Finding a purpose

  • Author : Steve Meiklejohn
  • Date : April 2013
ABOUT THE AUTHOR: Steve Meiklejohn TEP is a Partner at Ogier in Jersey

The Trusts (Amendment No. 5) (Jersey) Law 2012, which came into force on 2 November 2012, has made further enhancements to the Trusts (Jersey) Law 1984 (the Trusts Law). More amendments are in prospect, and a brief mention of these is included in this article.

New definition of ‘purpose’

Jersey introduced the concept of the non-charitable purpose trust in 1997. This type of purpose trust has proved popular as an alternative to the charitable trust for the purpose of holding corporate entities, such as private trust or private protector companies. The accepted view of such purpose trusts was that the purpose needed to be external to the trust and could not simply be to hold the relevant shares in the underlying company. This often created a need to have a purpose that was wider than the settlor (or indeed the trustees) actually wanted. Amendment No. 5 introduced a definition of ‘purpose’ for the first time, which includes the acquisition, holding, management or disposal of property, and accordingly ‘ownership only’ purpose trusts (i.e. trusts to merely hold shares) are now permitted.

However, notwithstanding the change, care needs to be taken when drafting the purposes. Invariably the company to be owned by the trust will be intended to perform a service or engage in some activity. In my view, it is sensible and logical for the purposes of the trust to embrace that service or activity. Apart from anything else, if a foreign court were to consider the terms of the trust, a more extended purpose (particularly one that was external to the trust itself) would make the trust more robust.

Protection from foreign interference

Article 9 of the Trusts Law, introduced by Amendment No. 4 in 2006, contains provisions that protect Jersey trusts from attacks by foreign courts. Since that amendment, the Royal Court has delivered a helpful judgment in the case of Mubarak v Mubarak [2008] JLR 250 by confirming that a judgment of an overseas court that purports to alter (i.e. do something the trustee itself could not do) a Jersey trust cannot be enforced by the Royal Court.

Building on that decision, Amendment No. 5 has clarified and taken account of observations made by commentators and has sought to improve the Article. The changes are:

  • An extension to Article 9(1), which sets out the matters that must be determined in accordance with Jersey law and not by foreign law (the validity of the trust, for instance), including, first, any exercise by a foreign court of a statutory or non-statutory power to vary the terms of the trust, and, second, the nature and extent of any beneficial rights or interests in the property.
  • The creation of a new Article 9(2A), which sensibly makes clear that there are limits to the protection Article 9 can give. The protection of Article 9 cannot:

i) validate a transfer of property that was neither owned by the settlor nor the subject of a power of disposition vested in the settlor

ii) affect the recognition of the law of any other jurisdiction in determining the questions at (i)

iii) displace express provisions to the contrary in the terms of the trust

iv) in determining the capacity of a corporation, affect the recognition of the law of its place of incorporation

v) affect the recognition of the law of any other jurisdiction prescribing the formalities for the disposition of property

vi) validate any trust or disposition of immovable property situated in a jurisdiction other than Jersey that is invalid under the law of that jurisdiction; or

vii) validate any testamentary disposition that is invalid under the law of the testator’s domicile at the time of his death.

Amendment No. 5 restates the restrictions in Article 9(4) on the enforcement of foreign judgments to include, explicitly, other decisions of foreign tribunals (such as arbitration awards). The amendment also seeks to prevent the court from giving effect in Jersey (whether or not by enforcement) to such foreign court or tribunal decisions. In addition, the definition of ‘personal relationship’ in Article 9(6) is widened to explicitly include relationships with beneficiaries.

‘Protector’ defined

An amendment to Article 9A of the Trusts Law has the effect of defining a ‘protector’ by replacing that expression (which was used in Article 9A, but was previously undefined) with a reference to a person (other than a trustee, enforcer or beneficiary) who holds a power, discretion or right in connection with a trust.

Remuneration of professional trustees

Before Amendment No. 5, Article 26 of the Trusts Law provided that unless a trustee was so authorised by the terms of the trust, the written consent of the beneficiaries or an order of the Court, the trustees would not be entitled to remuneration for its services. The amendment to Article 26(1) applies to professional trustees only and provides that, where the trust deed is silent as to remuneration, a professional trustee is entitled to reasonable remuneration for its services, but only for services provided after Amendment No. 5 came into force.

A ‘professional trustee’ is defined as a trustee that is registered under Article 9 of the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission and that operates within that law.

Trustees transacting with themselves on behalf of different trusts

Often a professional trustee transacts with itself as trustee of different trusts. However, before Amendment No. 5, it had not been certain, in Jersey law, whether a person acting as trustee of one trust could contract with themselves in their capacity as trustee of another trust. Article 31 now expressly allows a person to so contract. While the provision clarifies this issue and enables trustees to enter commercial arrangements between connected trusts, trustees need to be mindful of their duties not to place themselves in positions of conflict. Therefore, in the event of contention, where a conflict exists, the trustee needs to act to deal with it, which at a minimum will include taking legal advice.

Position of outgoing trustee

Amendment No. 5 gives an outgoing trustee a right to enforce a term of a contract providing reasonable security against liabilities (i.e. indemnities), even though not a party to the contract. This change is welcome. In relation to retirement of trustees, and notwithstanding the existence of the privity of contract rule in Jersey, if an indemnity must be provided to previous trustees (in addition to the trustee who is retiring) it is now possible for indemnities to be given in favour of those former trustees, even though they will not be parties to the deed. The new provision makes clear that the deed must expressly provide that the trustee, in their own right, can enforce the terms in their favour, or the deed must seek to confer a benefit on the trustee. In either case, the deed must expressly identify the trustee.

Limitation of actions or prescription

Article 57 of the Trusts Law remains untouched as regards the provision that no period of limitation applies to claims against trustees based on fraud or seeking to recover trust property from the trust. The time limits for beneficiary, enforcer or new trustee actions also remain unchanged. However, Amendment No. 5 has clarified that where the beneficiary is a minor or an interdict, or is under any other legal disability, the time periods do not begin to run until the beneficiary ceases to be a minor or an interdict, or be under that other disability, or sooner dies.

The other welcome change is a provision that (subject to fraud or recovery of trust property claims) actions are time-barred 21 years after the date of the alleged breach of trust. This provision provides certainty to trustees. It is also now expressly provided that Article 57 does not apply to foreign trusts whose proper law is the law of a jurisdiction to which the Convention on the Law applicable to Trusts and on their Recognition, signed at the Hague on 20 October 1984, extends.

Comment on Amendment No. 5 and looking ahead

In my view, the changes introduced by Amendment No. 5 are extremely helpful. In particular, the possibility of creating ‘ownership only’ purpose trusts, the clarification in respect of trustees contracting with themselves, the 21-year-long stop on actions against trustees, the ability for trustees to enforce covenants in their favour when they are not parties to the deed, and the provision allowing trustees reasonable remuneration where deeds are silent on the subject, all improve the Trusts Law.

What, then, lies ahead for possible future amendments? Despite the curtailment of the wide application of the Hastings-Bass rule under English law, Jersey is considering introducing an amendment to expressly enshrine the Hastings-Bass rule in the Trusts Law, and it is anticipated that this will be the main focus of Amendment No. 6. In Jersey, the Royal Court has consistently adopted the Hastings-Bass principle in appropriate cases and has had a much clearer test when considering remedies for mistake than in England. Given the importance of the trusts industry in Jersey and the attractiveness for settlors and beneficiaries as well as trustees of the Royal Court’s regime in this area, the industry would welcome the affirmation of the Jersey approach by expressly including it in the Trusts Law. In addition, the Trusts Law Working Party is considering further clarification of Article 9A (in relation to reserved powers), Article 38 (to re-order the duty of the trustee so that the fallback is to accumulate undistributed income and add it to capital, as opposed to the current fallback, which is to distribute it), and Article 29 (in respect of beneficiaries’ rights to information).


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