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).