernsey may be created only by an instrument in writing.
304 Appendix: Trusts (Guernsey) Law, 2007 (4) Nothing in subsection (3) (a) applies in relation to a trust of real property created before the commencement of this Law, or (b) affects the creation or operation of resulting, implied or constructive trusts. (5) No technical expressions are needed for the creation of a trust. Property which may be held on trust. 7. (1) Any property may be held on trust. (2) A trustee may accept property to be held on trust from any person. Beneficiaries of a trust. 8. (1) A beneficiary shall be (a) identifiable by name, or (b) ascertainable by reference to – (i) a class, or (ii) a relationship to another person, whether or not living at the time of the creation of the trust or at the time by reference to which, under the terms of the trust, members of a class are to be determined. (2) The terms of a trust may provide for the addition or removal of a person as beneficiary or for the exclusion from benefit of a beneficiary either revocably or irrevocably. (3) The terms of a trust may impose an obligation on a beneficiary as a condition of benefit. (4) A settlor or trustee of a trust may also be a beneficiary thereof. Disclaimer of beneficial interest. 9. (1) Subject to the terms of the trust, a beneficiary may disclaim his interest or any part of it, whether or not he has received any benefit from it. (2) A disclaimer shall be in writing and, subject to the terms of the trust (a) may be temporary, and (b) may, if the disclaimer so provides, be revoked in the manner and circumstances specified thereby. (3) A disclaimer is not effective until received by a trustee. Nature of beneficial interest. 10. The interest of a beneficiary is personal property and, subject to the terms of the trust, may be dealt with or charged accordingly.
Appendix: Trusts (Guernsey) Law, 2007 305 Validity and enforceability of trust. 11. (1) Subject to subsections (2) and (3), a trust is valid and enforceable in accordance with its terms. (2) A trust is invalid and unenforceable to the extent that – (a) it purports to do anything contrary to law of Guernsey, (b) it confers or imposes any right or function the exercise or discharge of which would be contrary to the law of Guernsey, (c) it has no beneficiary identifiable or ascertainable under section 8(1), unless (i) it is for a charitable purpose, and / or (ii) it is for a non-charitable purpose in relation to which it is valid and enforceable by virtue of section 12(1), or (d) the Royal Court declares that – (i) it was established by duress, fraud, mistake, undue influence or misrepresentation or in breach of fiduciary duty, (ii) it is immoral or contrary to public policy, (iii) its terms are so uncertain that its performance is rendered impossible, or (iv) the settlor was, at the time of its creation, incapable of creating such a trust. (3) Where some of the terms of a trust are invalid but others are not – (a) if the terms cannot be separated, the trust is invalid, (b) if the terms can be separated, the Royal Court may declare that the trust is valid as to the terms which are valid. (4) Where a trust is partially invalid, the Royal Court may declare what property is and what property is not to be held subject to the trust. (5) Property as to which a trust is invalid shall, subject to any order of the Royal Court, be held by the trustees on trust for the settlor absolutely or, if he is dead, for his personal representative. (6) An application to the Royal Court under this section may be made by any person mentioned in section 69(2). Trusts for non-charitable purposes; and enforcers. 12. (1) A trust for or including non-charitable purposes created by an instrument in writing and the terms of which provide for (a) the appointment of an enforcer in relation to the trust’s non- charitable purposes, and (b) the appointment of a new enforcer at any time when there is none, is valid and enforceable in relation to its non-charitable purposes. (2) It is the fiduciary duty of an enforcer to enforce the trust in relation to its non-charitable purposes.
306 Appendix: Trusts (Guernsey) Law, 2007 (3) The appointment of a person as enforcer of a trust has no effect if the person is also a trustee of the trust. (4) An enforcer may resign his office by delivering a written notice of resignation to the trustees. (5) Subject to subsection (6), a resignation takes effect (a) on delivery of the notice, or (b) on such later date or on the happening of such later event as may be specified therein. (6) A resignation given to facilitate a breach of trust or a breach of the enforcer’s fiduciary duty has no effect. (7) An enforcer ceases to be the enforcer of a trust immediately on (a) his removal from office by the Royal Court, (b) his resignation becoming effective, (c) the coming into effect of a provision in the terms of the trust under or by which he is removed from office or otherwise ceases to hold office, or (d) his appointment as a trustee of the trust. (8) A trustee of a trust which includes non-charitable purposes which is valid and enforceable by virtue of subsection (1) shall, at any time when there is no enforcer in relation to those purposes, take such steps as may be necessary to secure the appointment of an enforcer. (9) Where the trustee of a trust which includes non-charitable purposes which is valid and enforceable by virtue of subsection (1) has reason to believe that the enforcer in relation to those purposes (a) is unwilling or is refusing to act, (b) is bankrupt or otherwise unfit to act, or (c) is incapable of acting, the trustee shall apply to the Royal Court for the removal of the enforcer and the appointment of a replacement. (10) For the avoidance of doubt, the settlor or a corporation can be appointed as an enforcer. (11) The terms of a trust for non-charitable purposes may provide for the addition, variation or removal of a non-charitable purpose of the trust or for the exclusion of a non-charitable purpose from the objects of the trust. Duty of enforcer not to profit from his office. 13. (1) An enforcer shall not (a) derive, directly or indirectly, any profit from his appointment, (b) cause or permit any other person to so derive any such profit, or
Appendix: Trusts (Guernsey) Law, 2007 307 (c) on his own account enter into any transaction with the trustees, or relating to the trust property, which may result in any such profit, except (i) with the approval of the Royal Court, (ii) as permitted by the provisions of this Law, or (iii) as expressly provided by the terms of the trust. (2) An enforcer is entitled to be paid, and shall be reimbursed, by the trustees from the trust property for all expenses and liabilities properly incurred in connection with the trust. Application of Guernsey law to questions of validity. 14. (1) Subject to the terms of the trust, all questions arising in relation to a Guernsey trust or any disposition of property to or upon such a trust, including (without limitation) questions as to (a) the capacity of the settlor, (b) the validity, interpretation or effect of the trust or disposition or any variation or termination thereof, (c) the administration of the trust, whether it is conducted in Guernsey or elsewhere, including (without limitation) questions as to the functions, appointment and removal of trustees and enforcers, (d) the existence and extent of any functions in respect of the trust, including (without limitation) powers of variation, revocation and appointment, and the validity of the exercise of any such function, (e) the distribution of the trust property, are to be determined according to the law of Guernsey without reference to the law of any other jurisdiction. For these purposes “the law of Guernsey” does not include the Guernsey rules of private international law, except those set out in this section. (2) Subsection (1) (a) does not validate any disposition of property which is neither owned by the settlor nor the subject of a power of disposition vested in the settlor, (b) does not affect the recognition of the law of any other jurisdiction in determining whether the settlor is the owner of any property or the holder of any such power, (c) is subject to any express provision to the contrary in the terms of the trust or disposition, (d) does not, in determining the capacity of a corporation, affect the recognition of the law of its place of incorporation, (e) does not affect the recognition of the law of any other jurisdiction prescribing the formalities for the disposition of property,
308 Appendix: Trusts (Guernsey) Law, 2007
(3)
(4)
(5)
(6)
(f) subject to subsection 3, does not validate any trust or disposition of real property situate in a jurisdiction other than Guernsey which is invalid under the law of that jurisdiction, and (g) subject to subsection 3, does not validate any testamentary disposition which is invalid under the law of the testator’s domicile at the time of his death. No Guernsey trust, and no disposition of property to or upon such a trust, is void, voidable, liable to be set aside, invalid or subject to any implied condition, nor is the capacity of any settlor, trustee, enforcer, trust official or beneficiary to be questioned, nor is any settlor, trustee, enforcer, trust official, beneficiary or third party to be subjected to any obligation or liability or deprived of any right, claim or interest, by reason that (a) the laws of any other jurisdiction prohibit or do not recognise the concept of a trust, or (b) the trust or disposition (i) avoids or defeats or potentially avoids or defeats rights, claims, interests, obligations or liabilities conferred or imposed by the law of any other jurisdiction on any person (A) by reason of a personal relationship to a settlor or any beneficiary, or (B) by way of foreign heirship rights, or (ii) contravenes or potentially contravenes any rule of law, judgment, order or action of any other jurisdiction intended to recognise, protect, enforce or give effect to any such rights, claims, interests, obligations or liabilities. Notwithstanding any legislation or other rule of law for the time being in force in relation to the recognition or enforcement of judgments, no judgment or order of a court of a jurisdiction outside Guernsey shall be recognised or enforced or give rise to any right, obligation or liability or raise any estoppel if and to the extent that (a) it is inconsistent with this Law, or (b) the Royal Court, for the purposes of protecting the interests of the beneficiaries or in the interests of the proper administration of the trust, so orders. This section applies (a) whenever the trust or disposition arose or was made, (b) notwithstanding any other provision of this Law. In relation to a Guernsey trust of personal property or any disposition of such property to or upon such a trust, the law of Guernsey relating to légitime and the rights of a surviving spouse apply only where the settlor is domiciled there at the time of his death.
Appendix: Trusts (Guernsey) Law, 2007 309 Reservation or grant of certain powers does not invalidate trust. 15. (1) A trust is not invalidated by the reservation or grant by the settlor (whether to the settlor or to any other person) of all or any of the following powers or interests (a) a power to revoke, vary or amend the terms of the trust or any trusts or functions arising thereunder, in whole or in part, (b) a power to advance, appoint, pay or apply the income or capital of the trust property or to give directions for the making of any such advancement, appointment, payment or application, (c) a power to act as, or give directions as to the appointment or removal of, a director or other officer of any corporation wholly or partly owned as trust property, (d) a power to give directions to the trustee in connection with the purchase, retention, sale, management, lending or charging of the trust property or the exercise of any function arising in respect of such property, (e) a power to appoint or remove any trustee, enforcer, trust official or beneficiary, (f) a power to appoint or remove any investment manager or investment adviser or any other professional person acting in relation to the affairs of the trust or holding any trust property, (g) a power to change the proper law of the trust or the forum for the administration of the trust, (h) a power to restrict the exercise of any function of a trustee by requiring that it may only be exercised with the consent of the settlor or any other person identified in the terms of the trust, (i) a beneficial interest in the trust property. (2) The reservation, grant or exercise of a power or interest referred to in subsection (1) does not (a) constitute the holder of the power or interest a trustee, (b) subject to the terms of the trust, impose any fiduciary duty on the holder, or (c) of itself render any trustee liable in respect of any loss to the trust property. (3) A trustee who acts in compliance with the valid exercise of any power referred to in subsection (1) does not, by reason only of such compliance, act in breach of trust. Duration of trust, etc. 16. (1) Subject to the terms of the trust and subsection (2) (a) there is no limit on the period for which a trust may continue to be valid and enforceable, and
310 Appendix: Trusts (Guernsey) Law, 2007 (b) for the avoidance of doubt, no rule against perpetuities or remoteness of vesting or any analogous rule applies to a trust or to any advancement, appointment, payment or application of property from a trust. (2) A trust created before the commencement of this Law shall terminate on the expiration of 100 years from the date of its creation, unless (a) it is a trust for charitable purpose, or (b) it is terminated sooner. (3) Except where the terms of a trust expressly provide to the contrary, no advancement, appointment, payment or application of income or capital from the trust to another trust is invalidated solely by reason of that other trust continuing to be valid and enforceable beyond the date on which the first trust must terminate. Appointment, retirement and discharge of trustees Number of trustees. 17. (1) The number of trustees of a trust shall not be less than two, unless (a) only one trustee was originally appointed, (b) a corporate trustee resident in Guernsey is acting, (c) the Public Trustee is acting, or (d) the terms of the trust provide otherwise. (2) A trust shall not fail on the ground that there is no trustee or less than the number required by subsection (1). Appointment of new or additional trustees. 18. (1) Where (a) the terms of a trust contain no provision for the appointment of a new or additional trustee, (b) any such provision has lapsed or failed, or (c) the person with power to make any such appointment is not capable of exercising the power, a new or additional trustee may be appointed by (i) the existing trustee, (ii) the last remaining trustee, (iii) the personal representative or liquidator of the last remaining trustee, or (iv) the Royal Court. (2) Subject to the terms of the trust, a trustee appointed under this section has the same functions, and may act in all respects, as if he had been originally appointed a trustee.
Appendix: Trusts (Guernsey) Law, 2007 311 (3) A trustee with power to appoint a new or additional trustee who fails to exercise the power may be removed from office by the Royal Court. (4) On the appointment of a new or additional trustee, anything necessary to vest the trust property in him jointly with his co-trustees (if any) shall be done. No renunciation after acceptance. 19. (1) A person appointed as trustee need not accept the appointment, but he shall be deemed to have done so if he knowingly intermeddles with the trust or its affairs. (2) A person appointed as trustee may, before acceptance (actual or deemed) (a) disclaim the appointment by notice in writing to the settlor or to the other trustees, or (b) if the settlor is dead or cannot be found, and there are no other trustees, apply to the Royal Court for relief from the appointment, whereupon the Royal Court may make such order as it thinks fit, but if the person appointed does not act under paragraph (a) or (b) within a reasonable period of time of becoming aware of the appointment, he shall be deemed to have accepted it. Resignation or removal of trustees. 20. (1) A trustee other than a sole trustee may resign his office by delivering a written notice of resignation to his co-trustees. (2) Subject to subsection (3) and to the terms of the trust, a resignation takes effect (a) on delivery of the notice, or (b) on such later date or on the happening of such later event as may be specified therein. (3) A resignation (a) given to facilitate a breach of trust, or (b) which would result in there being no trustee or less than the number required by section 17(1), has no effect. (4) A trustee ceases to be a trustee immediately on (a) his removal from office by the Royal Court, (b) his resignation taking effect, or (c) the coming into effect of, or the exercise of a power under, a provision in the terms of the trust under or by which he is removed from or otherwise ceases to hold his office. (5) A person who ceases to be a trustee under this section shall do everything necessary to vest the trust property in the new or continuing trustees. (6) Subsections (1) and (2) are subject to the terms of the trust.
312 Appendix: Trusts (Guernsey) Law, 2007 Position of continuing trustees on reduction in number of trustees. 21. Subject to the terms of the trust, where the number of trustees falls below the number required by section 17(1) – (a) the necessary number of additional trustees shall be appointed, and (b) until the required number is reached, the existing trustee shall act only to preserve the trust property. Duties of trustees General fiduciary duties. 22. (1) A trustee shall, in the exercise of his functions, observe the utmost good faith and act en bon père de famille. (2) A trustee shall execute and administer the trust and shall exercise his functions under it (a) in accordance with the provisions of this Law, and (b) subject to those provisions (i) in accordance with the terms of the trust, and (ii) only in the interests of the beneficiaries or the advancement of the charitable or non-charitable purpose, as the case may be. Duty to get in and preserve trust property. 23. A trustee shall, subject to the terms of the trust and to the provisions of this Law (a) ensure that the trust property is held by or vested in him or is otherwise under his control, and (b) preserve and enhance, so far as is reasonable, the value of the trust property. Duty of trustee not to profit from trusteeship. 24. A trustee shall not (a) derive, directly or indirectly, any profit from his trusteeship, (b) cause or permit any other person to so derive any such profit, or (c) on his own account enter into any transaction with his co-trustees, or relating to the trust property, which may result in any such profit, except (i) with the approval of the Royal Court, (ii) as permitted by the provisions of this Law, or (iii) as expressly provided by the terms of the trust.
Appendix: Trusts (Guernsey) Law, 2007 313 Duty to keep accounts. 25. A trustee shall keep accurate accounts and records of his trusteeship. Duty to give information. 26. (1) A trustee shall, at all reasonable times, at the written request of (a) any enforcer, or (b) subject to the terms of the trust (i) any beneficiary (including any charity named in the trust), (ii) the settlor, or (iii) any trust official, provide full and accurate information as to the state and amount of the trust property. (2) Where the terms of the trust prohibit or restrict the provision of any information described in subsection (1), a trustee, beneficiary, trust official or settlor may apply to the Royal Court for an order authorising or requiring the provision of the information. (3) The person applying to the Royal Court for an order under subsection (2) must show that the provision of the information is necessary or expedient (a) for the proper disposal of any matter before the court, (b) for the protection of the interests of any beneficiary, or (c) for the proper administration or enforcement of the trust. (4) In its application to a trust arising from a document or disposition executed or taking effect before the 18th April, 1989b, subsection (1) only operates for the benefit of a beneficiary whose interest in the trust property became vested before that date, but this subsection does not prejudice any rights that the beneficiary may have under the terms of the trust. Duty to keep trust property separate. 27. A trustee shall keep trust property separate from his own property and separately identifiable from any other property of which he is trustee. Duty of co-trustees to act together. 28. (1) All the trustees of a trust shall, subject to the terms of the trust, join in the execution of the trust. (2) Subject to subsection (3), no function conferred on trustees shall be exercised unless all the trustees agree on its exercise.
b The
18th April, 1989 was the date of commencement of the Trusts (Guernsey) Law, 1989.
314 Appendix: Trusts (Guernsey) Law, 2007 (3) The terms of a trust may empower the trustees to act by a majority. (4) A trustee who dissents from a decision of the majority may require his dissent to be recorded in writing. (5) Notwithstanding the provisions of subsections (1) to (4), but subject to the provisions of subsection (6), in the case of a trust in respect of which the Public Trustee has been appointed to act as trustee under the Public Trustee (Bailiwick of Guernsey) Law, 2002 (a) the Public Trustee shall act alone in the execution of the trust, (b) functions conferred on the trustees shall be exercised by the Public Trustee without the agreement of any other trustee, and (c) the functions of any trustee other than the Public Trustee shall cease, for so long as the appointment of the Public Trustee continues. (6) Any provision of paragraphs (a) to (c) of subsection (5) may be disapplied in any particular case by (a) the Public Trustee in writing, (b) the court appointing the Public Trustee, at the time of the appointment, or (c) the Royal Court, at any other time. Impartiality of trustees. 29. (1) Where a trust has (a) more than one beneficiary or charitable or non-charitable purpose, or (b) a beneficiary and a charitable or non-charitable purpose, the trustees, subject to the terms of the trust and to subsection (2), shall be impartial and shall not execute the trust for the advantage of one at the expense of another. (2) Subsection (1) does not prejudice the exercise of a discretion conferred on a trustee by the terms of the trust. General powers of trustees Powers of trustees in relation to property. 30. Subject to the provisions of this Law and to the terms of the trust, a trustee has, in relation to the trust property, all the powers of a beneficial owner. Power to sue and compromise. 31. (1) A trustee may sue and be sued as trustee. (2) A trustee may without the sanction of the Royal Court compromise or settle any action or claim brought by or against the trustee or in any way relating to the trust or the trust property.
Appendix: Trusts (Guernsey) Law, 2007 315 Consultation by trustees. 32. (1) A trustee may, at the expense of the trust property, consult professional persons in relation to the affairs of the trust. (2) The terms of the trust may require a trustee to consult or obtain the consent of another person before exercising any function. (3) A person shall not, by virtue of being so consulted or giving or refusing such consent (a) be deemed to be a trustee, or (b) if the terms of the trust so provide, be under any fiduciary duty to the beneficiaries or the settlor. Delegation by trustees. 33. (1) A trustee shall not delegate his functions unless permitted to do so (a) by the provisions of this Law or by the terms of the trust, or (b) in the case of the Public Trustee, by the provisions of the Public Trustee (Bailiwick of Guernsey) Law, 2002. (2) Except where the terms of the trust specifically provide to the contrary, a trustee may (a) delegate the management of trust property to, and appoint, investment managers whom the trustee reasonably considers to be competent and qualified to manage the investment of the trust property, (b) appoint professional persons to act in relation to the affairs of the trust or to hold any trust property, and (c) authorise any such manager or person to retain any commission or other payment usually payable for services of the description rendered. (3) A trustee who, without any breach on his part of section 22(1), makes or permits the continuation of a delegation or appointment under subsection (2), is not liable for any loss to the trust arising from the delegation or appointment. Powers of attorney. 34. (1) Unless the terms of the trust provide to the contrary, a trustee may, by power of attorney, delegate for a period not exceeding 3 years the performance of any trust or function vested in him (alone or jointly) as trustee. (2) A trustee who delegates a trust or function by power of attorney under this section is referred to in this section as the “donor”, and the person to whom the trust or function is delegated is referred to as the “donee”.
316 Appendix: Trusts (Guernsey) Law, 2007 (3) The persons who may be donees include corporate trustees but not (unless a corporate trustee) the only other co-trustee of the donor. (4) A power of attorney under this section shall be in writing and shall (a) if the donor is an individual, be signed by him, or by his direction and in his presence, in the presence of a witness, who shall also sign, or (b) if the donor is a corporate trustee, be executed by the donor in accordance with its articles of association or its other documents of constitution. (5) Within seven days of giving a power of attorney under this section, the donor shall give written notice thereof to (a) every other person who, under the terms of the trust, has power (alone or jointly) to appoint a new trustee, and (b) every co-trustee. (6) The notice under subsection (5) shall state (a) the date of commencement and duration of the power of attorney, (b) the name and address of the donee, (c) the reason for giving the power of attorney, and (d) the trust or function delegate. (7) Failure to comply with subsection (5) or (6) does not of itself, in favour of a person dealing with the donee, invalidate anything done by the donee. (8) The donor is bound by and liable for all acts and defaults of the donee done or purportedly done under the power of attorney as if they were his own acts and defaults. (9) For the purpose of performing the trust or function delegated, the donee may exercise any function conferred on the donor as trustee by law or by the terms of the trust, with the exception of the power to give powers of attorney under this section. (10) The period referred to in subsection (1) does not apply to a power of attorney given as part of any arrangement (a) for the subordination of debts, or (b) to confer security over the trust property, and “security” includes any mortgage, charge, hypothèque, lien or other security, including a security interest within the meaning of the Security Interests (Guernsey) Law, 1993c.
c Order
in Council No. III of 1993.
Appendix: Trusts (Guernsey) Law, 2007 317 Remuneration and expenses of trustees. 35. (1) Unless authorised by (a) the terms of the trust, (b) the consent in writing of every beneficiary, or (c) an order of the Royal Court, a trustee is not entitled to remuneration for his services. (2) A trustee may pay from the trust property, and may reimburse himself from the trust property for, all expenses and liabilities properly incurred in connection with the trust. (3) For the avoidance of doubt, and subject to the terms of the trust, the cost of purchasing and maintaining professional indemnity insurance is, for the purposes of subsection (2), an expense properly incurred in connection with the trust, but not to the extent that the insurance is against the trustee’s liability for a breach of trust arising from his own fraud, wilful misconduct or gross negligence. (4) Notwithstanding the provisions of subsection (1), but without prejudice to the provisions of subsection (2), the Public Trustee may, in the case of a trust in respect of which he has been appointed to act as trustee under the Public Trustee (Bailiwick of Guernsey) Law, 2002, pay from the trust property, and reimburse himself from the trust property for, all fees payable to the Public Trustee pursuant to the provisions of the said Law in connection with the trust, unless (a) the court appointing the Public Trustee directs otherwise at the time of the appointment, or (b) the Royal Court directs otherwise at any other time. Power to appropriate. 36. Subject to the terms of the trust, a trustee may, without the consent of any beneficiary, appropriate trust property in or towards satisfaction of the interest of a beneficiary in such manner and in accordance with such valuation as he thinks fit. Corporate trustee may act by resolution. 37. A corporate trustee may – (a) act in connection with a trust by a resolution of the corporate trustee or of its board of directors or other governing body, or (b) by such a resolution appoint an officer or employee, or a committee of officers or employees or both, to act on its behalf in connection with the trust.
318 Appendix: Trusts (Guernsey) Law, 2007 Non-disclosure of deliberations or letters of wishes. 38. (1) A trustee is not, subject to the terms of the trust and to any order of the Royal Court, obliged to disclose (a) documents which reveal (i) his deliberations as to how he should exercise his functions as trustee, (ii) the reasons for any decision made in the exercise of those functions, (iii) any material upon which such a decision was or might have been based, (b) any letter of wishes. (2) A “letter of wishes” is a letter or other document intimating how the settlor or beneficiary wishes the trustees to exercise any of their functions. (3) The person applying to the Royal Court for an order under this section for the disclosure of any document must show that the disclosure is necessary or expedient (a) for the proper disposal of any matter before the court, (b) for the protection of the interests of any beneficiary, or (c) for the proper administration or enforcement of the trust. Liability for breach of trust Liability for breach of trust. 39. (1) Subject to the provisions of this Law and to the terms of the trust, a trustee who commits or concurs in a breach of trust is liable for (a) any loss or depreciation in value of the trust property resulting from the breach, and (b) any profit which would have accrued to the trust had there been no breach. (2) A trustee may not set off a profit accruing from one breach of trust against a loss or depreciation in value resulting from another. (3) A trustee is not liable for a breach of trust committed by another person prior to his appointment. (4) A trustee is not liable for a breach of trust committed by a co-trustee unless (a) he becomes or ought to have become aware of the breach or of the intention of his co-trustee to commit the breach, and (b) he actively conceals the breach or intention, or fails within a reasonable time to take proper steps to protect or restore the trust property or to prevent the breach.
Appendix: Trusts (Guernsey) Law, 2007 319 (5) Where trustees are liable for a breach of trust, they are liable jointly and severally. (6) A trustee who becomes aware of a breach of trust to which subsection (3) applies shall take all reasonable steps to have the breach remedied. (7) The terms of a trust may not (a) relieve a trustee of liability for a breach of trust arising from his own fraud, wilful misconduct or gross negligence, or (b) grant him any indemnity against the trust property in respect of any such liability. (8) For the avoidance of doubt, and without prejudice to any other provision of this Law (a) subsection (7) applies to a trust whenever created, and (b) a term of a trust is invalid to the extent that it purports to (i) relieve a trustee of liability for a breach of trust arising from his own fraud, wilful misconduct or gross negligence, or (ii) grant him any indemnity against the trust property in respect of any such liability. Beneficiary may relieve or indemnify trustee. 40. (1) A beneficiary may (a) relieve a trustee of liability to him for any breach of trust, (b) indemnify a trustee against liability for any breach of trust. (2) Subsection (1) does not apply if the beneficiary (a) is a minor or a person under legal disability, (b) does not have a full knowledge of all material facts, or (c) is improperly induced by the trustee to act under subsection (1). Trustees of more than one trust. 41. (1) A trustee is not, in the absence of fraud, affected by notice of any instrument, matter, fact or other thing in relation to a trust if he obtained notice of it by reason of his acting or having acted for the purposes of another trust. (2) A trustee of a trust shall disclose to his co-trustees any interest which he has as trustee of another trust if any transaction in relation to the first mentioned trust is to be entered into with the trustees of the other trust. Dealings by trustees with third parties. 42. (1) Subject to subsection (3), where, in a transaction or matter affecting a trust, a trustee informs a third party that he is acting as trustee or the third party is otherwise aware of the fact, the trustee does not incur any
320 Appendix: Trusts (Guernsey) Law, 2007 personal liability and a claim by the third party in respect of the transaction or matter extends only to the trust property. (2) If the trustee fails to inform the third party that he is acting as trustee and the third party is otherwise unaware of the fact (a) he incurs personal liability to the third party in respect of the transaction or matter, and (b) he has a right of indemnity against the trust property in respect of his personal liability, unless he acted in breach of trust. (3) Nothing in this section prejudices a trustee’s liability for breach of trust or any claim for breach of warranty of authority. (4) This section applies to a transaction notwithstanding the lex causae of the transaction, unless the terms of the transaction expressly provide to the contrary. Position of outgoing trustees. 43. (1) When a trustee resigns or is removed (a) he shall, subject to paragraph (b), duly surrender all trust property held by or vested in him or otherwise under his control, and (b) he may require that he be provided with reasonable security for liabilities (existing, future, contingent or otherwise) before surrendering the trust property. (2) Where the security to be given for the purposes of subsection (1)(b) is to be given by way of indemnity against the trust property, the indemnity shall not, except with leave of the Royal Court or with the consent of all beneficiaries, be greater than that to which the trustee would have been entitled had he remained a trustee. (3) A trustee who complies with subsection (1)(a) is relieved of liability to any beneficiary, trustee or other person interested under the trust for any act or omission in relation to the trust property or to his functions as a trustee. However, a trustee is not by reason only of such compliance relieved of any liability – (a) arising from a breach of trust to which he (or, in the case of a corporate trustee, any of its officers or employees) was a party or was privy, (b) in respect of an action to recover from him (or, in the case of a corporate trustee, any of its officers or employees) trust property or the proceeds thereof in his possession. (4) An indemnity given in writing by a trustee or beneficiary and expressed to be in favour of a trustee who has previously resigned or been removed from office (a “previous trustee”) is, subject to its terms, enforceable by the previous trustee against the indemnifying party notwithstanding that the previous trustee is not a party to or signatory of the indemnity.
Appendix: Trusts (Guernsey) Law, 2007 321 Trustees’ lien. 44. (1) For the purpose of securing a trustee’s right to pay from the trust property, and to be reimbursed from the trust property for, all expenses and liabilities properly incurred in connection with the trust, a trustee is entitled to a non-possessory lien over the trust property in respect of all such expenses and liabilities (existing, future, contingent or otherwise). (2) The lien (a) continues after the trustee ceases to be a trustee and has duly surrendered all trust property in accordance with section 43, and (b) is without prejudice to any indemnity or other security to which the trustee is entitled. (3) The lien attaches to any trust property, except to the extent that (a) the lien is expressly waived or released, or (b) the property (i) is no longer identifiable, (ii) is in the hands of a bona fide purchaser for value or a person (other than the trustees) who derived title through such a purchaser, or (iii) comprises real property. (4) Subject to subsection (3), in this section “trust property” includes property that has ceased to be held on trust by reason of distribution from the trust (including a distribution on termination of the trust) or otherwise and property into which trust property has been converted. (5) The lien granted under subsection (1) is the right of the trustee, where he is not exonerated or reimbursed from the trust property, to follow, recover and appropriate the trust property for the purpose of realisation, payment and reimbursement. Protective trusts, class interests and certain powers Protective trusts. 45. The terms of a trust may make the interest of a beneficiary (a) liable to termination, (b) subject to a restriction on alienation or dealing, or (c) subject to diminution or termination in the event of the beneficiary becoming bankrupt or any of his property becoming liable to arrest, saisie, or similar process of law.
322 Appendix: Trusts (Guernsey) Law, 2007 Class interests. 46. Where a trust is in favour of a class of persons then, subject to the terms of the trust (a) the class closes when it is no longer possible for any other person to become a member of the class, (b) a woman over the age of 60 years shall be deemed to be no longer capable of bearing a child, and (c) where the interest of the class relates to income, and no member of the class exists, the income shall be accumulated and, subject to section 16(2), retained until a member of the class exists or the class closes. Power of variation. 47. (1) The terms of a trust may be varied in any manner provided by those terms. (2) This section is in addition to sections 57 to 61. Power of accumulation and advancement. 48. (1) The terms of a trust may direct or authorise the accumulation for any period of all or part of the income of the trust. For the avoidance of doubt, no rule limiting the period of accumulations or any analogous rule applies to a trust or to any advancement, appointment, payment or application of assets from a trust. (2) Subject to subsection (3), income which is not distributed shall be accumulated. (3) Subject to the terms of the trust and to any prior interest or charge affecting the trust property, the trustees may (a) where a beneficiary is a minor (whether or not his interest is vested), apply the income attributable to his interest, or any part of that income, to or for his maintenance, education or other benefit, (b) advance or apply for the benefit of a beneficiary part of the trust property prior to the happening of the event on which he is to become absolutely entitled thereto. (4) Subject to the terms of the trust (a) any trust property advanced or applied under this section shall be brought into account in determining the beneficiary’s share in the trust property, and (b) no part of the trust property so advanced or applied shall exceed the beneficiary’s vested, presumptive or contingent share in the trust property. (5) The receipt of a guardian of a beneficiary who is a minor or a person under legal disability is a sufficient discharge to the trustees for a payment made to the beneficiary or for his benefit.
Appendix: Trusts (Guernsey) Law, 2007 323 Power of appointment. 49. The terms of a trust may confer on the settlor, trustees or any other person power to appoint or assign all or any of the trust property or any interest in it to, or for the benefit of, any person (whether or not a beneficiary of the trust immediately prior to the appointment or assignment). Power of revocation. 50. (1) A trust and any power or exercise of a power under a trust may be expressed to be capable of (a) revocation, in whole or in part, or (b) variation. (2) No revocation or variation prejudices anything lawfully done by a trustee in relation to the trust before he receives notice of the revocation or variation. (3) Subject to the terms of the trust, if the trust is revoked in whole or in part, the trustees shall hold the trust property or that part of the trust property which is the subject of the revocation, as the case may be, in trust for the settlor absolutely or, if he is dead, for his personal representative. Change of proper law. 51. (1) The terms of a trust may provide for the proper law of the trust to be changed from the law of Guernsey to the law of any other jurisdiction. (2) Subsection (1) is without prejudice to the powers of the Royal Court under section 57. (3) A change in the proper law of a trust does not affect the legality or validity of, or render any person liable in respect of, anything done before the change. Failure, lapse and termination of trusts Failure or lapse of interest. 52. Subject to the terms of the trust and to any order of the Royal Court, where (a) an interest lapses, (b) a trust terminates, (c) there is no beneficiary and no person who can become a beneficiary in accordance with the terms of the trust, or (d) property is vested in a person otherwise than for his sole benefit, but the trusts on which he is to hold the property are not declared or communicated to him, the interest or property concerned shall be held by the trustees on trust for the settlor absolutely or, if he is dead, for his personal representative.
324 Appendix: Trusts (Guernsey) Law, 2007 Termination of trusts. 53. (1) On the termination of a trust the trust property shall, subject to subsection (2), be distributed by the trustees within a reasonable time in accordance with the terms of the trust to the persons entitled thereto. (2) The trustees may however require that they be provided with reasonable security for liabilities (existing, future, contingent or otherwise) before so distributing the trust property. (3) Without prejudice to the powers of the Royal Court under subsection (4), and notwithstanding the terms of the trust, where all the beneficiaries are in existence and have been ascertained, and none is a minor or a person under legal disability, they may require the trustees to terminate the trust and distribute the trust property among them. (4) The Royal Court, on the application of any person mentioned in section 69(2), may (a) direct the trustees to distribute, or not to distribute, the trust property, or (b) make such other order in respect of the termination of the trust and the distribution of the trust property as it thinks fit. Powers of the court Appointment of resident trustees. 54. (1) Where there is no trustee resident in Guernsey, a beneficiary may apply to the Royal Court for the appointment of a person, resident in Guernsey and nominated in the application, as an additional trustee. (2) The Royal Court (a) if satisfied that notice of the application has been served on the existing trustees, (b) having heard any representations of the existing trustees, of the settlor or his personal representatives, of the other beneficiaries, and of any other person described in section 32(2), and (c) having ascertained that the person nominated is willing to act, may appoint that person as an additional trustee. Power to relieve trustees from personal liability. 55. The Royal Court may relieve a trustee wholly or partly of liability for a breach of trust, whether committed before or after the commencement of this Law, where it appears to the court that the trustee (a) has acted honestly and reasonably, and (b) ought fairly to be excused (i) for the breach of trust, (ii) for omitting to obtain the directions of the court in the matter in which the breach arose.
Appendix: Trusts (Guernsey) Law, 2007 325 Power to make beneficiaries indemnify. 56. Where a trustee commits a breach of trust at the instigation or request or with the concurrence of a beneficiary, the Royal Court, whether or not the beneficiary is a minor or a person under legal disability, may impound all or part of his interest by way of indemnity to the trustee or a person claiming through him. Variation, etc of trusts Variation of trusts on behalf of minors, etc. 57. (1) The Royal Court, on the application of any person mentioned in section 69(2), on behalf of (a) a minor or a person under legal disability having, directly or indirectly, an interest, vested or contingent, under a trust, (b) any person unborn, (c) any person, ascertained or not, who may become entitled, directly or indirectly, to an interest under a trust, as being (at a future date or on the happening of a future event) a person of any specified description or a member of any specified class, (d) any person, in respect of an interest that may accrue to him by virtue of the exercise of a discretionary power on the failure or determination of an existing interest, or (e) with leave of the Royal Court, any other person, may, subject to subsection (2), approve any arrangement which varies or revokes the terms of a trust or enlarges or modifies the powers of management or administration of any trustees, whether or not there is another person with a beneficial interest who is capable of assenting to the arrangement. (2) The Royal Court shall not approve an arrangement on behalf of a person mentioned in subsection (1)(a), (b) or (c) unless the arrangement appears to be for his benefit. Approval of particular transactions. 58. Where in the management or administration of a trust a transaction is, in the opinion of the Royal Court, expedient, but cannot be effected because the necessary power is not vested in the trustees by the terms of the trust or by law, the Royal Court, on the application of any person mentioned in section 69(2) (a) may confer on the trustees, generally or in any particular circumstances, the necessary power, on such terms and conditions as the court thinks fit, and
326 Appendix: Trusts (Guernsey) Law, 2007 (b) may direct the manner in which, and the property from which, any monies authorised to be expended, and the costs of any transaction, are to be paid or borne. Charitable and non-charitable trusts – “cy-près”. 59. Where trust property is held for a charitable or non-charitable purpose and (a) the purpose has been, as far as may be, fulfilled, (b) the purpose cannot be carried out, or not according to the directions given and to the spirit of the gift, (c) the purpose provides a use for part only of the property, (d) the property, and other property applicable for a similar purpose, can be more effectively used in conjunction, and to that end can suitably, regard being had to the spirit of the gift, be applied to a common purpose, (e) the purpose was laid down by reference to (i) an area which was then, but has since ceased to be, a unit for some other purpose, or (ii) a class of persons or to an area which has for any reason since ceased to be (A) suitable, or (B) practicable in administering the gift, regard being had to the spirit of the gift, (f) the purpose has been adequately provided for by other means, (g) in the case of a charitable purpose, the purpose has ceased to be charitable (by being useless or harmful to the community or otherwise), or (h) the purpose has ceased in any other way to provide a suitable and effective method of using the property, regard being had to the spirit of the gift, the property, or the remainder of the property, as the case may be, shall be held for such other charitable or non-charitable purpose as the Royal Court, on the application of (i) Her Majesty’s Procureur, (ii) the trustees, or (iii) in the case of a non-charitable purpose, the enforcer, may declare to be consistent with the original intention of the settlor. General power to vary. 60. (1) Where trust property is held for a charitable or non-charitable purpose, the Royal Court, on the application of Her Majesty’s Procureur or the trustees, may approve any arrangement which varies or revokes the
Appendix: Trusts (Guernsey) Law, 2007 327 purposes or the terms of the trust or enlarges or modifies the powers of management or administration of the trustees, if it is satisfied that the arrangement (a) is now suitable or expedient, and (b) is consistent with the original intention of the settlor and the spirit of the gift. (2) The Royal Court may dispense with the consideration set out in subsection (1)(b) if satisfied that the original intention of the settlor cannot be ascertained. (3) The Royal Court shall not approve an arrangement under subsection (1) unless satisfied that any person with a material interest in the trust has had an opportunity of being heard. Trusts created by Order in Council. 61. Sections 57 to 60 do not apply to trusts created by an Order in Council of Her Majesty. Judgment against trustee to be binding on beneficiaries. 62. (1) Any order, judgment or finding of law or fact of the Royal Court in an action against a trustee founded on breach of trust is binding on all beneficiaries of the trust, whether or not yet ascertained or in existence, and whether or not minors or persons under legal disability. (2) Subsection (1) applies in respect of a beneficiary only if (a) he was represented in the proceedings (whether personally, or by his guardian, or as the member of a class, or otherwise), or (b) if not so represented, he had notice of the proceedings and a reasonable opportunity of being heard. “Notice” in paragraph (b) means 14 days’ notice or such other period as the Court may direct. (3) This section is without prejudice to the powers of the Royal Court in respect of representative proceedings and class actions. Settlement of action against trustee by alternative dispute resolution to be binding on beneficiaries. 63. (1) Where (a) the terms of a trust direct or authorise, or the Court so orders, that any claim against a trustee founded on breach of trust may be referred to alternative dispute resolution (“ADR”), (b) such a claim arises and, in accordance with the terms of the trust or the Court’s order, is referred to ADR, and
328 Appendix: Trusts (Guernsey) Law, 2007
(2)
(3) (4) (5)
(c) the ADR results in a settlement of the claim which is recorded in a document signed by or on behalf of all parties, the settlement is binding on all beneficiaries of the trust, whether or not yet ascertained or in existence, and whether or not minors or persons under legal disability. Subsection (1) applies in respect of a beneficiary only if (a) he was represented in the ADR proceedings (whether personally, or by his guardian, or as the member of a class, or otherwise), or (b) if not so represented, he had notice of the ADR proceedings and a reasonable opportunity of being heard, and only if, in the case of a beneficiary who is not yet ascertained or in existence, or who is a minor or person under legal disability, the person conducting the ADR proceedings certifies that he was independently represented by a person appointed for the purpose by a court of law. “Notice” in paragraph (b) means 14 days’ notice or such other period as the person conducting the ADR proceedings may direct. A person who represents a beneficiary in the ADR proceedings for the purposes of subsection (2)(a) is under a duty of care to the beneficiary. For the avoidance of doubt, the ADR proceedings need not be conducted in Guernsey or in accordance with the procedural law of Guernsey. In this section “ADR” includes conciliation, mediation, early neutral evaluation, adjudication, expert determination and arbitration, and “proceedings” includes oral and written proceedings. PART III PROVISIONS APPLICABLE ONLY TO FOREIGN TRUSTS
Application of Part III. 64. This Part of this Law applies only to a foreign trust. Enforceability of foreign trusts. 65. (1) Subject to subsection (2), a foreign trust is governed by, and shall be interpreted in accordance with, its proper law. (2) A foreign trust is unenforceable in Guernsey to the extent that(a) it purports to do anything contrary to the law of Guernsey, (b) it confers or imposes any right or function the exercise or discharge of which would be contrary to the law of Guernsey, or (c) the Royal Court declares that it is immoral or contrary to public policy.
Appendix: Trusts (Guernsey) Law, 2007 329 PART IV PROVISIONS OF GENERAL APPLICATION Application of Part IV. 66. This Part of this Law applies to a Guernsey trust and, where the context admits, to a foreign trust. Rules of Royal Court. 67. (1) The Royal Court sitting as a Full Court may by order make rules dealing with all procedural and incidental matters arising under this Law, and generally for carrying this Law into effect. (2) Rules under subsection (1) may, without limitation, regulate and prescribe (a) the procedure, including the method of pleading, and the practice to be followed in proceedings, (b) the means by which matters may be proved, and (c) the manner and the way in which evidence may be adduced. Applications for directions. 68. A trustee may apply to the Royal Court for directions as to how he should or might act in any of the affairs of the trust, and the court may make such order as it thinks fit. General powers of court. 69. (1) On the application of any person mentioned in subsection (2), the Royal Court may (a) make an order in respect of (i) the execution, administration or enforcement of a trust, (ii) a trustee, including an order as to the exercise by a trustee of his functions, the removal of a trustee (if, for example, he refuses or is unfit to act, or he is incapable of acting or is bankrupt, or his property becomes liable to arrest, saisie, or similar process of law), the appointment, remuneration or conduct of a trustee, the keeping and submission of accounts, and the making of payments, whether into court or otherwise, (iii) a beneficiary, or any person connected with a trust, (iv) any trust property, including an order as to the vesting, preservation, application, distribution, surrender or recovery thereof, (v) an enforcer, in relation to any non-charitable purpose of a trust, including an order as to the exercise by an enforcer of his functions, the removal of an enforcer (if, for example, he refuses
330 Appendix: Trusts (Guernsey) Law, 2007 or is unfit to act, or he is incapable of acting or is bankrupt, or his property becomes liable to arrest, saisie, or similar process of law), and the appointment, remuneration or conduct of an enforcer, (b) make a declaration as to the validity or enforceability of a trust, (c) rescind or vary an order or declaration under this Law or make a new or further order or declaration. (2) An application under subsection (1) may be made by (a) Her Majesty’s Procureur, (b) a trustee, (c) a settlor, (d) a beneficiary, (e) a person described in section 32(2), (f) in relation to a non-charitable purpose, the enforcer, (g) with leave of the Royal Court, any other person. (3) Where the Royal Court appoints or removes a trustee under this section (a) it may impose such requirements and conditions as it thinks fit, including requirements and conditions as to the vesting of trust property, (b) subject to the court’s order, a trustee appointed by the court has the same functions, and may act in all respects, as if he had been originally appointed a trustee. Powers of court in event of default. 70. If a person does not comply with an order of the Royal Court under this Law requiring him to do anything, the Royal Court may, on such terms and conditions as it thinks fit, order that the thing be done by another person, nominated for the purpose by the court, at the expense of the person in default (or otherwise as the court directs), and a thing so done has effect in all respects as if done by the person in default. Payment of costs. 71. The Royal Court may order the costs and expenses of and incidental to an application to the court under this Law to be paid from the trust property or in such manner and by such persons as the court thinks fit. Nature of trustee’s interest. 72. (1)
Subject to subsection (2) (a) the interest of a trustee in the trust property is limited to that which is necessary for the proper performance of the trust, and
Appendix: Trusts (Guernsey) Law, 2007 331 (b) the trust property does not form part of the trustee’s estate. (2) Where a trustee of a trust is also a beneficiary thereof, subsection (1) does not apply to his interest as a beneficiary. Following trust property. 73. With prejudice to the personal liability of a trustee, trust property which has been charged or dealt with in breach of trust, or the property into which it has been converted, may be followed and recovered unless (a) it is no longer identifiable, or (b) it is in the hands of (i) a bona fide purchaser for value without notice of the breach of trust, or (ii) a person (other than the trustee) who derived title through such a purchaser. Bankruptcy of trustees. 74. Where a trustee becomes bankrupt, or upon his property becoming liable to arrest, saisie or similar process of law, his creditors have no recourse against the trust property except to the extent that the trustee himself has a claim against it or a beneficial interest in it. Protection for persons dealing with trustees. 75. (1) A bona fide purchaser for value without notice of a breach of trust (a) may deal with a trustee in relation to trust property as if the trustee were the beneficial owner thereof, and (b) is not affected by the trusts on which the property is held. (2) A person paying or advancing money to a trustee is not concerned to see (a) that the money is wanted, (b) that no more than is wanted is raised, or (c) that the transaction or the application of the money is proper. Limitation and prescription. 76. (1) No period of limitation or prescription applies to an action brought against a trustee (a) in respect of any fraud to which the trustee was a party or was privy, or
332 Appendix: Trusts (Guernsey) Law, 2007 (b) to recover from the trustee trust property or the proceeds thereof (i) held by or vested in him or otherwise in his possession or under his control, or (ii) previously received by him and converted to his use. (2) Subject to subsections (1) and (3), the period within which an action founded on breach of trust may be brought against a trustee is (a) three years from the date on which the claimant first has knowledge of the breach, or (b) where the claimant was at the time of the breach of trust a minor or a person under legal disability (i) three years from the date on which his guardian first has knowledge of the breach, or (ii) three years from the date on which the claimant ceased to be a minor or a person under legal disability, whichever first occurs. (3) Subject to subsection (1), no action founded on breach of trust may be brought against a trustee after the expiration of 18 years immediately following the date of the breach. Constructive trusts. 77. (1) A person who derives a profit from a breach of trust, or who obtains property in breach of trust, shall be deemed to be a trustee of the profit or property unless he derives or obtains it in good faith without notice of the breach of trust. (2) A person who becomes a trustee by virtue of subsection (1) shall deliver up the profit or property to the person properly entitled to it. (3) This section does not exclude any other circumstances in which a constructive trust may arise. PART V SUPPLEMENTAL Application of Law. 78. Subject to section 83, and except where provision to the contrary is made, this Law applies to trusts created before or after the commencement of this Law. Constitution of Royal Court. 79. For the purposes of this Law the Royal Court may be properly constituted by the Bailiff sitting unaccompanied by the Jurats.
Appendix: Trusts (Guernsey) Law, 2007 333 Interpretation. 80. (1)
d Ordres
In this Law, unless the context otherwise requires “bankrupt”, in relation to (a) an individual, includes an individual (i) whose affairs have been declared in a state of “désastre” by his arresting creditors at a meeting held before a Commissioner of the Royal Court, the Court of Alderney or the Court of the Seneschal, (ii) against whom an interim vesting order has been made in respect of any real property in the Bailiwick, (iii) in respect of whom a declaration of insolvency has been made under the Loi ayant rapport aux Débiteurs et à la Renonciation, 1929,d (b) a corporation, includes a corporation (i) in respect of which a liquidator (provisional or otherwise) has been appointed or which (otherwise than for the sole purpose of solvent amalgamation, solvent reconstruction or solvent winding-up) has passed a special resolution requiring it to be wound up voluntarily, or (ii) which is otherwise insolvent, and “bankruptcy” shall be construed accordingly, “beneficiary” means a person entitled to benefit under a trust or in whose favour a power to distribute trust property may be exercised, “breach of trust” means a breach of any duty imposed on a trustee by this Law or by the terms of the trust, “corporate trustee” means a trustee which is a corporation, “corporation” means a body corporate wherever incorporated, “disposition” includes any means by which property or any interest therein is created, transferred, dealt with, extinguished or charged, and related expressions shall be construed accordingly, “enforcer”: see section 12, “foreign heirship right” means any right, claim or interest arising under the law of a jurisdiction other than Guernsey in, against or to the property of any person arising, accruing or existing in consequence of, or in anticipation of, that person’s death, other than a right, claim or interest created by will or expressed in any other voluntary disposition by that person or resulting from an express limitation in the disposition of the property to that person, en Conseil Vol. VIII, p. 310.
334 Appendix: Trusts (Guernsey) Law, 2007 “foreign trust” means a trust the proper law of which is not the law of Guernsey, “formalities”, in relation to a disposition of property, means the documentary and other actions required generally by the law of the jurisdiction in question for any such disposition of any such property, without regard to (a) the fact that the particular disposition is made in trust, (b) the terms of the trust, (c) the circumstances of the parties to the disposition, or (d) any other particular circumstances, but includes any special formalities required by reason of the party effecting the disposition being a minor, a person under legal disability or a corporation, “functions” includes rights, powers, discretions, obligations, liabilities and duties, “guardian”, in relation to a minor, includes a parent, “Guernsey trust” means a trust the proper law of which is the law of Guernsey, “he”, “him” and “his”, in relation to a corporation, include “it” and “its”, “Her Majesty’s Procureur” includes Her Majesty’s Comptroller, “insurance” includes assurance, “instrument in writing” means any executed document including, for the avoidance of doubt, a will or codicil, “interest”, in relation to a beneficiary, means his interest under a trust, “letter of wishes”: see section 38(2), “marriage” includes any formal arrangement howsoever described between two people, regardless of gender, pursuant to which the law of any jurisdiction confers or imposes rights, claims, interests, obligations, liabilities or duties analogous to those of husband or wife, “minor” means, subject to the terms of the trust, a person who has not attained the age of 18 years, “personal relationship” includes every form of relationship by blood, adoption, marriage or cohabitation regardless of whether the law of any jurisdiction recognises the validity, legitimacy or existence of the relationship, and includes a former personal relationship which has in law or in fact terminated. A personal relationship also exists between two persons if a personal relationship exists between each of them and a third person,
Appendix: Trusts (Guernsey) Law, 2007 335 “personal representative” means the executor or administrator of the estate of a deceased person, “profit” includes gain or advantage, “property” (a) means real and personal property of any description, wherever situated, and any share, right or interest therein, and includes tangible or intangible property and any debt or thing in action, (b) in relation to rights and interests, includes rights and interests whether vested, contingent, defeasible or future, “provisions of this Law” includes the provisions of any Ordinance hereunder, “Public Trustee” means the Public Trustee appointed under section 1 of the Public Trustee (Bailiwick of Guernsey) Law, 2002e, “purpose” means any purpose whatsoever, whether or not involving the conferral of any benefit on any person, and includes, without limitation, the holding or ownership of property and the exercise of functions, “Royal Court” means the Royal Court sitting as an Ordinary Court, constituted in accordance with section 78, “settlor” means a person who directly or indirectly provides trust property or makes a testamentary disposition on trust or to a trust, “States” means the States of Guernsey, “terms of a trust” means the written or oral terms of a trust and any other terms applicable under its proper law, “third party” means a person other than a settlor, trustee, enforcer, trust official or beneficiary, “trust” includes (a) the trust property, and (b) the functions, interests and relationships under a trust, “trustee” has the meaning given by section 1, and includes a corporate trustee and the Public Trustee when acting as trustee pursuant to the provisions of the Public Trustee (Bailiwick of Guernsey) Law, 2002, “trust official” means a person having a function or holding an office in respect of the trust other than a settlor, trustee, enforcer or beneficiary, “trust property” means property held on trust,
e No.
III of 2003.
336 Appendix: Trusts (Guernsey) Law, 2007 “unit trust” means a trust established for the purpose, or having the effect, of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust in any profits or incoming arising from the acquisition, holding, management or disposal of property. (2) For the purposes of this Law, a corporation is resident in the place in which it has its registered office. (3) Any reference in this Law to an enactment is a reference thereto as from time to time amended, re-enacted (with or without modification), extended or applied. Power to amend Law by Ordinance. 81. (1) The States may by Ordinance amend this Law. (2) An Ordinance under this section may, for the avoidance of doubt, repeal, replace, amend, extend, adapt, modify or disapply any rule of customary or common law. General provisions as to subordinate legislation. 82. (1) An Ordinance or rule under this Law (a) may be amended or repealed by a subsequent Ordinance or rule, as the case may be, hereunder, and (b) may contain such consequential, incidental, supplementary and transitional provision as may appear to be necessary or expedient including, in the case of an Ordinance, provision amending any enactment. (2) Any power conferred by this Law to make an Ordinance or rule may be exercised (a) in relation to all cases to which the power extends, or in relation to all those cases subject to specified exceptions, or in relation to any specified cases or classes of cases, (b) so as to make, as respects the cases in relation to which it is exercised (i) the full provision to which the power extends, or any lesser provision (whether by way of exception or otherwise), (ii) the same provision for all cases, or different provision for different cases or classes of cases, or different provision for the same class of case for different purposes, (iii) any such provision either unconditionally or subject to any prescribed conditions.
Appendix: Trusts (Guernsey) Law, 2007 337 Repeals and transitional provisions. 83. (1) The following enactments are repealed (a) the Trusts (Guernsey) Law, 1989f, (b) the Trusts (Amendment) (Guernsey) Law, 1990g, and (c) section 25(1) of the Public Trustee (Bailiwick of Guernsey) Law, 2003h. (2) Anything done before the date of commencement of this Law or in the process of being done on that date under the Trusts (Guernsey) Law, 1989 which could be done under this Law shall have effect as if done or, as the case may be, may be continued under this Law. (3) For the avoidance of doubt, a director or former director of a corporate trustee shall not, after the date of commencement of this Law, be under any duty, obligation or liability as guarantor by virtue of section 70 of the Trusts (Guernsey) Law, 1989 except by virtue of any proceedings instituted prior to that date against the trustee in respect of a breach of trust committed by the trustee. (4) Any reference, however expressed, in (a) any enactment, statutory instrument or rule of court, or (b) any trust instrument, will, settlement or other instrument of whatever nature, to the Trusts (Guernsey) Law, 1989 or any provision of that Law shall, unless the contrary intention appears, be construed after the date of commencement of this Law as a reference to this Law or, as the case may be, to the corresponding provision of this Law. Savings. 84. (1)
f Ordres
Nothing in this Law (a) affects the functions under any provision of law of Her Majesty’s Sheriff or of any guardian or attorney, (b) subject to section 14, validates an otherwise invalid disposition of property to a trust, (c) affects the validity of anything done in relation to a trust before the commencement of this Law, (d) affects the validity of a trust arising from a document or disposition executed or taking effect before the commencement of this Law, (e) derogates from any right of a minor to repudiate a transaction on attaining full age,
en Conseil Vol. XXXI, p. 217. en Conseil Vol. XXXII, p. 385. h Order in Council No. III of 2003. g Ordres
338 Appendix: Trusts (Guernsey) Law, 2007
(2)
(3)
(4) (5)
(f) disapplies or derogates from any rule of law or custom relating to the formalities required for the disposition of real property in Guernsey. Nothing in this Law derogates from the powers of the Royal Court which exist independently of this Law (a) to set aside, vary or reduce any transfer or other disposition of property, testamentary or otherwise, (b) in respect of trusts, trustees or trust property, (c) to make an order relating to matrimonial proceedings, (d) to make an order relating to the avoidance of fraud on creditors. Nothing in this Law derogates from the provisions of (a) article 29 of the Law entitled “Loi sur les Successions, 1840”i, (b) the Law entitled “Loi supplémentaire à la Loi des Successions, 1890”j, (c) section 12 of the Married Women’s Property Law, 1928k. Nothing in this Law affects a personal representative acting as such. No transfer or disposition of property to a trust is invalidated by application of the principle of “donner et retenir ne vaut”.
Citation. 85. This Law may be cited as the Trusts (Guernsey) Law, 2007. Commencement. 86. This Law shall come into operation on the 28th day after the date of its registration on the records of the Island of Guernsey.
i Ordres
en Conseil Vol. I, p. 51, Vol. II p. 59 en Conseil Vol. II, p. 323. k Ordres en Conseil Vol. VIII, p. 213. j Ordres
INDEX account of profits 192 accounts 140, 141, 169, 172, 205, 216, 238, 294 accumulations 150, 167 accumulation and maintenance trusts 272–3 acquiescence 167–8, 192 additions beneficiaries 163–4, 247 charitable trusts 163 class of beneficiaries 163–4 remove trustees, power to 115 trustees 102–5, 115 variation of trusts 267–8 vetoes 247 administration of trusts charitable trusts 26, 32 consent 248 data protection 180 disclosure 181 enlargement of powers 260 proper law 85–6 purpose trusts 38 variation of trusts 259, 260, 269 adoption 66–7, 69, 167 advancement, power of 150–1, 258 advice see lawyers/legal advice Alderney charitable trusts 28 fidéicommis 3, 17 Guernsey Financial Services Commission (GFSC) 285 joint ownership 46 power of attorney 148 Public Trustee 292–4 Succession Law 1840 3 alternative dispute resolution (ADR) 239–40 amendment, powers of 64, 77, 258 anti-money laundering data protection 180–1 disclosure 180–1 distribution in the context of money laundering issues 219–20 maintenance of records 141
ante-nuptial and post-nuptial settlements 97, 250–251, 253 anti-Bartlett clauses 201–5 appeals 215, 295 applicable law, prescription and limitation periods 235 see also proper law appointment of enforcers of purpose trusts 33–6 appointment of protectors 186–7 appointment, powers of appointment between trusts 71–2 Hastings-Bass, rule in 281 proper law 87 rectification on grounds of mistake 275 reservation of powers 77 Trusts Law 2007 151–2 variation of trusts 258, 262 appropriation, powers of 149 assignment of a beneficial interest 166 attacks on trusts 241–256 donner et retenir ne vaut 246–9 sham doctrine 241–6 variation of trusts in foreign matrimonial proceedings 249–56 Australia 56, 172 authorities, role of 14 bankruptcy enforcer 36 beneficiary of protective or spendthrift trust 166 bare trusts 62, 78, 83, 215 Beddoe applications 227–31 costs 228, 230–1 directions 215 indemnities 227–8, 230–1 jurisdiction 214 professional advice 144 third parties 228 beneficiaries 10, 163–83 see also minors or unborn beneficiaries accumulations 167 additions 163–4, 247 adopted children 167
340 Index ascertainable as member of class, beneficiaries must be 164 assignment of a beneficial interest 166 bankruptcy, termination on 166 beneficiary principle 75 binding against all beneficiaries, judgments as 239 capacity 168 certainty of objects 63, 164 class 163–4, 167 conflict of laws 165 conflicts of interest, consent to 139 consent to breach of trust 167–8 construction 164 costs 234–5 data protection 176–80 definition 163–4 disclaimers 165 disclosure 168–76, 180–3 discretionary trusts 165 equitable interests 165, 166 evenly between different classes of beneficiaries, duty to act 197 exclusions 163–4 identifiable, beneficiaries must be 164 indemnify, power to make beneficiaries 168 information, right to receive 164, 168–76 investments 194–5 minors, definition of 168 nature of beneficiaries’ interests 165 obligations on beneficiaries, imposition of 164 personal relationship to settlors or beneficiaries, defeating rights conferred by 100 pressure through beneficiaries, exerting 251 protective trusts and spendthrift provisions 166–7 reinstatement 260 requirements 164 removal of beneficiaries 164 resident beneficiaries, concessions for trusts with no 49 revocation, powers of 77 sham doctrine 241, 245 standing 163–4 sub-trusts 166 termination of interests 166 third parties, disclosure to 180–2 transfer of interests, proper law 86 variation of trusts 257, 258–9, 269 vested interests, disclosure in relation to pre-18 April 1989 trusts 174
Bermuda 172–3, 265 best endeavours 161–2 best interests test 134, 175, 207, 215 black hole trusts 83 see also blind trusts blessing momentous decisions 220, 221–6 appeal, test to be applied on 225 conflict of interests 222–3 evidential burden 224–5 test to be applied 223–4 without prejudice privilege 225–6 blind trusts 163 see also black hole trusts bona fide purchasers without notice 17, 113, 128 breach of trust 153–60 1991, February 19, occurring before 158 acquiescence 167–8 binding against all beneficiaries, judgments as 239 common law 154, 167–8 concealment 156–7 connected and unconnected breaches 156 consent 167–8 constructive notice 157 co-trustees, liability for acts and defaults 156–7 customary law 158 definition 153 dishonesty 158, 159–60 English law 156–7 exclusion of liability 1989, April 22, before 158 1989, April 22 and 1991, February 18, between 158 fraud 157, 159–60 gross negligence 155, 159, 238 indemnity 158–9 Jersey 155 joint and several liability 157 knowledge 236–8 limitation of liability 157–8 non-fiduciary duties, compensation for breach of 154 personal liability, power to relieve trustees from 155 policy 155 previous trustees, breaches by 157 profits against losses, setting off 156 purpose trusts, resignation of enforcer to facilitate 36 reflective loss 154–5 resignation of trustee to facilitate 107 restitution 154 skill and care, duty of 154
Index 341 third parties 126 Trusts Law 2007 153–60, 239 wilful default 156 bribes 73 British Virgin Islands law corporate trustees acting by resolution 150 VISTA trusts 199, 205 burden of proof 219–20, 224–5, 226, 238, 272 by way of business, definition of 287 Canada 95 capacity see also mental capacity conflict of laws 75 corporations 90 domicile 168 Hague Convention 90 minors 168 settlors 70 capital gains tax 48, 51, 52–5, 259, 267, 268 case law 14 see also common law Cayman Islands corporate trustees acting by resolution 150 data protection 179 disclosure 173 firewall provisions 94–5 foreign element law 94 foreign matrimonial orders 99 non-money judgments, enforcement of 95 recognition and enforcement of foreign judgments 95 STAR trusts 173, 179, 199, 205 certainty objects 63, 164 subject matter 63 purpose trusts 34–5 three certainties 63 validity and enforceability of trusts 74–5 words 63 change of position 271 charitable trusts 5, 26–32 addition of beneficiaries 163 administration or management 26, 32 charity, definition of 29, 30, 59–60 church buildings, repair, maintenance and improvement of 32 Commissioners, report of the 26–7 customary law 30 cy-près 8, 23, 31–2, 38, 259 declarations by Royal Court as to charitable status 30 English law 29 express trusts 26–32
Foster Will Trust, In the Matter of 32–3 historical background 26 HM Procureur, notification of 30 identified or ascertainable beneficiaries, no need for 30 impartiality, duty of 30 information, right to receive 30 intention of settlor 31 land/real property holding 26–7 orders in council governing trusts of 27–8 natives of Guernsey, benefit of 26 non-profit organisations 28–9 orders in council governing trusts of land 27–8 recognition of charitable status 30 Red Cross or blind trusts 163 registration of charities 28–9 revocation 32–3 taxation 59–60 variation 32–3 churches and church buildings charitable trusts 27–8, 32 new churches for Church of England, laws for 27 religious trusts in connection with the holding of churches 4–5 repair, maintenance and improvement 32 Sark Methodist Church 27 client, definition of 175–6 closest connection test 85–6 codes of practice Guernsey Financial Services Commission (GFSC) 290 records, maintenance of 140–1 sham doctrine 246 taxation 48 trust service providers 48, 140–1, 161, 175–6, 207, 246, 286 codification 12–13 collective investment schemes (CISs) 208, 286 common law breach of trust 154, 167–8 case law 14 conflict of laws 85 disclosure 168–70 investments 195 protectors 184 recognition and enforcement of foreign judgments 95
342 Index taxation 56 third parties dealing with trustees, protection of 128 compensation 41, 154 see also remuneration of trustees compromises group, approval between trustees who are part of same 138 sue and compromise, trustees’ power to 143–4 concealment 156–7, 254–5 confidentiality 171, 179, 181, 191, 192, 255, 295–6 confirmation of invalid acts see ratification and confirmation of invalid acts conflict of laws 85–100, 165 capacity 75 characterisation of issues 85 common law 85 customary law 85 firewall provisions 94–100 jurisdiction of Guernsey Court 92–4 proper law 85–92 conflicts of interest 136–40 blessing momentous decisions 222–3 compromises between trustees who are part of same group, approval of 138 consent of beneficiaries 139 construction 137 corporate trustees 136–7 court, authorisation by the 138 directions 116 disclosure of interests to co-trustees 139–40 express provisions in trust instruments 137 fiduciaries 192 general powers of the court 222–3 insolvent trusts 130 investments 210 protectors 192, 193 purpose trusts 38 remove trustees, power to 116 statutory authorisation 137 surrender of discretion 220, 226 consent breach of trust 167–8 conflicts of interest 139 powers of trustees 144 protectors 184–5, 193 remove trustees, power to 115 remuneration 118, 121 reservation of powers 82 variation and alteration, distinction between 99–100
construction, principles of 63–70 ambiguities, latent and patent 67 appropriation, powers of 149 beneficiaries 164 European Convention on Human Rights 67–70 extrinsic evidence, admissibility of 65–7 intention 63, 64 investments 194–5 matrix of facts 64 ordinary meaning 64, 194 plain meaning 194 proper law 86 protectors, powers to remove and appoint trustees 186–7 trustee remuneration provisions 118 whole, context of document as a 64 construction proceedings costs 233–4, 235 general powers of the court 220, 221 constructive trusts Bougourd v Woodhead 46–7 compensation 41 Conveyancing (Guernsey) Law 1996 40, 46 customary law 47 de son tort, trustees 62, 124–5 directions 215 dishonest assistance 193 equality between parties 44 fair and equitable principle 46–7 Godfray 42–3 joint ownership 43–6 land/real property 41–6 necessity 45 personalty 40 Pirito v Curth 46 recognition of trusts 8, 40 specific performance 42 trust, definition of 62 Waterman v McCormack 43–4 writing 71 consultation 82, 115, 119, 144, 184–6 controlled investment business 208 Conveyancing (Guernsey) Law 1996 40, 46 cooperation, duty of full 109–10 corporate trustees conflicts of interest 136–7 fiduciaries 284, 287–8 guarantors, directors as 162 powers of attorney 148 private trust companies (PTCs), exemptions for 287–8
Index 343 remuneration 120–1 resolution, acting by 149–50 correspondence, disclosure of 170 costs 231–5 Beddoe applications 227–228, 230–1 beneficiaries’ costs 234–5 Buckton categories 233–4 construction proceedings 233–4, 235 general principles 232 indemnity costs 230–1, 232, 234 jurisdiction 214 misconduct 232 professional indemnity insurance 274–5 proof of claims, by creditors where trust is insolvent 132 protectors 188–9 rectification on grounds of mistake 274–5 security for costs 232 trustees, rights of 232 co-trustees 142, 139–40 Court of Protection 263 court, powers of see general powers of the court creation of a trust 61–72 duration 71–2 existence of a trust 61–3 express trusts of land after 2008, 17 March 71 formalities 71 oral creation 71 perpetuities 71–2 settlors 70 writing 71 Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law 1991 180 curatelles 134, 263 customary law authorities, hierarchy of 14 breach of trust 158 charitable trusts 30 conflict of laws 85 duties of trustees 133, 152–3 constructive trusts 47 cy-près doctrine 23 dol doctrine 159 donner et retenir ne vaut maxim 241, 246–9 empêchement d’agir 237 ‘en bon père de famille’ 134 erreur doctrine 279 extrinsic evidence, admissibility of 65–6 fraud 159
prescription and limitation periods 235, 237 remuneration 119 resulting trusts 47 customer due diligence 141, 180 cy-près doctrine 9, 23, 31–2, 38, 259 damages, measure of 206–7 data protection 176–80 administration of trusts 180 anti-money laundering requirements 180 beneficiaries 176–80 confidentiality 179 data protection principles 176 exemptions from data subject rights 178–80 foreign trusts 179 general provisions 176 legal professional privilege 179 personal data 176–7 privacy notices 176–80 standard forms 177 daughters, trusts for 2–3, 16 de son tort, trustees 62, 124–5 declarations by the Court 30, 54–5, 214, 217, 227 defeat creditors, intent to 74 Delaware law 166–7 delay changes of trustees 109–10 rectification 272 rescission 276 delegation by Public Trustee 297 by trustees generally 144–8 of investment powers 195, 208–11 delivery up 191–2 deprivation of property rights 69 see also European Convention on Human Rights (ECHR) directions 81, 99, 116, 130, 137, 139, 204, 214–16, 219, 252, 289 directors of corporate trustees, liability of 162 disability, persons under a see also mental capacity; minors or unborn beneficiaries prescription and limitation periods 238 variation of trusts 263 disclaimers of trusteeship 106–7 by beneficiaries 165 disclosure 168–76, 180–3 1989, April 17, trusts established before 170, 174
344 Index 1989, April 18, trusts established after 173 absolute right to information, no 169 accounts and information about state of trust 169, 172 administration of the trust 181 anti-money laundering 180–1 banks, interests of 181 Beddoe applications 228–9 beneficiaries absolute right to information, no 169 by 182–3 to 168–76 vested interests, with 174 close connection 182–3 commercial sensitivity 171 common law 168–73 compulsion of law, disclosure under a 181 concealment 254–5 conditions 171 confidentiality duty owed to third parties 171 conflicts of interest 139–40 consent to disclosure 172–3, 181 correspondence 170 co-trustees 139–40 court, applications to 175 deliberations, non-disclosure of 174–5 discretionary trusts 170 documents that must normally be disclosed 169–70 exclusions 171–3, 174 fiduciary relationships 170, 172–3 foreign authorities, disclosure to 181–2 foreign proceedings 171, 254–6 foundations, use of 173 full and frank disclosure 272 general principles 168–9 internal trust correspondence and records during administration 170 knowledge 237 legal advice and communications with lawyers 170 letters of wishes 170, 174–5 licensed fiduciaries 175–6 Londonderry principles 172, 175 modification of information rights 171–3 need to be disclosed, documents which do not 170 prejudice 182 prescription and limitation periods 237 protectors 190–1 public duty to disclose 181
reasons for exercise of powers 170 rectification on grounds of mistake 272, 274 regulatory requirements 175–6 restrictions or refusal of disclosure 171–3, 174 settlors 170, 173, 174–6 STAR trusts 173 statutory duty to provide information 173–4 supervisory jurisdiction of courts 168–76 termination of trusts 170 third parties 171, 180–2 trust instruments and supplemental instruments 169 underlying companies, documents relating to 170 vested interests, beneficiaries with 174 who is entitled to the information 170–1 written requests 173 discretion see also discretionary trusts customary law 152–3 donner et retenir ne vaut maxim 248 factors relevant to exercise of court’s discretion 282–3 fettering discretion 152 foreign judgments, non-recognition of 96–7 foreign matrimonial orders 99 fraud on a power 152 Hastings-Bass, rule in 270, 279–83 impartiality 142 recognition and enforcement of foreign judgments 96–7 remove trustees, power to 116 surrender of discretion 220, 226–7 trustees, duties of 152–3 discretionary trusts addition of beneficiaries 163 beneficiaries 163, 165 disclosure 170 judicious encouragement to third parties 251 long stop 238 Pugachev 81 remuneration 118 sham doctrine 246 tax 272–3 termination of trusts 82–83 variation of trusts in foreign matrimonial proceedings 251, 252 discrimination 67–70 dishonest assistance 193, 246
Index 345 dishonesty 158, 159–60, 193, 201, 203, 285 dispositive powers 76, 125, 134, 259, 269 disrepute, bringing Guernsey into 284 diversification 197–9, 202, 206 divorce domicile 250 foreign matrimonial orders 99, 222 habitual residence 250 non-Guernsey divorces 250–1 sharing assets 99 sufficient connection to Guernsey 249–50 variation of trusts in foreign matrimonial proceedings 249–51 domicile 91, 151, 168, 250, 263, 287 donner et retenir ne vaut maxim 241, 246–9 double tax treaty between UK and Guernsey 55–6 due diligence 104, 110, 296 duration of a trust 71–2 duress 73 duties of trustees 133–43 accounts, definition of 140 accounts, duty to be ready with 205 conflicts of interest 136–40 co-trustees to act together, duty of 142 customary law 133 disclosure of interests to co-trustees 139–40 discretion 152–3 duty to be ready with accounts 205 ‘en bon père de famille’ 20, 37, 42, 133, 134–5, 146, 195 fiduciary duties 133–4, 135, 136 impartiality 142 information, duty to give 141, 168–176 investments 195–200 outgoing trustees, duties of 108–14 profit from trusteeship, duty not to 103, 136–7, 210 property, duty to get in and preserve 135–6 purpose trusts 35–6 records, maintenance of 140–1 saisie proceedings 20–1, 22 separate, duty to keep trust property 141 termination, duty on 143 Dwellings Profits Tax (Amendment) (Guernsey) Law, 1983 6–7 ‘empêchement d’agir’ 237 employee benefit trusts 39, 60, 258 ‘en bon père de famille’ 20, 37, 42, 133, 134–5, 146, 195
enforceability see validity and enforceability of trusts enforcers see purpose trusts and enforcers English law accumulation and maintenance trusts 272–3 adoption overseas 69 advance of money to trustees 129 amendment, powers of 258 ante-nuptial and post-nuptial settlements 251, 253 appropriation, powers of 149 authorities, hierarchy of 14 Beddoe applications 229 beneficiaries 164–6 breach of trust 156–7 charitable trusts 29 Civil Procedure Rules 214 common law principles in relation to disclosure 168–70 conflict of laws 85 construction, principles of 63, 64, 65, 67 constructive trusts 40, 41–2, 45–6 Consumer Credit Act 1974 69 delivery up 191–2 delegation 144 directions 214 disclaimers 107 disclosure 168–70, 254–5 double tax treaty with Guernsey 55–6 ‘en bon père de famille’ 135 exclusive jurisdiction clauses 253–4 expenses, trustee’s right to 122 extrinsic evidence, admissibility of 65–6 family courts 250 Federal Trust Company Limited v MacDonald-Smith and Bermuda Trust (Guernsey) Limited 53–4 Finance Act 1991 53–4 firewall provisions 57 foreign judgments, non-recognition of 96 foreign matrimonial proceedings, variation of trusts in 250–1, 253–4 fraud 160 freezer trusts 53 general powers of the court 223–4, 227 Human Rights Act 1998 69 information gathering 254 inherent jurisdiction 259 investments 194–5, 197 Kleinwort Benson v Wilson 54–5, 56 Law of Property Act 1925 268
346 Index letters of wishes 153 lien, trustees’ non-possessory 112 minors or unborn beneficiaries 259 new or additional trustees, appointment of 102, 105 perpetuity period 71 precedent 15 prescription and limitation periods 236 Prestwich v Royal Bank of Canada Trust Co (Jersey) Ltd 52–3 proper law 53–4 protective trusts and spendthrift provisions 166 recognition and enforcement of foreign judgments 94, 95 rectification on grounds of mistake 270, 272–3 remove trustees, power to 105, 116 remuneration 119, 120–1 rescission on grounds of mistake 270, 278 reservation of powers 80 resettlements 268 security for costs 232 sham doctrine 244 tax capital gains tax 51–6, 259, 267–8, 268 enforceability of another state’s revenue law 51–3 rectification on grounds of mistake 272–3 rescission on grounds of mistake 278 right of recovery 51, 52–9 trustees, duties of 133 trustees de son tort 124 Trusts Law 1989 12–13 variation of trusts 250–1, 253–4, 259–62, 264, 267–9 vesting property in new trustees 106 equality between parties 44 estate duties 48 European Convention on Human Rights (ECHR) construction, principles of 67–70 discrimination 67–70 English law 69–70 Human Rights Law 2000 68–70 marry, right to 67 peaceful enjoyment of possessions 69 private arrangements, application to 67–8 retrospectivity 69–70 variation of trusts 262
evidence blessing momentous decisions 224–5 burden of proof 224–5 children, trusts for 65, 66–7 construction, principles of 65–7 criminal proceedings 294 extrinsic evidence, admissibility of 64, 65–7 intention 64, 76 rectification on grounds of mistake 272 sham doctrine 243 excessive execution, doctrine of 187 exclusion of settlor from benefit 59 exclusion of liability 158, 193 see also exoneration clauses exclusive jurisdiction 93–4, 253–4 existence of a trust 61–3 exoneration clauses 79, 114, 122–4, 145, 159, 160–1, 190, 203 expenses and liabilities enforcer 37 trustee 112, 122–4, 144, 148, 225, 231 explain terms of trust instruments, duty to 161–2 express trusts 16–39 2008, 17 March, trusts of land created before 22 2008, 17 March, trusts of land created on or after 24 charitable trusts 26–32 employee benefit trusts 39 land/real property 22–5, 47 purpose trusts 33–8 saisie proceedings 20–1 Succession Law 1840 16, 23 Succession Law 1890 16–19, 23 unit trusts 39 extinguishment of cause of action 235 fair and equitable principle 46–7 family trusts 2–4 19th century commentary 3 fidéi-commis 2–3, 16–18 statutory trusts 2–4 Succession Law 1840 2–3, 16 Succession Law 1890 3–4, 16 fees see also remuneration of trustees, lawyers/legal advice by way of business, meaning 287 duties of trustees 144 professional advice 144 Public Trustee 293, 297 fidéicommis 2–3, 16–18
Index 347 fiduciaries 284–90 background to regulation of 284 bribes 73 by way of business, definition of 287 client, definition of 175–6 code of practice 48, 140–1, 161, 175–6, 207 collective investment schemes (CISs) 286 corporate trustees 284, 287–8 disclosure 170, 172–3 disrepute, bringing Guernsey into 284 ‘en bon père de famille’ 135 exemptions 286–7 existence of a trust 62 fees 287 fidéicommis 16 Fiduciaries Law 2000 285–7, 288, 289 fit and proper person test for directors and principals 284, 289 four-eyes principle 284 Guernsey Financial Services Commission (GFSC) 285, 286–8, 290 Hastings-Bass, rule in 73, 192, 281–2 indemnities 188 insolvent trusts 129–30 investments 77, 133–4, 195, 202, 205, 207, 211–12 lawyers drafting documents or providing advice, as 287 executors, administrators of estate or trustees of will trusts, acting as 287 licensing 284, 287, 288–90 new or additional trustees, appointment of 103 notification system 284 principal offence 287 private trust companies (PTCs), exemptions for 287–8 professional fiduciaries 285–7 property, duty to get in and preserve 135 protectors 185–7, 188–9, 191–3 prudence, professional skill and integrity 284 Pugachev 81–2 purpose trusts 37 regulated activities 285–6, 287 regulation 284–90 remedies 284 remove trustees, power to 106 reservation of powers 80 resources for business, adequacy of 284 skill and care 73
standing 289 tax, reimbursement of 59 trust business, definition of 285–6 trust service providers (TSPs) 285–6 trustees, duties of 133–4, 135, 136 Trusts Law 2007 133 utmost good faith 133 firewall provisions 94–100 conflict of laws 94–100 exclusion of foreign law 98–100 inconsistency with Guernsey Trusts Law 2007 97 Judgments (Reciprocal Enforcement) Guernsey Law 1957 52, 94–5, 96 non-recognition of foreign judgments 96–7 personal relationship to settlors or beneficiaries, defeating rights conferred by 100 recognition and enforcement of foreign judgments 94–5, 96–7 rights, claims or interests 100 submission to foreign courts 100 taxation 57 fit and proper person test for directors and principals 284, 289 foreign heirship laws 98 foreign judgments, non-recognition of 96–7 foreign law 89–92, 98–100, 148 foreign proceedings matrimonial proceedings 99–100, 214, 249–56 validity of trusts 171 foreign states, tax liabilities enforced by 53–9 foreign trusts 71, 92–3, 179 formalities 71, 90–1, 148 forum for administration 93 forum non conveniens 94 Foster Will Trust, In the Matter of 32–3 foundations and principles 1–15 fraud actual 159–60 Criminal Justice (Fraud Investigation) (Bailiwick of Guernsey) Law 1991 180 customary law 159 definition 159–60 dishonesty 159–60 dol or civil fraud 159–60 English law 160 equitable 159 limitation of liability 157
348 Index validity and enforceability of trusts 73 wills 76–7 fraud on a power 152, 187 freezer trusts 53 general powers of the court 216–27 approval of trustees’ actions 220–7 blessing momentous decisions 220, 221–6 conflict of interests 222–3 construction 221 declarations 30, 54–5, 214, 217, 227 directions 214–6, 219 discretion, surrender of 220, 226–7 extent of trustees’ powers 220, 221 jurisdiction, extent of the court’s 217 money laundering issues, applications to distribute assets in context of 219–20 past actions, approval of 221, 227 rescission of orders or declarations 217 standing 216 surrender of discretion 220, 226–7 types of applications 218–19 types of orders available 216–17 variation of orders or declarations 217 good faith 133, 146 gross negligence 155, 159, 238 guardians, appointment of 263 guarantors 162 Guernsey Financial Services Commission (GSFC) charitable trusts 28 codes of practice, issue of 290 fiduciaries, regulation of 285, 286–9 information, exchange of 285 investments 207 licensing 288–90 private trust companies (PTCs), exemptions for 287–8 Public Trustee, Office of the 291–6 significant shareholder, notification of GFSC when becoming a 290 taxation 48 habitual residence 250 Hague Trusts Convention 1985 61, 87–9, 253 Hastings-Bass, rule in 279–83 appointment, powers of 281 background 279–80 causal connection 282 definition 270, 279 discretion 270, 279–80, 282–3
excessive execution 280 factors relevant to exercise of court’s discretion 282–3 fiduciaries 73, 192, 280–3 inadequate deliberation 280, 281–2 pension assets, lump sum distribution of 52 perpetuities 279–80 Pitt v Holt 280–3 positive counterpart, rule does not have a 281 professional advisers, claims against 283 protectors 192 taxation consequences 281, 282 unconscionability 283 Herm 28 hierarchy of courts 15 HM Procureur 30, 31, 32, 115, 180, 216 Hong Kong 75, 97, 99, 201, 210, 250 Housing (Control of Occupation) (Guernsey) Law, 1994 7 human rights see European Convention on Human Rights (ECHR) illegitimate children 65, 66, 68–9 immorality 74 impartiality 30, 142 implied trusts 40, 71 in personam non-money judgments 95 income tax 48–50 indemnities Beddoe applications 227–8, 230–1 beneficiaries 168 breach of trust 158–9 costs 230–1, 232, 234 directors and employees, indemnities as covering 111 enforcement 112 equitable indemnities 124 fiduciaries 188 former trustees 123–4, 132 impounding 168 liens 113 negotiations 111 outgoing trustees, rights of 111–13 protectors 188–9, 193 remuneration 119, 123–4 successors 119 third parties 126–7 Trusts Law 2007 111 information, provision of see also disclosure beneficiaries 164, 168–76 charitable trusts 30
Index 349 compulsory powers 254 confidentiality 171, 179, 181, 191, 192, 255, 295–6 data protection 176 duties of trustees 141 foreign matrimonial proceedings, variation of trusts in 254–6 Guernsey Financial Services Commission (GFSC) 285 harm to other beneficiaries 254 letters of request 255 Minwalla case 256 oppressive or irrelevant questions, plea that witness asked 255 Public Trustee, Office of the 294, 296 purpose trusts 37–8 reservation of powers 78 spouses 254–5 Inheritance Law 1954, restrictions under 24–5 injunctions 294 insolvent trusts 129–32 see also saisie proceedings creditors’ costs of proving claims 132 definition 129 fiduciaries 129–30 former trustees and creditors, trustees’ duties to 132 insolvency practitioner, appointment of 129–30 liens 132 priority of creditors 130–2 remove trustees, power to 117–18 trustees 129–32 inspection, right of 78 insurance growing use and statutory recognition of trusts in 20th century 6 Married Women’s Property Law 1928 6 professional indemnity insurance 274–6 remuneration 123 saisie proceedings 2, 21 utmost good faith 133 intention 31, 63, 64, 66–7 interpretation see construction, principles of intervene, duty to 199–200, 201–5 investments 194–212 affiliated companies as managers, appointment of 210–11 anti-Bartlett clauses 201–5 beneficial owner, powers of a 194–5 collective investment schemes 208
common law 195 conflicts of interest 210 construction 194–5 controlled investment business 208 damages, measure of 206–7 delegation 145, 194–5, 208–11 detriment 196 direct investments, power to 211–12 dishonesty 201, 203 diversification 197–9, 202, 206 duties of trustees 134, 135 ‘en bon père de famille’ 195 errors of judgment 206 ethical considerations 195 evenly between different classes of beneficiaries, duty to act 197 exoneration clauses 203 express powers 194 family companies 77 fiduciary relationships 77, 133–4, 195, 202, 204, 205, 207, 211–12 general duties 209 general principles 195, 203 general securities and derivatives 208 Guernsey Financial Services Commission (GFSC) 207 intervene, duty to 199–200, 201–5 invest, definition of 194 irreducible core of trusteeship 203 licensed fiduciaries, Code of Practice for 207 managers, appointment of 209–11 minor and unborn beneficiaries 195 monitor, duty to 199–200, 201–5 own account dealing 208 portfolio theory 197 Protection of Investors Law, 1987 208 protectors 187 prudent person of business rule 196 regulation 207–8 reserved investment powers 77, 212 restricted activities 208 reviews 207 risk 196–8 safeguards 210 scope of investment power 194 speculative and hazardous investments 196–7, 199–200, 202–3 trustees’ duties 195 Trusts Law 2007 209 value of trust property, duty to preserve and enhance 195–6, 202–3
350 Index irreducible core of trusteeship 203 Isle of Man 94 Israel 94 Italy 95 Jersey law certainty 75 construction, principles of 63–4, 67 cooperation, duty of full 109–10 corporate trustees acting by resolution 150 de son tort, trustees 124 disclaimers 107 disclosure 251 discrimination 68 donner et retenir ne vaut maxim 247–9 employee benefit trusts 258 Esteem case 248–9 European Convention on Human Rights 262 exclusion clauses 59 exclusive jurisdiction 94, 254 existence of a trust 62 exoneration clauses 203 extrinsic evidence, admissibility of 65–6 fidéicommis 17–18 fiduciary duties 134 foreign judgments, non-recognition of 96 foreign matrimonial orders 99–100 foreign matrimonial proceedings, variation of trusts in 251, 253–4 fraud 159 Hague Trusts Convention 1985 253 insolvent trusts 129 interests, definition of 134 investments 203, 206 letters of request 255 outgoing trustees, duties of 108–10 persuasive authority, as 14 prescription and limitation periods 237 professional persons, employment of 145 protectors 188 public policy 74 Rahman case 247–8, 249 recognition and enforcement of foreign judgments 94 resettlements 261 sham doctrine 246 taxation 56 third parties 126
Trusts (Jersey) Law 1984 9, 10, 18, 127, 131, 159 variation of trusts 99–100, 260–4, 266–7 Jethou 28 joint and several liability 157 joint and community property 91–2 joint ownership 43–6 Judgments (Reciprocal Enforcement) Guernsey Law 1957 52, 94–5, 96 jurisdiction 92–4 see also proper law Beddoe relief, applications for 214 conflict of laws 92–4 corporations, residence of 92 costs 214 exclusive jurisdiction 93–4, 253–4 extent of jurisdiction 217 foreign trusts 92–3 forum non conveniens 94 indemnities 168 inherent jurisdiction 119–20, 259 jurisdiction clauses 92, 94 limitation periods 214, 235–8 prescription periods 214, 235–8 procedural orders 213 protectors 190 rectification of mistakes 214, 271 Royal Court 92–4, 213–14 security for costs 232 shams 214 submission to jurisdiction 252 transfer of shares 92 variation 214 knowledge actual knowledge 237 breach of trust 158, 236–8 construction, principles of 64 constructive knowledge 237 disclosure 237 knowing receipt 246 prescription and limitation periods 237–8 laches 271 land/real property 9, 22–5 see also saisie proceedings 2008, 17 March, trusts of land created before 22 2008, 17 March, trusts of land created on or after 24 charitable trusts 26–7 conflict of laws 91 constructive trusts 41–5
Index 351 Conveyancing (Guernsey) Law 1996 40, 46 express trusts 22–5, 47 holding 26–7 joint ownership 43–6 orders in council 27–8 proper law 91 Trusts Law 1989 to trusts of land created before 17 March 2008, application of 22–3 will, trusts of land made by 24–5 writing 36, 40, 46 Law Commission 202 Law Reform (Inheritance and Miscellaneous Provisions) (Guernsey) Law, 2006 66 lawyers/legal advice Beddoe order, costs covered by 230–1 best endeavours 161 conflicts of interest 116 disclosure of legal advice and communications with lawyers 170 drafting documents 287 duty to explain trust instrument to settlors 161–2 executors, administrators of estate or trustees of will trusts, acting as 287 fiduciaries 287 incoming trustee, withholding legal advice from 124 independent judgment 144 independent legal advice 162 legal fees, disallowed after removal 124 legal fees, consequences of finding of sham 246 negotiation of indemnities 111 property, duty to get in and preserve 135 reservation of powers 77 trust property, legal advice as not being 109 legal advice see lawyers/legal advice legal professional privilege 179, 294 letters of request 255 letters of wishes 174–5 see also settlors, wishes of data protection 178 definition 175 disclosure 170, 174–5 exercise of trustee discretion 153 primary beneficiary 120 powers of trustees 150 Red Cross trusts 163 remuneration 119
sham doctrine 242 termination of trusts 153 licensing conditions 289 directions 289 fiduciaries 161, 175–6, 207, 284, 287, 288–90 full fiduciary licences 288, 290 Guernsey Financial Services Commission (GFSC) 288–90 minimum criteria for licensing 289 no objection or objection notices 289 obligations 290 personal fiduciary licences 288 protectors 288 Public Trustee, Office of the 293 relevant persons 288–9 remove trustees, power to 117 significant shareholder, notification of GFSC when becoming a 290 standing 289 types 288–9 liens contractual indemnities 113 definition 112 distribution to beneficiaries 112–13 enforcement 124 equitable interest 112 expenses and liabilities 112 fiduciaries 124 former trustees and creditors, trustees’ duties to 132 former trustee’s right to indemnity 123 insolvent trusts 131–2 loss of lien 113 non-possessory liens 112 outgoing trustees, rights of 112–13 Pauline actions 113 priority 131–2 remuneration 124 waiver or release 113 lifetime trusts, test for validity of 76–7 limitation of liability Public Trustee 296 trustees generally 157–8 limitation periods see prescription and limitation periods locus standi see standing management affiliated companies as managers, appointment of 210–11
352 Index charitable trusts 26, 32 enlargement of powers of 260 investments 209–11 purpose trusts 38 Married Women’s Property Act 1928 2–3, 6, 16, 23 marry, right to 67 matrimonial proceedings see also variation of trusts in foreign matrimonial proceedings cancellation, variation, modification or termination 6 divorce 99 foreign matrimonial proceedings 99–100, 214 growing use and statutory recognition of trusts in 20th century 6 sham doctrine 242–3 mental capacity consequential vesting 117 Court of Protection 263 curatelle 134 ‘en bon père de famille’ 134 guardians, appointment of 263 new or additional trustees, appointment of 102 remove trustees, power to 117 remuneration 118 sole trustees 117 variation of trusts 263 minors or unborn beneficiaries adoption 66–7, 69, 167 advancement, power of 151 age of majority 263 capacity 168 consent to breach of trust 167 definition 168 discrimination 68–70 domicile 263 extrinsic evidence, admissibility of 65, 66–7 illegitimate children 65, 66, 68–9 investments 195 maintenance, power of 151 minor, definition of 151 prescription and limitation periods 238 remuneration 118 Succession Law 1890 3–4 testamentary dispositions 67 tutelle 134 variation of trusts 99, 259, 261, 263–4, 266 misrepresentation 73
mistake 73 see also rectification on grounds of mistake; rescission on grounds of mistake momentous decisions see blessing momentous decisions negligence gross negligence 111, 114, 122–3, 145, 155, 158, 159, 190, 238 rectification on grounds of mistake, negligent advice and 274 tax advice 274 Netherlands Antilles 95 new or additional trustees, appointment of 102–5 see also outgoing trustees, duties of checklist 104–5 existing trustee, power vested in 102 express powers in trust instrument 102 fiduciary powers 103 Jasmine Trustees Limited, In the Matter of 103–4 last remaining trustees 102, 103 mental capacity, where trustee has lost 102 nature of powers of appointment 103 reasonable security 110 removal 103, 105–6 restrictions on exercise of power 105 surrender of trust property 108 vesting property in new or continuing trustees 108 New Zealand 15, 80–1, 104–5 non-charitable purpose trusts see purpose trusts and enforcers non-profit organisations 28–9 Northern Ireland 95 number of trustees 101, 106 objects see beneficiaries occupation, rights of 62 operation of law, trusts arising by 40–47 see also constructive trusts oral creation of trusts 71 Orders in Council, trusts created by 269 outgoing trustees, duties of 108–14, 143 Caversham, Re 109–10, 111 cooperation, duty of full 109–10 delay 109–10 directors and employees, indemnities as covering 111 discharge of outgoing trustees 113–14 exoneration clauses 114
Index 353 expenses and liabilities 112 handover, duties in relation to 108–10, 114 indemnities 111–13 legal advice as not being trust property 109 liens 112–13 limitation and prescription of action 114 negotiation of indemnities 111 removal 105–6, 108 resignation 107, 108 security, right to reasonable 108, 110–11 surrender of trust property 108 vesting property in new or continuing trustees 108 vicarious liability 114 past actions, approval of 221, 227 Pauline actions 113 peaceful enjoyment of possessions 69 pension assets, lump sum distribution of 52 perpetuities 71–2, 279–80 personalty 16, 18, 25, 40 portfolio theory 197 post-nuptial settlements 97, 251, 253 powers of attorney 146–8 corporate trustees 148 delegation 146–8 exclusion by terms of trust 148 foreign law 148 formalities 148 notice 147 security over trust property 147 subordination of debts 147 writing requirement 147 powers of trustees 143–52 accumulate income, power to 150 advancement, power of 150–1 appointment, power of 151–2 appropriation, powers of 149 consent, duty to obtain 144 consult, duty to 144 corporate trustees acting by resolution 149–50 delegation by trustees 144–6 deliberations, non-disclosure of 150 expenses 148 extent of powers 220, 221 imputed exercise of powers 152 letters of wishes 150 maintenance, power of 150–1 powers of attorney 146–8 professional advice 144 professional persons, employment of 145–6
property, powers of trustees in relation to 143 remuneration 148 revocation, power of 152 sue and compromise, power to 143–4 vicarious liability 146 precedent, role of 15 prescription and limitation periods 114, 235–8 applicable law 235 breach of trust claims 236–8 burden of proof 238 customary law 235, 237 disability, persons under a 238 disclosure 237 empêchement d’agir 237 extinguishment 193, 235 forum, law of the 235 gross negligence 238 jurisdiction 214 knowledge 237–8 long stop 238 minors 238 no prescription or limitation period, where there is no 236 non-beneficiaries, actions by 238–9 outgoing trustees, discharge of 114 protectors 193 suspension 238 principles and foundations 1–15 priority of creditors 130–2 privacy notices 176–80 private trust companies (PTCs), exemptions for 287–8 procedural orders 213 professionals see also lawyers/legal advice advisers 144, 161–2, 283 employment of professionals 145–6 expenses 144 fiduciaries 285–7 independent judgment, exercise of 144 professional indemnity insurance 274–6 professional persons, definition of 145 remuneration 120–1 scope of power to employ 146 sham doctrine 246 profit, duty not to 38, 136–7, 172 profits against losses, setting off 156 proper law 85–92 administration of trusts 86 appointment powers 87 capacity of a corporation 90
354 Index capacity of settlors 86 change of proper law 86 closest connection test 85–6 conflict of laws 85–92 contrary provisions in trusts 89–90 derogations in favour of foreign law 89–92 existence and extent of functions 87 express proper law 85–6 foreign trusts 92–3 formalities for the transfer of property 90–1 Hague Trusts Convention 87–9 implied proper law 85–6 joint and community property 91–2 local law, reservations of all questions to 87 mandatory rules of another jurisdiction, contravention of 89 ownership of property 89 precedence of trust rules 87 provisos to the general rule 89 real property dispositions 91 revocation powers 87 sham doctrine 245 significance of proper law 86–7 subject to the terms of trust, rules are made 87 taxation 53–4 termination 86 testamentary dispositions 91 transfers of beneficial interests 86 validity of trusts 86 variation powers of 87 property, duty to get in and preserve 135–6 prospective trustees, duties of 160–2 Protection of Investors Law, 1987 208 protective trusts and spendthrift provisions 166–7 assignment 166 Delaware law 166–7 public policy 167 termination of trusts 166 variation of trusts 262, 264–5 protectors 184–212 account of profits 192 appoint trustees, power to 186–7 appointment and removal of protectors 187–8 common law 184 confidentiality 191, 192 conflicts of interest 192, 193 consent 184–5, 193 consultation 184–6 construction of powers to appoint and remove trustees 186–7
constructive trusts and dishonest assistance 193 costs 188–9 definition 184 delivery up 191–2 disclosure of information 190–1 drafting issues 193 excessive execution, doctrine of 187 exemption clauses 193 exoneration 190 fiduciary duties 185–7, 189, 191–3 fraud in the power 187 Hastings-Bass, rule in 192 indemnities 188–9, 193 investments, power to direct 187 jurisdiction 190 liability 192 licensing 288 nature of powers 185–6 non-fiduciary powers 188 powers 184–5 prescription period 193 Pugachev 80–2 purpose trusts 38 regulation of protectors 185, 288 removal of protectors 187–8 remove trustees, power to 186–7 remuneration 189, 193 reservation of powers 184–5, 187 retirement 189 standing 192 trustees, as not being 185 prudence, professional skill and integrity 284 prudent person of business rule 37–8, 196 public policy 34, 57–8, 74, 97, 122, 127, 167, 204, 247, 262, 273 Public Trustee, Office of the 291–7 advisers, appointment of 294 alone in most cases, acting 296 appeals 295 appointment 291–4, 296 confidentiality 295–6 delegation 297 documents, accounts or information, requests for 294, 296 due diligence 296 evidence in criminal proceedings 294 fees 293, 297 functions 292–4 Guernsey Financial Services Commission (GFSC) 291–6
Index 355 information, reports and other documents, publication of 294 injunctions 294 investigative powers 294, 295 legal professional privilege 294 licensing 293 limitation of liability 296 Public Trustee Law 2002 291–2 regulation 293 remuneration 297 role 291 Royal Court, referrals to 294 sole trustee, as 296 supplementary powers and provisions 294 terms and conditions of appointment 293 trusts in respect of which Public Trustee may act 292 purpose trusts and enforcers 33–8, 62 administration and management powers, variation of 38 appointment 33–4, 36 bankruptcy 36 beneficiary principle 75 breach of trust 36 ceasing to be enforcer, enforcer otherwise ceasing to be 37 certainty, requirement for 34–5 contrary to law, purposes which are 34 cy-près 38 death 34 ‘en bon père de famille’ 37 enforce, definition of 37–8 expenses 37 fiduciary duties 37 incapable of acting, where 36 information, right to 37–8 new enforcers, appointment of 33–4 number of enforcers 33 otherwise ceasing to be an enforcer 37 profit, enforcer’s duty not to 38, 136 protectors 38 prudent person of business test 37–8 public policy 34 refusal or unwillingness to act 36 removal 36 replacement enforcer 36 requirements for 33–4 resignation of enforcer 36–7 rights, duties and powers of enforcers 37–8 standing 38 trustees, obligations of 35–6 unfitness to act 36
validity of purposes 34 vary, power to 38 ratification and confirmation of invalid acts 124–5 real property see land/real property recognition and enforcement of judgments common law 95 discretion 96–7 firewall provisions 94–100 foreign matrimonial proceedings, variation of trusts in 252–4 in personam non-money judgments 95 inconsistency with Trusts Law 2007 97 Judgments (Reciprocal Enforcement) Guernsey Law 1957 94–5, 96 non-money judgments 95 non-recognition of foreign judgments 96–7 records 140–1, 170 rectification on grounds of mistake 270–6 1989, before 271 accumulation and maintenance trusts 272–3 appointment, powers of 275 burden of proof 272 change of position 271 costs 274–5 delay 272, 276 disclosure, full and frank 272 English law 270–1, 272–3 evidence of errors 272 general principles 270–2 jurisdiction 214, 271 laches 271 negligent advice 274 practical remedy, where there is no other 272 professional indemnity insurance 274–6 public policy 273 retrospectivity 270, 271 standard of proof 275–6 standing 271 supplemental and related documents 275 tax 272–4 test for mistake 271 trusts instruments, negligence in preparation of 274, 276 unilateral mistakes 270 writing 271 Red Cross or blind trusts 83, 163 registered offices 92, 286 regulation disclosure 175–6
356 Index fiduciaries 284–90 investments 207–8 protectors 185 Public Trustee, Office of the 293 regulated activities 285–6, 287 religious trusts in connection with the holding of churches 4–5 remedial applications to court 270–83 Hastings-Bass, rule in 270, 279–83 rectification on grounds of mistake 270–6 rescission on grounds of mistake 270–1, 276–9 remove trustees, power to 105–6, 114–18 additional trustees, appointment of 115 beneficiaries, applications by 115 conditions and requirements 115 conflicts of interest 116 consent requirement 115 consultation requirement 115 discharge of outgoing trustees 105–6 discretion 116 fiduciary duties 106 HM Procureur 115 hostile removal applications 115–16 general power 115 Guernsey trusts 114–15 insolvency 117–18 licensing 117 mental incapacity 117 new or additional trustees, appointment of 102–3 no Guernsey resident trustee, where there is 114–15 number of trustees 106 outgoing trustees, duties of 108–110 outgoing trustees, discharge of 105–6 protectors, powers to remove and appoint trustees 186–7 replacements 117 settlors, application by 115 Trusts Law 2007 115 remuneration of trustees 118–22, 148 see also protectors, remuneration of agreements 118 appointment of new trustees 118–19, 121 ceasing to be trustees 121 clauses 118–21 consent of beneficiaries 118, 121 court approval 118–21 court orders 118 customary law 119 disallowed, if undue delay in relation to handover 110
discretionary trusts 118 exoneration provisions 123 expenses 122–3 fiduciaries 124 general position 118 indemnity of settlor 119 indemnity of former trustees 123–4 inherent jurisdiction 119–20 insurance 123 investment advice 208, 210 Kleinwort Benson Trustees (Guernsey) Limited, Re 120–1 letters of wishes 119 liens, enforcement of 124 mental incapacity 118 minors 118 payment prior to transfer of property on termination 83 professional trustees 120–1 proportionality 118, 121–2 protectors 122 Public Trustee, Office of the 297 reasonable security 110 retrospectivity 259 sham, consequences of finding of 246 standard provisions 120 STEP members, duty as prospective trustees 161 successor trustees 119–20 termination fees 121–2 terms of trusts 118 trust corporations 120–1 repairs, permission for 2 rescission on grounds of mistake 270–1, 276–9 causative mistakes 276–7 change of position 271 customary law doctrine of erreur 279 general principles 270–1, 277 laches 271 retrospectivity 270, 271 standing 271 tax consequences 278 test for mistake 271, 276–7 unconscionability 276–8 unilateral mistakes 270 reservation of powers by settlors 76–82 amendment, powers of 77 appointment, powers of 77 consent, duty to obtain 82 consult, duty to obtain 82 donner et retenir ne vaut maxim 247–8 excess of reserved powers 78
Index 357 fiduciaries 80 investments 77, 212 irreducible core of obligations 78–9 lifetime trusts, test for validity of a 76–7 protectors 184–5, 187 Pugachev 80–2 revocation, powers of 77 statutory provisions 79–80 validity 76–7, 80–1 resettlements 259, 261, 268 residence 48, 85, 92, 104, 114, 165, 250, 253 resignation of enforcer 36–7 resignation of protector 189 resignation of trustees 107–8 resources 251, 284 restitution 154 restricted activities 208 resulting trusts 40, 47, 71, 163 retirement of protectors 189 retrospectivity 13, 68–9, 125, 259, 270, 271 revocation, power of 77, 81, 87, 152 Roman-Dutch law 17 Roman law 3, 17, 18 Royal Court see general powers of the court saisie proceedings 1–2 definition 1 ‘en bon père de famille’ 20 express trusts 20–1 insurance 2, 21 interim vesting stage 2, 21 maintenance 2 priorities 1 repairs, permission of Royal Court for 2 Royal Commissioners’ report (1815) 2 saisie héréditale 20 Saisie Procedure (Simplification) (Bailiwick) Order, 1952 21 terminology, retention of earlier 21 trustees, duties of 20–1 vesting of real property in creditors 1–2, 20–1 Sark constructive trusts 42–3, 45 Guernsey Financial Services Commission (GFSC) 285 Methodist Church 27 powers of attorneys 148 Public Trustee, Office of the 292 Saunders v Vautier, rule in 83, 258–9 schools, statutory schemes for 6 Scotland 95 security for costs 232–3
security, right to reasonable 108, 110–11 separate, duty to keep trust property 141 settlors appoint trustees, Royal Court’s power to 115 capacity 75 creation of a trust 70 definition 70 disclosure 170, 174–6 enforcers of purpose trusts, may be 33 exclusion clauses 59 right of recovery of UK tax 51–59 tax, where settlors are Guernsey resident 50 personal relationship to settlors or beneficiaries, defeating rights conferred by 100 reservation of powers 76–82 sham doctrine 245 tax, reimbursement of 58–59 Trusts Law 2007 70 wishes of 77, 142, 160, 161, 186, 218, 251, 262 severance of joint ownership 43 sham doctrine 241–6 beneficial ownership 241, 245 breach of trust 244–5 Code of Practice 246 consequences 245–6 definition 241 discretionary trusts 246 dishonest assistance 246 donner et retenir ne vaut maxim 248 Esteem case 248 external evidence 243 fees 246 knowing receipt 246 letters of wishes 242 matrimonial proceedings 242–3 Minwalla 242–3 motive as not relevant 244 necessary intention 243–4 neutrality of trustees 246 professional trustees 246 proper law 245 Red Cross or blind trusts 163 reliance on the sham 244–5 settlors, property as belonging beneficially to 245 subsequent conduct 243 trustees, consequences for 246 share option schemes 60 share transfers 92 skill and care 73, 154
358 Index specific performance 42 spendthrift provisions see protective trusts and spendthrift provisions standard forms 120, 160–2, 177 standard of care 145 standard of proof 275–6 standing beneficiaries 164 directions 215–16 enforcers of purpose trusts 38 general powers of the court 216 protectors 193 rectification on grounds of mistake 271 rescission on grounds of mistake 271 trustees 7 stamp duty 48 statute law authorities, hierarchy of 14 family trusts 2–5 growing use and statutory recognition of trusts in 20th century 7 STEP members 161 strict liability for acts of delegates 145 subordination of debts 147 substratum of original trusts, maintaining 261 sub-trusts 166 Succession Law 1840 2–3, 16, 23 Succession Law 1890 16–19, 23 analysis of the 1890 trust 18 family trusts 3–4 Fidéicommis as a trust 17–18 Fidéicommis, history of the 17 income beneficiary, death of 18 termination of an 1890 trust 19 Trust Law 2007 to an 1890 trust, application of 18–19 variation of an 1890 trust 19 successor trustees 119–20 sue and compromise, power to 143–4 Surinam 95 tainting 54 taxation 6–7, 48–60 accumulation and maintenance trusts 272–3 apportionment 49 avoidance 74, 278 capital gains 48, 51–6, 259, 267–8, 268 charities 59–60 discretionary trusts 272–3 Dwellings Profits Tax (Amendment) (Guernsey) Law, 1983 6–7
employee benefit trusts 60 enforceability of another state’s revenue law 51–5 estate duties 48 foreign states, liabilities enforced by 53–9 gifts 48 growing use and statutory recognition of trusts in 20th century 6–7 Guernsey Financial Services Commission (GSFC) 48 Hastings-Bass, rule in 281, 282 income tax 48–50 inheritance 48 liabilities 48–55 more than one settlor, where there is 50 negligent advice 274 public policy 273 rates 48 rectification on grounds of mistake 272–4 rescission on grounds of mistake 278 resident beneficiaries, concessions for trusts with no 49 resident settlors 50 returns 48 right of recovery under UK tax law 51, 52–8 stamp duty on issue, transfer or redemption of shares 48 sub-funds 50 UK-Guernsey Double Tax Agreement 55–6 unit trusts 60 variation of trusts 259, 261, 267–8 termination of trusts 82–4 1890 trusts 19 bankruptcy 166 bare trusts 83 beneficiaries 166 black hole trusts 83 commercial purpose 83–4 disclosure 170 discretionary trusts 83 distribution 143 duties of trustees 143 fees 121–2 letters of wishes 153 occupation, rights of 62 outgoing trustees, duties of 143 perpetuities 71 proper law 86 protective trusts and spendthrift provisions 166–7 reasonable security for liabilities 143 Saunders v Vautier, rule in 83 third parties 83
Index 359 third parties 125–9 anti-money laundering 180–1 Beddoe applications 228 breach of trust claims 126 common law 128 confidentiality 171 disclosure 171, 180–2 drafting issues 127 indemnities 126–7 judicious encouragement 251 payment or advance of money to trustees 129 personal liabilities 125–6 protection of persons dealing with trustees 128 termination of trusts 83 trustees 125–9 time limits see prescription and limitation periods trust corporations see corporate trustees trust, definition of 61, 62 trust instruments disclosure 169 explain terms of trust instruments, duty to 161–2 negligence in preparation 274, 276 new or additional trustees, appointment of 102 rectification on grounds of mistake 274, 276 variation of trusts 257, 265 trust official, definition of 184 trust service providers (TSPs) 140–1, 207, 286, 290 trustees 10, 101–32 see also corporate trustees; duties of trustees; powers of trustees; trustees de son tort 124–5 see also ratification and confirmation of invalid acts; professionals; remove trustees, power to; remuneration of trustees approval of trustees’ actions 220–7 bare trustees 215 costs 232 co-trustees, liability for acts and defaults 156–7 court, appointment and removal by 114–18 de son tort, trustees 62, 124–5 disclaimer of trusteeships 106–7 expenses 122–4 former trustees and creditors, trustees’ duties to 132 insolvent trusts 129–32 insufficient trustees, effect of there being 101
knowing receipt 246 last remaining trustees 102, 103 new or additional trustees, appointment of 102–5, 247 number of trustees 101, 106 outgoing trustees, duties of 108–14 personal liability, power to relieve trustees from 58, 155 previous trustees, breaches by 157 prospective trustees, duties of 160–2 remuneration 118–22 resignation 107 sham doctrine, consequences for trustees 246 sole trustees 101 standing 7 third parties 125–9 two trustees as default 101 vesting of property in new trustees 106 will trusts 287 Trusts (Amendment) (Guernsey) Law, 1990 12–13 Trusts (Guernsey) Law 1989 9–13 amendment 12–13 application 12–13 background 1, 9–10 beneficiaries, rights and remedies of 10 charitable trusts 22–3, 33, 62 codification 12–13 constructive trusts 40, 43, 47 disclosure 168–9 donner et retenir ne vaut maxim 247 entry into force 12 foreign trusts 71 land/real property 22–3 perpetuities 71 proposals 9–11 real property 9 reasons for enactment 10–11 remuneration 120 savings provisions 23 section 70, interpretation of 12 supervisory powers of Guernsey Court 10 trustees, position of 10 variation of trusts 259 Trusts (Guernsey) Law, 2007 11–12, 13–14, 298–338 1890 trusts, application to 18–19 2008, March 17, before 13–14 alternative dispute resolution (ADR) 239–40 ante-nuptial and post-nuptial settlements 97
360 Index application and amendment 13–14 appointment, power of 151–2 beneficiaries 163 breach of trust 153–60, 239 charitable trusts 29, 30, 31 constructive trusts 41–2, 47 cy-près doctrine 31 data protection 178–9 directions 214–15 disclosure to co-trustees 139–40 duties of trustees 133, 136 employee benefit trusts 39 entry into force 13 firewall provisions 97 foreign law, exclusion of 98–9 foreign trusts 71, 93 general powers of the court 217–19 impartiality 142 importance of previous law 12 indemnities 111 investments 209 land/real property 22 perpetuities 71 power of trustees 143–6 prescription and limitation periods 235–8 proper law 86 protectors 184–5, 193 purpose trusts 33–5, 37, 38, 62 recognition and enforcement of foreign judgments 97 remove trustees, power to 115 remuneration 118–19 reservation of powers by settlors 79 resignation of enforcer 37 resulting trusts 40 rights, claims or interests 100 saisie 21 settlors 70 Succession Law 1890 3–4 termination of trusts 84 third parties 126–8 three certainties 63 Trusts Law 1989 12–13 validity and enforceability of trusts 72–5 variation of trusts 257–60, 263, 269 unascertained but existing persons 264 unborn beneficiaries see minors or unborn beneficiaries unconscionability 276–8, 283 undue influence 73
unit trusts 39, 60 unfitness to act 36 utmost good faith 133, 146 validity and enforceability of trusts 72–5 creation of trusts 72 declarations 217 duress 73 fiduciaries 73 foreign proceedings 171 fraud 73 immorality 74 incapacity 75 lifetime trusts 76–7 misrepresentation 73 mistake 73 partial invalidity 75 proper law 86 public policy 74 reservation of powers by settlors 76–7, 80–1 uncertainty 74–5 undue influence 73 value of trust property, duty to preserve and enhance 195–6, 202–3 variation of trusts 257–69 see also variation of trusts in foreign matrimonial proceedings 1890 trusts 19 add beneficiaries, power to 267–8 administrative powers 259, 260, 269 advancement, powers of 258 agreement of all beneficiaries 257, 258–9, 269 alteration distinguished 99–100 amendment, powers of 258 appointment, powers of 258, 262 arrangement, definition of 260 beneficiaries, variation by 257, 258–9, 269 benefit, requirement for 265–8 charitable trusts 32–3 consent 99–100 court, by the 7, 257, 259–69 cy-près doctrine 259 directions 99 dispositive powers 259, 269 domicile 263 employee benefit trusts 258 enlargement of administration or management powers 260 European Convention on Human Rights 262
Index 361 express terms 257–8 foreign matrimonial proceedings 214 found, persons who cannot be 265 guardians, appointment of 263 inherent jurisdiction of court 259 jurisdiction 259–60, 265, 269 legal disability, persons under a 263 management, enlarging or modifying powers of 260 may become entitled to an interest, persons who 264 mental capacity 263 minors or unborn beneficiaries 99, 259, 261, 263–4, 267 Orders in Council, exclusion of trusts created by 269 other persons 265 proper law 87 protective trusts 262, 264–5 purpose trusts 38 reinstatement of beneficiaries 259 remuneration of trustees 259 resettlements 259, 261, 268 Saunders v Vautier, rule in 258–9 tax consequences 259, 261, 267–8 termination of beneficiaries’ interests 265 trust instruments 257, 265, 268 unascertained but existing persons 264 variation of trusts in foreign matrimonial proceedings 249–56 ante-nuptial and post-nuptial settlements 251, 253 concealment 254–5 confidentiality 255 directions 99 disclosure 254–6 discretionary trusts 251, 252 divorces 249–51 domicile 250 exclusive jurisdiction clauses 253–4 financial resources, regard to 251 habitual residence 250 information gathering 254–6 judicious encouragement to third parties 251
jurisdiction of foreign court, whether trustees should submit to 252 letters of request 255 marriage settlements, definition of 250 Matrimonial Causes (Guernsey) Law, 1939 250 Minwalla case 256 power to vary trusts 251 pressure through beneficiaries, exerting 251 recognition and enforcement of foreign judgments 252–4 sufficient connection to Guernsey 249–50 vicarious liability 114, 146 water companies 27–8 wilful misconduct 111, 122, 158, 190 wills 2012, 2 April, wills executed before 22 charitable trusts 24 Davis, Norman Francis (deceased), Re 24 en fin et perpétuité d’heritage, conditions restraining alienation of property as repugnant to estates 25 fraud 76–7 Inheritance Law 1954, restrictions under 24–5 intention 25 land/real property 24–5 Succession Law 1840 16 Succession Law 1890 16 trustees 287 use of trusts 5 without prejudice privilege 225–6 writing constructive trusts 36, 71 creation of a trust 70 disclosure 173 implied trusts 71 land/real property 36, 40, 46 powers of attorney 147 rectification on grounds of mistake 271 resulting trusts 71
362